Posted 11/27/2015 11:01 (#4922001) Subject: Return on equity as a farming operation matures
East Arkansas
I have been messing around with spreadsheet projections on a slow day and have a question for producers in their 50's and 60's who have done well and paid back much of what was borrowed years ago.
My return on equity the past few years has been anywhere from 15-30%...this is easy to achieve with good prices and borrowed money. Too much borrowed money and the risk of default occurs but not enough borrowed money and the return goes to nothing. When looking out another 10-15 years and making the assumption that I am farming the same acres and in a position to merely update equipment my ROE goes down to nearly 5%....taxes eat up a lot of profit because equipment upgrade costs go down if not expanding.
What are you guys seeing who have profitable mature businesses? Are you investing in new sidelines like bulk fertilize plants, grain storage, trucking, or other profit centers? What am I missing and if I am not missing anything what makes someone continue with 5% ROE?
Return on equity as a farming operation matures
