The price paid for farm management is minimal compared to the fluctuation in farm income and expenses. Recent volatility in the economy has spilled over into the agricultural sector. During the past year grain prices doubled and then retreated to previous levels, fertilizer expenses have doubled and not yet retreated.
Income
Grain Prices – The price of corn last year was below $3.00 per bushel, rallied to over $7.00 per bushel around the 4th of July, and has now dropped back below $4.00 per bushel. This unprecedented volatility directly affects crop share lease income and appropriate cash rent levels.
U.S.D.A Agricultural Programs – The new Farm Bill has support levels well below the cost of production. Prior to present higher income and expenses, the ag program was an important and viable safety net. That safety net is no longer effective.
The 2008 program was substantially the same as
2002-2007. There are new provisions that will take
effect in 2009. Decisions need to be made by each
landowner whether to reduce direct payments in
exchange for enhanced crop insurance. There are also
stricter eligibility requirements.
Expenses
Fertilizer – Fertility costs have increased dramatically as highlighted in the enclosed article. The cost for fertilizing an acre of corn has increased the past three years from $87 to $122 to $230 per acre. Tenant farmers will be tempted to cut back on fertility to cut expenses, leaving the Landowner with lower soil fertility levels.
Seed – The per acre cost of seed corn is expected to increase from $100 to $150 per acre. The increased cost does reflect seed that is genetically improved to increase yield and decrease cost of pesticides required. Recognizing the costs and benefits is important.
Leases
These titanic changes in income and expenses have a direct affect on the tenant-landowner relationship. Up-to-date lease terms need to reflect changes to insure each party is rewarded for their contribution and risk. This is where well informed management is vital.
We can develop lease terms to meet the landowner’s objective whether that is to maximize income, reduce risk, or to share risk and reward with the tenant in a manner that reflects each party’s contributions. Our leases are custom designed to each owner’s situation and range from crop-share, modified crop share, crop share with an additional cash rent, cash rent, variable cash rent where risk and rewards are shared, cash rent bidding, custom farm, etc.
The professional farm manager is an agent for landowners looking out for their interests. Our duty is to keep abreast of the market changes and evaluate each individual landowner’s situation to develop a plan that meets the landowner’s goals and objectives.
Nobody can predict the future with 100% certainty.
Accurate, unbiased information is the best way to
make rational decisions that ease concerns of today’s
uncertain economic environment.
