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Senior Contributor

Why $300 rents work and $175 rents don't

$300 rent land .....recent yields 215 bu corn, 64 bushel soybeans

 

$175 rent land.....recent yields 120 bu corn, 36 bushel soybeans

 

Lets use $3.50 corn, $9.50 soybeans and do the math

 

215 x $3.50 = $752.........$9.50 X 64 = $608 gross    120 X $3.50 = $420 and 36 x $9.50 = $342 gross

 

Anybody not see why you can justify $300 for the good stuff before you can justify a nickel for the poor ground?

 

Corn Budget for 2018                  Soybeans

Seed (conventional) $50               (extend RR beans)  $50

chem                          20                                                  20

fert                              75                                                  40

custom value             125                                                100

crop ins                        15                                                  15

drying and trucking      30                                                     8

overhead                      50                                                   50

interest                          14                                                   9

 

totals                           379                                                292

 

profit                             $73                                               $16

 

When you try to work out a profit on low grade ground, you can't find a scenario that gives you one...in my experience, the costs are higher per acre to farm marginal ground, too.

 

Bottom line is that profits are slim to non-existent on any of the acres without great yields, and that marginal land should be the first stuff to give up. 

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7 Replies
Honored Advisor

Re: Why $300 rents work and $175 rents don't

It seems that the well-heeled 800 acre farmer that perhaps owns most of his land and maybe rents a couple farms seems to be letting the poorer of the 2 farms go for next year, so there is pencil pushing going on.   It`s always been a poor farm kind of brings a premium rent to what it`s worth, because there`s always young tigers or land hungry ones willing to roll the dice and where everyone else has gotten 100bpa, he believes he will be the one to get 200+.

 

 

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Veteran Advisor

Re: Why $300 rents work and $175 rents don't

Your numbers look about right to me.  They can get those yields but pay 2/3 of the rent in North Dakota, which changes the bottom line for those people.  

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Honored Advisor

Re: Why $300 rents work and $175 rents don't

I don`t recall ever having been to North Dakota, but the way I figure it that land was pretty cheap and they raised feeder cattle and wheat and I suppose some big acreages where assembled.  So a guy might had 50,000 acres of wheat and cows in the pre-1980s, well, they " just tried" raising soybeans in the 1990s and Shazam! that cheap no good land was raising 40 bushel beans!  Well, a guy out there goes from 50,000 acres of "crap land" to basically "Iowa land" with an asterisk.   That`s why you see videos of all that fancy equipment out there, the yields from ought maturity beans got good. It costs a buck a bushel to get anything out of there to where it`s needed (but that`ll change too) They got the cheap land expense and cheap price at the elevator but adjust accordingly, but anyone waiting for them to blink first, better have a comfortable chair. 

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Advisor

Re: Why $300 rents work and $175 rents don't

In my discussions with various lenders and such, they say 175 for good quality land is the only way to pencil out with a positive margin, and are hard to convince otherwise in an operating loan application.  

 

The chemical expense you show is low, by almost 40 bucks, depending on weed pressure.  And what else are you missing?

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Senior Contributor

Re: Why $300 rents work and $175 rents don't

Thinking aloud here...if the median rent for high quality farmland in your county (e.g. listed by Iowa State Extension) is valued at $250/acre, might it be prudent to just use this number as a departure point with all potential rent/renter negotiations?

 

Frankly, rather than try to seek out the highest dollar per acre renter; I (a.k.a. ignorant farm amateur) would much rather find a guy who was both a good business man (def. A reliable guy who pays his rent on time, and in full, 100% of the time, w/ no excuses.) and a good steward of the land (def. An honest guy who will treat the rented property as if he or his son will one day own it...which they may.).

 

So, there ought to be, in my mind, a good neighbor discount for the honest farmer/renter who also possesses a good business sense about him.

 

Otherwise, Merry Christmas and Happy New Years to all of you Ag.com Farm Bubbas and Bubbettes.

 

Tally ho ho & ANF,

Packard

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Honored Advisor

Re: Why $300 rents work and $175 rents don't

Thanks. Packers

I’d say the chemical rate is 50-60 low.
We spend more than 20$ to spray insecticide and mitacide at the end on top of herbicide costs.
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Advisor

Re: Why $300 rents work and $175 rents don't

Once in production land typically stays in production through a few years of negative returns- which is a long ways away.

 

In theory it is would occur at 0 but in reality there's somebody who will take the bet.

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