The Impact of Farmland Investments on Operational Expenses

This is Tim Hammerich of the Ag Information Network with your Farm of the Future Report.

In production agriculture, farmers are often “pulling from the same pot” so to speak, when it comes to paying operational expenses and making investments in your business. Kyle Mehmen, partner at MBS Family Farms says as a farmer, it's crucial not to confuse investment strategy with operational strategy.

Mehmen... "Operationally, I have growth strategy, things that we're trying to do all the time and that, but, but purchasing property is really part of my investment strategy is what I do with the profits from operating. And I think that gets confused sometimes. I think it's just as important to differentiate between the two because one is very much a capital decision and one is very much an operational decision."

This is especially important with farmland investment, Mehmen says.

Mehmen... "Let's give an example. Maybe I'm renting a farm from Ben and I've been renting that farm from Ben for 20 years. And Ben says, you know what? It's time for me to sell this farm. Kyle, would you like to buy it? I say, absolutely Ben. How much would you like to sell for? We get together, and I do a deal. Operationally, that's the worst deal that I can do because I was renting that farm and making a profit on it before I decided to buy it and make it where it couldn't make its own payments. So now it's actually a cashflow drag rather than a cashflow positive because I already farmed it."

Mehmen grows corn and soybeans on his family’s farm in Iowa.