The Risk Of Selling The Farm: Part 1

I just finished my 18^th year lecturing at the Graduate School of Banking at Louisiana State University (LSU). This year we had 600 plus bankers from the U.S. and Mexico that spent two weeks engaged in intense education. In the evening I play hoops with some of the youngsters, and at my age they are all younger.

After an intense evening on the court, one of the students in my class from Tennessee asked an interesting question. Many of his producers are selling their land for development or to other farmers because of the red-hot land prices. He asked me to identify some of the pitfalls they might encounter. Here is my response to this excellent question.

• Make sure producers understand current and future business, family and personal goals. Yes, a windfall of money and economic security is nice; however, after the financial glow wears off, how will it impact the family legacy, the memories and the non-financial enjoyment that may have come from the land?
• Will the sale of the land provide sufficient income? One must consider how the proceeds will be invested and what risk you want to take. Don’t forget the reduction of buying power because of inflation. For example, $1 million invested at 8% return will provide $80,000 in today’s dollars, but with 4% inflation, the buying power is cut in half in approximately 18-20 years.

Next time we will explore this subject deeper.

Side Note
Bankers at the school were telling me that they are seeing an increase in women producers requesting credit for organic and value-added agricultural ventures.

Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.