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Corn+Soybean Digest

Want A 15% ROA? Invest In Agriculture

The Road Warrior Of Agriculture

In our office it seems that Alicia and I get about 10 calls a week from people who want us to invest in industries ranging from energy to motion pictures. While these industries are intriguing, when I mention I work and invest in the industry of agriculture, many laugh like it’s the Rodney Dangerfield sector that gets “no respect.”

Let’s examine some recent farm benchmark data summarized by the Minnesota Community and Technical Colleges that is standardized by the FinPack analysis system. This data is benchmarked on over 2000 farms in Minnesota.

When examining rate of return on assets (net income/total assets) one finds some intriguing results. Calculating rate of return on assets on a cost basis similar to business financials, the top 20% of producers earned an average ROA of 15%. Granted, many of these individuals rented and leased their assets, which lowered the denominator. One can’t dispute that these businesses had very comparable returns to Wall Street and other commercial business models.

It is intriguing that for the past 12 years returns have exceeded 10% every year for the top 20% of producers. It would appear that the Rodney Dangerfield of industries is due for some respect, particularly if it’s a well-managed business.

Editor’s 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. He can be reached at [email protected]

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