The heirs to 400 acres 3 miles away will sell land at auction after harvest. Buildings were sold off earlier. It is 370 tillable acres with 30 acres of woods harvested in 2007. It’s good land, and all but 70 acres is pattern-tiled. We have fields a half-mile away. If bids go to $12,000 per acre or higher, how do we justify buying something that may not cash-flow? How high should we bid?

The Profit Planners panel includes David Erickson, farmer, Altona, Ill.; Mark Evans, Purdue Extension educator, Putnam County, Ind.; Jim Luzar, retired Purdue Extension educator and landowner, Greencastle, Ind.; and Steve Myers, farm manager with Busey Ag Resources, LeRoy, Ill.

Erickson: Based on your written description, I have no idea what it’s worth, nor do I know how much you can reasonably bid. Most farmland purchases don’t provide enough operating income to pay for themselves. Look at the ability of that land to produce enough income so the shortfall to meet debt payments can be met with other income. So, can you cash-flow this purchase with your existing income plus income from the purchase property?

Evans: Discuss this with your lender and determine where your ability lies. Consider your risk tolerance, as well as the value of having land adjacent to your operation. Fully analyze timberland and consider property tax benefits of classified forest programs in your state. Seek advice from a consulting forester.

Bidding is tough because emotion can catch you. You likely won’t have the chance to pick up this ground again soon. However, don’t back yourself into a corner financially. Given the current environment, with not much downward pressure on land values, you may feel better about such an investment. If interest rates remain low, perhaps you can lock in a good, fixed rate.

Luzar: This may be one of the most significant decisions ever for your farm. Do your homework with purpose. Start with family team members and hold sincere discussions. Buying land may or may not be consistent with the farm’s growth strategy. For example, renting more land may be more desirable to some members while focusing on lessening debt considerations.

If your family is onboard, crunch numbers to determine cash-flow implications, solvency issues and more. Your financial advisory team should review your financial analysis to ensure it is realistic.

Double-check the timber tract to see if there is anything out of the ordinary regarding value. Does the land have value for development? Potential for wind or solar? These concerns could impact demand.

There may be bidders who have 1031 exchange funds, a pile of cash or some irrational desire to purchase no matter the cost. All you can do is have a number you’re comfortable with and bid accordingly.

Myers: Only you can answer how high should you bid. Expansion purchases are always individualized. The dollars per acre number of what a farm is worth is but one piece of the puzzle. Get your team together, meaning banker, accountant and farmland expert, such as a professional farm manager or broker. See the entire picture, as this type of commitment will have long-lasting repercussions that may be either positive or negative. Build your base of knowledge. Market conditions can and will change. When the day arrives, you will be ready to act decisively, no matter the response.