Solving The Leasing Puzzle

Leasing Formula

How do you go about putting a farm lease together?  Start with these four questions.  What are the commodity prices?  Will improvements need to be made?  How productive is the land?  Is there a demand for you land?

Other Factors

You need to get an idea of what the USDA net farm income would be.  That would give you a jump start on where to begin negotiating.  And lately they've been great.  In 2011 we had the second best year for record income.  And 2012 was the third best year in record income.  Farmers generally have cash on hand which is one of the reasons most deals are cash deals and not debt driven.  You no longer have to worry about a bubble for the cropland market.  Debt to asset ratio is 10.3%.

Weather Patterns

You know that old saying in housing and commercial real estate.  What's the three most important things?  Location, location, location.  Farmland falls right into that as well.  Depending on where you were located, yields from the drought were reduced from 0% to 80%.  So if you live in an area with warm days, cool nights and steady rainfall patterns, you're looking good.  Ever wonder why Iowa is the hot bed for cropland?  It's in the sweet spot of climate and rain fall.  No other state has what Iowa has.  However, this is also the reason Iowa land is by far the most expensive in the United States.

Crop Insurance

The prices in the fall of 2012 will dictate what the prices of 2013 would be should a farmer have to use insurance.  For example, in 2012 corn was $7.50, soybeans were $15.39 and wheat was $8.78.  2013 farm finances are looking strong.  Crop Revenue Protection for 2013 is at profitable levels again.

What's Changed?

Late summer 2013 prices came in looking good.  Cash corn was $6.70 and new crop corn was $4.50.  Cash soybeans $13.30 and new crop soybeans was $11.60.  Cash wheat was $7.00.  This shows despite the rough last couple years farming is still very profitable.  Insurance prices as of July 24th of this year ar $4.80 and $12.55.  Farmland values are very strong and continue to rise as well as the return of investment.  Farmer's are sitting in a great strong cash position.