How To Stay Informed

How We Keep You Informed

What can Rural KC really do for you?  We can keep you informed on what kind of opportunities are popping up around the states of Kansas and Missouri.  The best way to do that is to join our email alerts.  That way as soon as some good deals come on the market you can become aware of them.  You will receive information only clients of Rural KC are privy to.  And soon we will have a password protected website where you can monitor activity yourself and keep up to date.

What Are The Next Steps?

Email us or contact us with any questions.  Also, if you happen to be in or visiting the Kansas City area, set up an one on one appointment with us.  There we will get a better understanding of what it is you're trying to accomplish.  

A good idea would be to request a Cropland Investment Profile.  We would send you a sheet to fill out where you can tell us exactly what you're looking for and the best way to pass this info off to you.  We in return would send information on any properties that match what you're looking for to you.  Just fill it out and send it back to us.

If you need to finance a cropland deal you should contact lender who is familiar with cropland real estate.  We can recommend some to you.

Finally, find a rural broker you have confidence in.  They should be experienced in cropland marketing.  They should represent you not the seller.  They should not be geographically limited.  If you find properties let me investigate it for you.  Rural KC can do all of that for you.

Our Services

We will identify potential parcels for you to purchase.  We identify potential tenant farmers.  We help you negotiate lease terms.  We handle the purchase contract and negotiations.  We help inspect the title report.  We assist in determining any applicable government programs.  We can identify other professional support such as crop insurance, financial advisers and farm managers.  And we would do all of this for no charge.  We are your buyers agent.

Results

Now this can be one of three things.  You could have found this blog post informative and interesting, You may want to schedule a meeting with us or this has been five minutes of your life you'll never get back.

Unique Midwest Opportunity

A Unique Opportunity

We at Rural KC truly believe we live in the hot spot of cropland.  Right along the Kansas Missouri border.  Eastern Kansas and Western Missouri present special investment opportunities.  These two states are currently undervalued as compared to their productive capability.  Missouri in particular offers two advantages for first time cropland investors.

Missouri has a culture of cash rent as compared to a share crop culture such as Kansas.  Missouri also has a free capture on water for irrigation.  That means any water on, borders or adjacent to the property can be use for irrigation.  In Kansas you have to get permits to use water and usually you have a limit in the amount.

However, for the more seasoned and aggressive investor, Kansas may be the one for you.  Share cropping is the norm in that side of the border.  If you feel comfortable enough and willing to take the risks, Kansas provides that option to you.

The Efficiency of Farmland

Let's compare Iowa to Eastern Kansas and Western Missouri.  In Iowa per acre you can get 280 bushels per acre with a rent of $450 per acre.  That would make your return on investment 4.5% at a per acre cost of $10,000.  Now let's compare that to Kansas/Missouri.  You would get 170 bushels per acre with a rent of $110 to $350 per acre.  That would bring in a return on investment of 4% to 5% at a per acre cost of $5,000 to $2,500.  Based on comparative production of bushels, per acre cost in Eastern Kansas and Western Missouri would be $6,072.

Common Mistake

There are many things we hear over and over again in our industry from buyers.  But by far this is the most common thing we hear.  "I had a chance to buy that for $_____ back in _____ and didn't do it.  I'm still kicking myself."  Do yourself a favor, don't be that guy.  We can help you avoid that.  Call us at 913-837-4665 or email us at info@ruralkc.com.

Should We Be Concerned About A Bubble?

What Causes Farmland To Drop In Value?

Farmland rarely drops in value.  It has, on average, gone up in value by 3% to 5% each year.  Recently it has jumped as high as 25% per year.  This has raised a fear of a bubble much like what happened to the housing market.  Will farmland continue to rise 25% per year in value?  No.  Odds are it will go back to normal rates and raise in value of 3% to 5%.  In the past 100 years farmland has dropped in value only three times.

First time was the great depression.  Everything fell then.  Nothing in this country was safe.

The second time was 1980.  It dropped five years straight.  The reason was farmland was driven mostly by debt.  Much like the recent housing market collapse was driven by debt.  Also. during that time we put a trade embargo on Russia.  Commodity prices dropped due to this.  So the combination of debt driven land and the Russian trade embargo led to this drop in value.

The third time was 2008.  That due to fear from what happened at the beginning of the recession.  That only lasted one year.  Since then value has skyrocketed because many investors looked to safer investments to the stock market.  So land was being bought cash and rarely bought with credit.  The charts below explains this well.

