Unfavorable Circumstances: Part 1
I was asked an interesting question by one of the trainees in the Farm Credit University blended education class for agrilenders.
Which unfavorable circumstance poses the largest threat to the United States’ ability to be a low cost agricultural producer in a global marketplace?
- High energy and input cost
- Increasing land values
- 2007 Farm Bill
- Rising interest rates
- Immigration reform
This is a great question. Here is my response.
The high and increasing land values would rank number one, particularly as a fixed cost. Land is usually the largest asset on a producer’s balance sheet. Much of the value and rental or crop share arrangement costs are influenced by factors other than agricultural value. These include development pressures or recreational use in many areas of the country.
Land value and cost has been influenced by the 1031 tax exchanges. Many trades are inflated paper wealth built up by appreciation for other opportunities. Finally, land cost may be influenced by the prospects of alternative energy, which is a value added opportunity, increasing the value beyond normal commodity return value.
Next time we will examine the other influences.
The Road Warrior of Agriculture
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Editors' 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.
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