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Senior Advisor

Taking Losses On Cash Rent

Do you know anyone who is paying so much land rent they are losing money?  Is it because they're afraid to lose the land?  U/Ill advises to look at likley future grain prices.  Don't continue to rent land that will still lose money at the likey grain prices over the next period of years.  The $8 corn and $12 beans may not be back for many, many years.

 

http://farmdocdaily.illinois.edu/2015/10/taking-losses-cash-rent-farmland-avoid-losing.html

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5 Replies
Honored Advisor

Re: Taking Losses On Cash Rent

I probably know some that are losing money on rented land, but they aren`t admitting it  Smiley Happy 

 

This year it`s going to matter what neighborhood that you`re in.  Like if you budgeted for 200 bpa corn @ $4 or $800 gross, but you got 240 bpa @ $3.50 through a combination of forward selling/selling overrun off combine/storing $840 per acre will be grossed or $40 more than what was budgeted for.

 

If you budgeted 50bpa beans X $10/bu or $500 gross, but you got 65bpa @ $8.50 average thats a $550 per acre gross or $50 more than was planned for.  Maybe a farm was rented for $400/acre in the go-go days of $7 corn, but perhaps given a break in 2015 and was rented for $350.  Even beans the red-headed step-child crop, allowed you $200 more than the rent to put the crop in...which isn`t exactly a disaster.  Now, in less favorable areas, there will be a need to re-calulate.

 

So, it depends on the area if the rent was really too much.  But I think everyone in their heart of hearts was counting on 2015 to be a money losing year, but when the dust settles for some it won`t be as bad as once thought.

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Veteran Contributor

Re: Taking Losses On Cash Rent

I'm paying way to much for a decent 300 acre chunk and by rights with avg yields should have lost money. It is fairly well tiled and I go right by it to farm some family ground. BA is right because of the yields and I was able to get a bunch of corn sold for 4.60 March HTA and 9.50 soybeans for Nov.  plus.75 per bushel seed premium we are going to still make money, however I'm afraid we just kicked the can down the road. Their has to be a day of reckoning. I rolled the dice again and will be farming it next year and just hoping we get a chance to fwd sale the crop like we did this year. I'm just happy I have a big enough land base that I can let it go. I am also hoping we get a little ARC payment next year to soften the blow.

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Veteran Contributor

Re: Taking Losses On Cash Rent

Another thing Jim;

If you have a high-priced piece of rented or just recently purchased land, you have to be really sharp with the pencil as far as marketing. I'll buy puts and sell calls to help pay for them, and hope the market goes up to my sold call level which should be a profitable level. In this past year because of the wet weather in the East it gave us a  good marketing opportunity. Another thing that is keeping rent propped up established farmers with a good land base  and solid balance sheet can afford to gamble on a piece of land. This makes it hard for a young or beginning farmer to enter the game. Their is a value with controlling the land.

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Advisor

Re: Taking Losses On Cash Rent

Tricky though, for those who have been kicking the tax can down the road- backing off can trigger some tax coming due with less prepay, less inventory to carry into the next year. Giving it up may not save as much cash as it might appear.

 

Also true of semi-fixed equipment expense. There may be tax and transactional costs associated with downsizing equipment line and otherwise those costs go on regardless of whether the marginal acre is farmed.

 

Among the reasons why I'm not a fan of the large scale crop rental model that the neoliberal ag policy economists have led "agriculture" into- a box canyon with the Apaches close behind.

 

The only solution is continuously increasing subsidization, which probably isn't in the cards forever.

 

I'll admit I was a bit early but have said for the better part of a decade that it was time for large scale, high cost cash renters to begin a multi-year strategic retreat where they could save several $million of the windfall that came their way- as opposed to trying to keep it all andf keeping none.

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Advisor

Re: Taking Losses On Cash Rent

BTW, the notion of a voluntary retreat is not in the DNA of most of the cohort described above.

 

But that be as it may, the country at large has no obligation to make them or their lenders whole.

 

 

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