Financial and Real Estate Investments in Mixed-Asset Agricultural Portfolios

The concepts of diversified portfolios common to financial market investors are applied to a farm setting. This study evaluates the effect on farm portfolio values of using available cash generated from the farm to diversify financially. The financial strategies included alternative debt management strategies, cash investments, and equity investments. Models of 10 representative New Mexico farms were used in this study. Historical cost and return estimates were used to determine annual net cash income for each farm model from 1989 through 2001. Excess cash, beyond operating and family living requirements, was used to purchase shares of a money market fund, a mutual fund, and several publicly-traded agricultural companies. Many of the farm models could not generate sufficient cash flow at any level of debt without outside income; therefore, these farms could not consider any financial investment strategies. For those farms that could cash flow, debt management and financial investments had favorable effects on portfolio values. Although portfolio values were increased from the various financial investments, there was no indication of major diversification benefits.