12/19/2024 Buy Farms or Collect Interest?

When speaking at the December Farm News outlook meeting in Fort Dodge a subscriber came up to me to share his financial calculation on a farm that had just sold for $18,000 acre. He owns land and has cash in CDs so could buy more. 80 acres at that price costs $1,440,000. He thought that he could get $350 acre cash rent which would be $28,000. I would expect cash rents will reset lower soon as well. CD rates have come down a little but using 4.5%, the principle spent on that farm would earn $64,800 in interest. That means that given cash rent, taxes and insurance… cash in the bank would earn twice the return of a farm at current values. Farm operations are currently unprofitable so there is nothing to pick up to add there either. I would not bet on cash rent staying at current levels but think that interest rates will stay up. The subscriber was in no hurry to buy more farmland at this time, content to collect interest. He also owns stocks but was in the Warren Buffet camp on that investment class too. If you have to borrow money to buy a farm…