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<blockquote data-quote="Jake" data-source="post: 779750" data-attributes="member: 4"><p>I'm going to throw a little economics at this and see if anybody can follow me. Agriculture in general is a "Zero Profit" game. In aspect to ECONOMIC Profit. We are all competing for a scarce resource in land in order to produce our goods. With the way agriculture is set up we have as close to a Perfectly Competitive market as you can get. The stipulations to Perfect Competitiion are -</p><p>1) Homogeneous Product</p><p>2) Availability from variety of sources</p><p>3) Perfect knowledge.</p><p></p><p>Now as far as the product and suppliers go in ag for the most part Yellow #2 Corn is Yellow #2 Corn everywhere and choice beef is choice beef. We all produce this homogeneous product therefore there is no market power held by individual producers.</p><p></p><p>Now ECONOMIC Profit is Business Profit minus Opportunity Cost and Opportunity cost on Owners Equity.</p><p></p><p>Cattle are just a means of adding to the Owners Equity and making a Business Proft. Very rarely does land "pencil out" when it is purchased with borrowed money. The fact is that farmers and investors alike rely on inflation and scarcity to drive the price of the land up to increase their Owner's Equity. </p><p></p><p>I could probably make a 20 page post on this but I'm sure I'm losing any interest that I started with so I'll put this in a short point.</p><p></p><p>As a producer we need to figure out what you can give for land to make long run ECONOMIC BREAKEVEN. This will vary with the availability of capital to your operation. If you can add to your assets and cover your opportunity costs. What you pay for the land is somewhat irrelevant.</p></blockquote><p></p>
[QUOTE="Jake, post: 779750, member: 4"] I'm going to throw a little economics at this and see if anybody can follow me. Agriculture in general is a "Zero Profit" game. In aspect to ECONOMIC Profit. We are all competing for a scarce resource in land in order to produce our goods. With the way agriculture is set up we have as close to a Perfectly Competitive market as you can get. The stipulations to Perfect Competitiion are - 1) Homogeneous Product 2) Availability from variety of sources 3) Perfect knowledge. Now as far as the product and suppliers go in ag for the most part Yellow #2 Corn is Yellow #2 Corn everywhere and choice beef is choice beef. We all produce this homogeneous product therefore there is no market power held by individual producers. Now ECONOMIC Profit is Business Profit minus Opportunity Cost and Opportunity cost on Owners Equity. Cattle are just a means of adding to the Owners Equity and making a Business Proft. Very rarely does land "pencil out" when it is purchased with borrowed money. The fact is that farmers and investors alike rely on inflation and scarcity to drive the price of the land up to increase their Owner's Equity. I could probably make a 20 page post on this but I'm sure I'm losing any interest that I started with so I'll put this in a short point. As a producer we need to figure out what you can give for land to make long run ECONOMIC BREAKEVEN. This will vary with the availability of capital to your operation. If you can add to your assets and cover your opportunity costs. What you pay for the land is somewhat irrelevant. [/QUOTE]
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