Softening farmland prices have me wondering if I should consider selling off some ground that isn't close to our home operation before land prices really tumble. Returns on the current market value don't look very good. But the ground is still profitable to farm based on the price I paid for it. What price for the land should I use when figuring its return — cost or market? — R.M., Louisiana
There's a lot of factors here, but to keep it simple, the decision to sell land is different for an owner than one who is owner and operator.
If you are convinced of a 1980s land value correction, your asset sale or trade has merit. Cost and market value should both be used depending on your objectives and the viability of alternative investments.
If you're considering liquidation, compare the rate of return of rental income with the risk-adjusted return you expect on a viable alternative investment. Diversification is smart unless you give up too much return or incur too much risk.
The owner-operator should probably lean more toward analyzing the operating return to land cost, while the owner-landlord would also add the expected market value capital gain or loss to the analysis.
Remember that staying with investments where you know the business well has an intangible value that can't be ignored.
Jerry and Jason Moss operate Moss Family Farms Inc., a first-generation corn and contract hog operations in western Illinois. Have a question for Manager's Notebook? Send emails to email@example.com. All published questions will be printed as confidential.