A hot topic I’ve been hearing farmers everywhere talking about is land prices. I’ve heard of land being bought at prices reaching into the $20,000 per acre mark!

It does make me wonder: Where can the world use 3 to 6 billion more bushels of corn, because that’s what would have to happen to take us to even higher land prices.

Farm revenue is driving these high prices. Average prices in central Illinois are about $8,000 an acre. I talked with one farmer recently about his latest land purchase — at $14,000 an acre.

I asked him why he had decided to buy, considering such a high price. He said that he was getting a great interest rate from his bank and didn’t see why he shouldn’t make the purchase, even though it was pricey.

Just because you have the cash and can get a low interest rate doesn’t mean it’s necessarily a good investment. Later on, if your working capital isn’t solid, it could be hard to pull through when that bad year comes.

Think about what could happen if, after a few big crops, corn retraces to $4 and stays there. It’s likely that land prices also could adjust down at that point.

Land simply can’t stay at these high prices, and it’s probably not really worth $10,000 to $20,000 per acre anyway. You need to look at how much you’re really making off of your land.

A formula we use in our company is that land actually is worth about eight times the average of the last few years of gross revenue you’ve made off of it.

For example, let’s estimate that the farmer I told you about earlier will gross $1,500 an acre on his new land for the next couple years. That’s an excellent return.

If you multiply that by eight, you get $12,000. That still doesn’t add up to the price he paid for it — $14,000 an acre.

What if the value of that land goes from $14,000 to $10,000 in the next few years? Looking only at the short term can hurt us in our farm businesses.

Life tends to be more like a marathon than a sprint. Not many runners who are winning at the 12- or 13-mile mark are the people who actually win the race.

Are you in the business of farming for the long run? Look at current land prices with a long-term view when you’re considering how you can win the game.

Sky-high land prices can affect your estate when it comes to planning the best way to pass the farm to the next generation.

On your final tax return, the IRS will fully value your land based on the current prices in your area. This will happen regardless of what you anticipate land prices to be, and may be different than what you expect.

That could change how you create your legacy plan. Most farmers tend to do a good job of making sure their farm balance sheet is up to date. But your personal balance sheet and net worth figures may not be as clear.

Your personal balance sheet should account for current average farmland prices in your area when estimating your net worth. That will enable you to capture a more accurate idea of the current value of your estate.

You may find that you’re in a higher estate tax bracket than you think as a result of high land prices in your area. Knowing the full value of your estate allows you to make proactive plans to protect what you’ve worked so hard for.

Now, you probably shouldn’t change that estimate of the value of your estate whenever a piece of land in your area is sold. That could get confusing and isn’t necessary.

But you do need to have a general idea of the value that Uncle Sam would place on your estate now, so you can create the best plan based on that.

The estate tax law situation is unclear as we head into 2013, but uncertainty about estate taxes is not a valid reason to put off planning. It’s best to lay a plan using what we know today — and then review that plan regularly.

Think about legacy planning as a process, not a one-time event that you finish and then forget about.

As land values — and possibly estate taxes — continue to soar, a strong legacy plan becomes even more important to operations that want to keep the farm in the family. The stakes have never been higher, but you can give the next generation a solid start in farming.