July 5, 2016

Many agricultural producers, like myself, have come to the realization that we do not need to own the land we work. In today’s capital-intensive agricultural operating environment, our Balance Sheets can be significantly strengthened by reducing long-term debt associated with land ownership. We can re-deploy our capital traditionally tied-up in land ownership into other income-producing assets, such as high-tech farm equipment that adds significant productivity and efficiency to our operations with an aim toward more bottom-line profit.

Farmland has been a very popular investment by outside investors, especially during the run-up in farmland values over the last decade. In many cases, the previous farmland owner has continued to be the farm operator. On the other hand, ranch land has been less popular from an outside investor standpoint. This surprises me for a couple of reasons. First of all, the run-up in ranch land values has been much less volatile than agricultural land. In fact, ranch land in western Nebraska, where I am located, has continued its slow, steady appreciation in value, despite the major collapse in commodity prices that is negatively affecting local farmland values. The cost per acre to own ranch land is also significantly less than farm land, so small fluctuations in the price of ranch land have much less impact on ranch land value on a “per acre” basis. Secondly, the Return-On-Investment (ROI) available to outside investors for a ranch land investment is very similar to that available for farmland, without the volatility we have witnessed in recent months with farmland values.

I would like to offer an additional twist to ranch land ownership for outside investors. Why not own the breeding livestock that populates the ranch you are investing in? High-quality breeding livestock, consisting of mature mother cows and bulls are expensive with reputation cows costing in excess of $2,000 per head and purebred bulls costing over $5,000 per head….but they are depreciable over a seven-year period, adding greatly to the overall return on investment available from ranch land ownership. For example, a typical western Nebraska ranch consisting of 5,000 acres can carry over 300 cows that will require 15 herd bulls to ensure proper breeding…easily a million dollars of depreciable assets in today’s market.

This cow herd can be leased back to the ranch operator (tenant) for similar returns as the land, plus it provides the benefit of owning a depreciable asset. Ownership of the calf crop is retained by the tenant, who in turn pays an annual cash lease payment to the ranch land owner. The care and maintenance of the cow herd is also the responsibility of the tenant. The tenant is also responsible for replacement cattle as cows and bulls mature and are culled. Deterioration in the quality of the herd should not be a problem, as the tenant, who relies on a high rate of calving success, is motivated to maintain quality in order to be profitable. It is clearly in the tenant’s best interest to maintain herd quality.

I contend a ranch land investment is safer because ranch land prices are less volatile and offer a similar ROI to farmland ownership. Purchasing the breeding livestock with the ranch, and leasing the herd back to the tenant, provides an even better return than just a ranch land investment due to the exceptional depreciation opportunities available for breeding livestock ownership.

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Owen Palm – CEO – founded 21^st Century Equipment Company, LLC in 1996. He was the CEO of the Western Sugar Company until 2000 and the regional manager of Schlumberger Ltd. from 1978-1987. Owen received a B.S. degree in Geological Engineering from South Dakota School of Mines in 1975.

Owen can be reached at:

-o- 308-203-1322

-c- 308-631-0082                                                                                   

-e- OPalm@21stCenturyEquip.com

Or contact Jeff Johannesmeyer at:

402-496-0398 office

402-657-3901 mobile

jeffj4@cox.net