Before Investing in Outside Ventures, Several Factors Farmers Should Consider

Audio provided as a service to farm broadcasters by the Agricultural Marketing Resource Center.

Audio with Don Hofstrand, Iowa State University Ag Economist.

Suggested Lead: Iowa State University Ag Economist Don Hofstrand says the nation’s farmers have had many opportunities to invest in outside business ventures in recent decades. The most common opportunities in the recent past have been ethanol and biodiesel businesses. But Hofstrand says opportunities have ranged from meat packing facilities to pasta plants to egg-laying facilities to ammonia fertilizer production. The decision of whether or not to participate – he says – is an important one. That’s why he has determined seven factors to consider when looking into an outside investment in an agricultural business venture.

First – Hofstrand encourages farmers to determine how much they can afford to lose. He suggests assessing the impact the loss would have on the farm business and the family – and advises never to use an investment to try to make up for a financial deficit in the farm business.

Second – Hofstrand says it’s important to assess the potential for business success…tape

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But when considering the opportunity – Hofstrand says not to forget your own farm business. Will the financial payoff be greater by investing in an outside business venture rather than investing in the home farm operation? That’s a question that needs an answer. Hofstrand tells farmers to thoroughly assess the investment needs of their own farm business before considering an outside investment…tape

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If the decision is to invest in an outside business – because many of the opportunities involve agribusinesses – Hofstrand says the investment could impact the farm by creating new markets or better markets for the farm’s products. It could also lower a farm’s financial risk by diversifying income sources – or could even act as a type of hedge against low commodity prices. Hofstrand says these are all things to consider. He says it’s good to know how the investment will impact the farm business.

But don’t forget the risks associated with an investment in an outside business venture. Hofstrand says farmers need to assess the relationship between risk and returns. He says that plays an important role in the investment decision…tape

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Finally – Hofstrand says there are too more things to consider. He says farmers should look at the proposed business model – and what that means for the form of payoff from the investment – and whether or not they can sell their investment…tape

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As Hofstrand mentioned – there are resources to help farmers with investment decisions online. Visit www dot agmrc dot org (www.agmrc.org) and click on the “Business Development” link.

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