Predictions For 2014

Cropland Predictions For 2014

What does the next year hold for the cropland business?  I expect demand to remain strong.  At some point in the next handful of years I expect a cropland gold rush.  A lot of aging farmers who own land are hanging on and waiting to see if they can't sell at the top.  Usually these farmers would've sold by now but they are patiently waiting to see where the prices will hit there peak.  When we start getting close to that expect the market to flood with cropland.

Rents will be tied to crop prices.  Whether they go up or down that's what you should expect cash rent to follow suit.  This isn't any amazing revelation I know but it's something to not forget while going forward.

Acreage will be based on crop insurance.  We are seeing crop insurance more and more affecting the cropland market.  That mostly comes from the drought we had a few years ago.  I don't see this changing anytime soon.

Volatility will continue.  This is where you will decide what kind of operation you are going to run.  All depends on your personality.  Are you a risk taker or not.  It all depends on your comfort level how you want to run your operation.  Remember, it's your farm.  Run it how you want to.

Have a Happy New Years and let's look forward to 2014!

Crop Inputs

Changes For 2013

There were some changes to the amount farmers and farm owners had to put into their farms.  Crop production was up 1 to 4%.  Seeds were up 5 to 10%.  Machinery went up 1 to 6%.  Fertilizer, interest and fuel all remained the same.

These are trends to keep an eye on as we move into 2014.  It can help you make an informed decision on what kind of farm operation you want to run.

Have a Merry Christmas folks!

Analyzing Operating Alternatives

With all the information I've given you on the different ways to run your farm, the next question you should be asking yourself is what's the best way for me?  How should I run my farm operation?  You should use the market indicators to help you make an informed decision.

Actual Negotiated Cash Rent

You need to find out what land is going for in your farms area for cash rent.  If it's high maybe that's the way you want to go.  If it's low you may take an alternative such as share crop or custom farming.  You have to know what you're comfort level is.  That's the best way to get started.

Actual Production History

This is a valuable tool. This will tell you what the land has produced in the last handful of years.  You will know if it's good producing land or bad producing land.  This is an excellent tool when deciding what farmland to buy.  I highly suggest getting this before making a purchase or decision on how to run your land.  I would also suggest having a farm manager look over this for you.  Sometimes it's like reading a different language.

Guaranteed Revenue Protection

What kind of crop insurance do you have?  What's the protection you have against a bad crop year?  This will help you know if you can take a bigger risk in doing custom farming or if you need to play it safer and do cash rent.

Projections of Future Pricing

For this I would hire a farm manager or consult with a farm management company for.  They have employees that all they do is look at farm futures.  They are a good tool and can help you make better decisions on how you want to handle your farm going forward.

Trends in Leasing

Over the last handful of years cash rent has been on the rise in popularity when it comes to cropland leasing.  This is due to many inexperienced buyers coming into the market.  There is a new idea creeping up into the cropland leasing world.  It's called cash rent plus leasing.

Cash Rent Plus

Cash rent plus is a new trend in cropland leasing.  How it works is very simple.  Take the base rent regardless of price or production and add it to additional rent if prices rise or production is above average. 

For example.  Let's say the base rent is $300 per acre.  Remember, this is regardless of yield or price.  You would add that to additional rent based on 33% of actual yield.  You would then multiply that by the average of spring and fall crop insurance price.  Then take out the base rent and you would have your plus rent.

Let me show you the numbers in another example in case that didn't make sense.  

200 bushel corn yield X $6.50/bu.= $1,300

$1,300 X 33% = $429/acre

$429.00 total rent - $300 base rent = $129/acre extra rent