Let's compare farmland to another popular asset.  Let's take gold for example.  You hear about how gold is the way to invest.  One issue is, what is gold if everything does collapse?  Pretty much a paper weight.  Farmland is something useful.  Because, no matter what, we are always going to have to eat.  Since 1919, farmland has cost approximately 2.4 ounces of gold per acre.  This year, the ratio nationwide is 1.6 ounces per acre.  I'll leave you with a couple quotes that back up this claim.

"The time to worry is when debt financing on farming is growing more rapidly than prices, and we aren't there yet."  David Merkel.  The Economist.  April 10, 2011.

"Land Bubble?:  There is data circulating that "78% of Iowa farmland is now owned debt free."  The data is from "2012 Iowa Farmland Ownership Survey."  From my perspective this decreases the amount of land that will be sold in panic if crop prices drop or profitability tightens.  Further backing up my belief that we are not on the cusp of bursting the so called "Land Bubble."  Van Trump Report June 11, 2013.

"Unlike the last bust of the 1980's, farmers' debts are also low relative to their assets.  Fertile land is not a crowded trade.  Managers say they believe that less than 1% is held by institutional investors, with cash rich farmers bidding for the rest.  In some states such as Iowa, institutional ownership is banned."  The Financial Times May 2013.

Managing Risk On The Farm

How do you protect and maximize your investment?  There are two ways we like to help you do that.  You can outsource the management of your farm.  Or you could utilize crop insurance creatively to protect your investment.

Consider A Farm Manager

For a fee, typically 8% to 10%, a farm manager can make sure your farm is operating at an optimum level.  They can determine the best lease arrangement for you.  They can negotiate the farm lease for you.  A farm manager can oversee your tenant farmers usage of your land.  They can put together a projected investment analysis.  They can assist in tax strategies.  A farm manager can determine value of government farm programs.  They can assist you in a succession plan.  They can collect the rental payments.  A farm manager can pay farm related bills.  They will also work in different lease options such as cash rent, share crop or custom farm leases.

Crop Insurance

How does crop insurance work?  It'll insure a fixed volume of grain or revenue for your farm.  It starts with a historical farm yield record.  Typically over ten years.  The insurance will be a percentage of that historical yield.  

Let's do an example.  Let's say 100 bushels is the 10 year average of the farm.  You choose an 85% coverage.  You can choose anywhere from 55% to 85% coverage.  Thus 85 bushels is guaranteed.  Now, let's say 2012 you got a 50 bushel yields.  2012 was the worst drought we've had in the Midwest in fifty years.  Your insurance will pay for 35 bushels.  85 was guaranteed when 50 were harvested.  So you take 85 minus 50 to come up with the 35 bushels.  You would get payed $280 per acre assuming an $8 market price times 35.  Then you would add the 50 bushels at $8 is $400 per acre.  The total revenue would be $680 per acre.  Basically it's the market plus the insurance.

Is it more complicated than that?  Sure.  But I didn't want to hurt your head too much and my capacity for math only extends so far.  As a matter of fact, I try to stick to doing math monkeys can do.

Crop Insurance Is A Landlords Tool

This will help you keep track of how your farm is doing.  It will be a third party hard copy record of the farms production history by year, crop, acreage and yield.  It's a useful tool for income projections and land values.  It can be a measurement of the tenant's performance.  It's added security, tenant oversight and surveillance.   Remember, insurance fraud is a crime so it'll help you from being taken advantage of.  It backstops grain marketing.  Finally, it's an added loan security and guarantees cash flow.

What's In A Farm Lease?

What Does A Farm Lease Look Like?

With all that info about different kinds of farm leases I realized I never talked about what is in an actual farm lease.  A farm lease tends to be in multiple years.  Three years typically.  The reason for a multiple year lease is there is no time wasted in year to year negotiations.  And a farmer is more willing to improve the ground if he knows he has the land over the next couple of years.  If you do a year to year lease you run the risk of a farmer abusing the land to get as much out of it that year alone and not worrying about the next year.  

The lease tends to have two different forms of payment plans.  It'll have it all upfront at the beginning of the year or it will have half before planting and the other half after harvest.  Most investors like the all upfront for obvious reasons, but if you trust your farmer you may want to give him a break and do half before planting and the other half after harvest.

