During a time when the value of farmland continues to rise, some operations may begin to experience what is called ‘the wealth effect,’ which can distort the view of the farm’s profitability. This may prompt some farmers to make certain decisions because they are feeling wealthier, even if the farm isn’t generating more revenue.
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How rising property values distort farm profitability
Having a system for reviewing the farm’s balance sheet at the same time every year can help farmers make decisions based on revenue, not just the current value of equity.
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