Productive ag land is one of the most stable investments you can make. If you make sure the property is economically viable. What constitutes viability to a investor?
First, we will examine A example of a 640-acre old homestead in Wyoming. In most of the state you can only raise about 20 cows on a section of land due to the dry climate. This prevents economies of scale from kicking in and assisting our operation. Now that we have established that a family can’t make a living from such a small herd, we begin thinking that we should rent the land.
This same small scale is going to limit the potential operators to adjoining landowners because it is not economically feasible to send a ranch hand very far to tend such a small herd.
On the opposite end of the spectrum we can examine a 2000-acre ranch in the Kansas blue stem region. With a animal carrying capacity of about 450 head on year round grazing. This operation with proper management should be able to afford to hire a top-quality manager and still make 4% return for the owner. Of course, if he chooses to run his own herd, he can save the cost of a manager. Thus showing profits of 7 to 10 percent.
This second example is economically viable whether you are doing it all yourself or just want a profitable investment. The former example will require off farm work to support a homestead because there is not enough cash to keep the operation going or it will be rented to a neighbor for below market rates leaving little or no profit after taxes and fence repairs are factored in.
This is just one facet of the things you must consider before purchasing rural property with the intent of earning a profit.
Tim Hadley ALC