Before Selling Your Farmland

(Mykel) When a farmer is trying to decide whether or not to let a piece of land go, they have to take a really strong look at their cost of production and what their expectations are for crop prices going forward. And try to figure out whether or not they can make that piece of land cover their variable cost of production, like their inputs, their labor and their machinery. And then they also have to look at a more long run situation. If they think that their crop price situation right now, which is not very good, is a short run phenomenon and they can make sure that they have enough working capital to get through the next year or two, then that’s something that can keep them from having to let go of that lease and they can still maintain their operation size. As part of your overall business plan and what you’re trying to accomplish in terms of either growing your operation or maybe transitioning it to the next generation, that’s being based on the size of your operation and your plans for going forward. And so again letting go of that land, if you’re not going to get it back, can have big ramifications for how you proceed with the next five to ten years of your operation’s business plan. There are times when letting go of land is the best option. And that can simply be a result of, if you bought land say three years ago, you financed it and even if you put some money down on it, if your payments are higher than you are going to be able to cover even in the short run, even in the next year or two, you might be facing the difference between letting go of that land, or simply going out of business all together. And so yes, there are definitely times when you let go of that land. Most farmers are obviously going to let go of leases before they choose to sell ground because if you own that ground, that gives you a base of collateral for lending purposes, so you can get money to operate with. So leased ground would be the first to go. And most farmers will sit and look at the productivity of different pieces of ground and they’re gonna let go of their least productive ground first. We are definitely facing a situation right now that is a contraction in the farm economy, especially on the crop side. Things are kind of tight and a lot of people are going to have to batten down the hatches in terms of being more conservative with their spending over the next couple of years and taking a look at where they’re spending their money and where they’re trying to gain efficiencies and be as strategic as they can with the choices that they make.

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