Dear Mr. Farmland Investor:

If you’re thinking about investing in agricultural land, you should think long and hard. 

Right now, investors are looking at several farm-related opportunities. In some respects, these investments are lucrative. On the other hand, they may be setting us up for a 1980s flashback — a trip back into one of the most painful periods of U.S. farming history.

Remember the 1980s movie sensation “Back to the Future?”  Let’s hope it’s not the 1980s.

Agricultural farmland investment can be profitable. However, it’s also risky and should be carefully considered.

Farmland Ownership

In the view of some, farmland ownership offers a host of opportunities — or does it?

That all depends on several factors — what’s produced, whether the farm has government program base acreages, it’s location, and, most important of all, whether there is any competition for renting the land.

Other factors must be considered too. For example, is the land associated with livestock or row crops?  Each has its own risks and rewards.  Both, during certain times, face tremendous market volatility. In some cases, cropland tied in with fruit and vegetable production offers lucrative opportunities.  But returns can be high or low, depending on the vagaries of the weather and markets. Droughts, floods, tornadoes and, in the case of Southeastern farming, hurricanes are risks faced by farmers.

How does one make money as a farmland owner?

Farmland owners have the option of renting on a cash-rent or crop-share basis, though cash rent remains the most reliable revenue source. Crop-share arrangements are riskier because the owner, along with the producer, must bear any production shortfalls that may occur due to weather or other risks.

Also remember that on a crop sharing arrangement it’s the owner’s responsibility to store and sell his or her share of the crop. Sometimes it’s better to store a couple of months; sometimes it’s better to sell right away. In any case, the owner bears the risk of marketing the crop. Farm cash rent payments are a possibility, but has its risks too.