Farm management AGEC 325 (with Complete Solutions)

What has happened to farm land values recently? correct answers - inflationary effect has been significant - real value hasn't changed much, only a slight upward (increasing) trend What makes land unique? correct answers - permanent resource that doesn't depreciate (unless you don't take care of it) -it is immobile - supply of land is fixed, so land prices are sensitive to changes in demand Trend of annual change in US farmland values correct answers - upward trend in the 70s-80s - decrease from 80s-90s - increase from 90s-2005 - drop off in 2009 What decisions must be made when controlling land? correct answers - How much land to control ( - How to acquire it (think in terms of control) How can control be achieved? correct answers ownership or leasing (nearly half of US farmland is leased) Advantages of Ownership correct answers 1. Security of tenure (don't have to worry) 2. Loan collateral 3. Management independence and freedom (when people lease land, sometimes they still control what you do with the land) 4. Hedge against inflation 5. Pride of ownership Disadvantages of Ownership correct answers 1. Cash flow (if you own it, you have to pay for it) 2. Lower return on capital ( 3. Less working capital (if money is spent on your land) 4. Size limits (if you buy land, you probably can't buy as much as you could borrow) Advantages of Leasing correct answers 1. More working capital (morey isn't spent on buying land) 2. Additional management 3. More flexible size (you can lease more land for a lower price than if you bought it) 4. More flexible financial obligations (sometimes leaser will accept various payment in the forms of crops, animals, etc.) Disadvantages of Leasing correct answers 1. Uncertainty (don't know what'll happen after lease ends)