We highly recommend a written lease.  That way no one can suddenly come down with a case of amnesia and say they didn't agree to something.  It keeps everyone straight.  However, verbal agreements are common in the farming industry and are legally binding.

Check out the sample below of what is a typical written cropland cash lease.

If you would like more examples of share crop, cash rent plus leases one or wish to talk to us about any cropland issues don't hesitate to email us at info@ruralkc.com or call us at 913-837-4665.

Different Ways To Lease Farmland

How Involved Do You Want To Be?

There are four ways you as an investor can be involved with the farmland operation.  You can do direct farming which means you are the farmer and you handle everything involved.  You can do custom farming which you don't farm but you take in all the profits.  You can share crop which you share the profits with the farmer.  Or you could just do traditional rent where you would just be a landlord.

What Is Custom Farming?

In custom farming you do everything but farm the land.  You provide the land and management.  You provide the inputs which includes seeds and chemicals.  The farmer would provide the equipment and labor.  You would pay the farmer a lump sum and optionally a percentage of the profits.  You will get all the profits here.  You get all the tax benefits of being a farm operator.  You can take advantage of any government programs available.  You don't have to worry about any expensive equipment cost.  However, you do shoulder all the risk.  For example, if the crop is bad you're the one who suffers.  Remember, the farmer gets paid a lump sum.

What Is Share Cropping?

In share cropping you provide the land.  You may pay part of the expenses.  For example, we will assume you agreed to a 1/3 2/3 crop share.  So you would pay 1/3 of the chemicals.  You would then get 1/3 of the crop income.

The farmer would provide the equipment and the labor.  He would pay 2/3 of the chemical costs.  They would pay all the seed costs and all of the fuel costs.  The farmer would end up getting 2/3 of the crop income.

What Is Cash Rent?

Here the farmer agrees to pay a specified rate per acre regardless of the crop yield.  The advantage of a cash lease is it's predictable and easy to manage.  The disadvantage is that when the prices are high you may be getting less than the value of the land warrants.  

What About A Hybrid Cash Lease?

Here cash rent would be set at a base rate regardless of the crop yield.  A bonus is paid to you if prices hit a certain agreed upon level.  For example, base rent is $125 per acre but corn hit $7.50 at a given date an additional $25 per acre is due.  Or you are given a base cash rent plus a share crop bonus if production is high.  The advantage is it protects your investment if the prices go up.  Disadvantage is it may discourage some farmers from competing for your land.  It may also cause some farmers from paying a high base rent.

Farmer Is The Key To Sucess

The Renter

Your farmer will have the same interests you do.  He wants you to find a good deal on land.  The less you pay for the land the less you have to charge him rent.  He has no interest in farming poor land.  He has no interest in farming frequently flooded land.  He only wants the best possible ground for you.  How can he help us do this?  He has local knowledge.  

Local Knowledge

He'll know all about the ground.  He may know of ground that is not on the market.  He may know of additional renters.  He can give us a look into the local market.  He may know of hidden traps or issues.  He knows of good land that is too isolated to farm.  And, best of all, he may know the motivations of the seller.

What Motivates the Renter

Things that motivate a farmer is what his rental rates will be?  Can the land be share cropped?  Will he have to buy more equipment?  How long will the lease be?  Things to to think about when drawing up a lease would be can the land be improved and will that lease allow the farmer enough time to make the improvements?  

What could need improving?  I may not have been in production for awhile so the farmer may have to clean it up and til it.  Are there fences to move?  Will it need to be terraced to improve water flow?  Is it a long distance from his operation?  How much can the land be improved over time?

How To Use The Farmer In Negotiations

Let's say you have identified a farmer you want to rent to before you have made an offer on a piece of land.  What he can do for you is give you local knowledge.  He can help you identify property that isn't on the market.  He may know the sellers motivations.  And he can keep the sale local and private if so wished.  Usually the rent agreement is already made before negotiating the sales price.  And the farmer would have already done all the due diligence before hand.

Now what if you put in an offer before you find a farmer?  You can make an offer contingent upon you finding a farmer.  This would motivate the seller and agent to help you find a good farmer.  If you don't find a farmer then the sale is null and void.  Let's say you find some farmers but all their rent bids are low.  You can renegotiate the price based on this.  Also, if you talk to farmers and they say the land is bad you can then cancel the sale and move on.