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Farm Land - cash rents vs. share rents

Discussion in 'Topical Discussions (In Depth)' started by Tecumseh, Jan 17, 2011.



  1. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Any land owner's on the forum? Anyone care to share information about their rental agreements? What are cash rents in your neck of the woods and if you have a share rental agreement how does it work?

    I'm new to this but will soon be negotiating with a farmer. Prior owner had the land under rent for $90 per acre which seems very low to me. To the west of me cash rents are running from $120 to $180 to the east I've heard as low as $70.

    Just curious what others are getting and how they negotiate it.
     
  2. pre-64'

    pre-64' Slaying Debt for Gold Gold Chaser

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    Dont know anything about it except there is an ad in my area that says farmland for rent $500/acre.
     
  3. Eat Beef

    Eat Beef Gold Member Gold Chaser

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    It's all about the yeild.

    If your farm will produce the same amount as the 180frn farm, all things being equal, then you're talking apples to apples. If your farm produces the same as the 70frn farm, you're 10 too high.

    Of course any goobermint welfare will be backed out (or added in). With grains/commods on such a tear, it's likely you could get more rent than you have in the past.

    One caveat; the 'x' factor is the quality of the tennant. I'd say if you have a good farmer in place, that's worth a good deal of money. The next one may pay you 5k per year more, but if he trashes the place (either literally or by raping the land), you'll end up losing money.
     
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  4. jimineez

    jimineez Seeker Seeker

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    Wow, I wish we could get those kinds of prices here in North Georgia...My parents get about $1000 per year for their pasture land which is about 70 acres +/-. The same land used to be rented by a farmer for soybeans for a little more than that, but not much. So, we are talking $15/acre or so. I wonder if I should look into it more, but I think that is the going rate....
     
    Last edited: Jan 17, 2011
  5. Eat Beef

    Eat Beef Gold Member Gold Chaser

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    Pasture land and productive cropland are two different things. 15 bucks per acre is about right in my neck of the woods.

    Once again, it depends on the particular ground's production capability. I've been to farms in the Rio Grand Valley where one farm was over twice as productive as the one right next to it, seperated only by a property line. It had to do with subterrainian drain systems and former soil inputs.
     
  6. Rusty Shackelford

    Rusty Shackelford Midas Member Midas Member

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    My employer has about 150 acres of ground that we cash rent out to a local farmer. For years we got $85/acre, but there were special reasons that was so low. Once those reasons disappeared and we did not restrict the use of the ground, the rent went to $120/acre. Just last year the same local farmer came in and voluntarily raised the rate the $150 so that the ground would not be "taken" from him buy a competitor. With those events I could safely say $150 is not out of line for tillable ground in the Midwest. For what it is worth the ground described is east central indiana.
     
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  7. glockngold

    glockngold Gold Member Gold Chaser

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    I have 33 acres that I rent as cropland.
    5 years ago I agreed on $80.00/acre
    I haven't spent any time researching what anyone else is paying since then.
    Perhaps I should revisit the issue.
    Pasture here is worth next to nothing.
    (south central PA)
     
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  8. Sindgefallen

    Sindgefallen Gold Member Gold Chaser

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    Really? I recall the price/acre to buy in that area being pretty high for AGland (pretty high for AG land but not crazy)

    What is the $/acre to buy AG land in your area?
     
    Last edited by a moderator: Jan 18, 2011
  9. glockngold

    glockngold Gold Member Gold Chaser

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    Sorry, I really don't know.
    I have no bank dealings to borrow money & don't plan on selling, so I haven't spent any time researching or paying attention to local values.
    Across the river in "Amishville" farmland is supposedly a lot more pricey?
     
  10. Sindgefallen

    Sindgefallen Gold Member Gold Chaser

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    Jerry fu**in' Browns house baby!
    Perhaps that is what I was thinking of. I used to live in Harrisburg area and outside Lancaster. Love the country though. Thanks.
     
  11. Voodoo

    Voodoo Seeker Seeker

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    I've heard that in Eastern Iowa cash rents generally run about $250 - $300 per acre. This is for land that averages sales of around $4,500 - $5,500 per acre.
     
  12. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Eat Beef - thanks.

    I understand your answer and that ties into another question. My parnter and I are trying to determine if tiling is worth the investment. Do you have any idea of the impact on yield from installing tile?

    Initial analysis of cost seems to indicate that if useful life is 15 years we would need to increase rents by $45 per year for a 7% return - not sure Farmer would be on board with that.
     
  13. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Voodoo that's possible. Before I decided to buy some local ground I was looking into investing with www.agrinuity.com in one of their programs. I believe that their goal is to return 5% on investment. They are in Iowa and I think most of the land they manage is there. They have a custom farmland program that requires a more substantial investment where they will go outside of Iowa to purchase and manage farmland.

    Nobody in Ohio is getting close to that level of cash rents that I am aware of. Like Eat Beef says rents are driven somewhat by yields and our ground is just not as good as theirs.
     
  14. Eat Beef

    Eat Beef Gold Member Gold Chaser

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    Tecumseh,

    Sorry, I don't know jack about tiles. Or rather, I know just enough to get someone in trouble! In the situation about which I spoke earlier, a friend's father in law was buying farmed out ground cheaply, installing the tiles, and paying for the ground rather quickly, but once agian, it's all dependant on the soil.

    You might get some help from your county extension agent, or you might not. We've had some VERY good ones, but more often they're lazy boobs. If that doesn't work, you might ask your farmer. Depending on the guy, he might be happy to pay a higher rent if it'll bring him a higher yeild.

    There are probably some sort of goobermint welfare programs to cost share installation of tiles.
     
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  15. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Thanks Beef - good advice and we planned on opening the discussion with the farmer with ways to be good stewards and make the land more productive. We are going to pull some soil samples and take to the County Extension (right down the road) and we'll probably talk to them about tile.

    I'm pretty ignorant about tiling myself but sense a possible business opportunity. A decent tile plow is about $20k (used) and a decent tractor to pull it is $40 - $60k (used). Besides the productivity benefits I understand that there are potential environmental benefits (reduced runnoff containing soil and AG contaminants). What I don't know is what the demand for the service would be - seems like most decent sized farmers would be able to install the tile themselves and not need someone to install. I just wonder if there is some potential and how much competition is out there.
     
  16. Silvermafia

    Silvermafia New Member

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    Eat Beef is right about the quality of the farmer being important. You want someone that is going to take care of your ground, not destroy it.

    There is a saying we have around here that you pay for tile whether you have it or not. You can pay to have a farm ditched, or you can pay in the way of less productivity by not having it ditched.

    It's a great idea to have soil samples pulled so you know what the fertility levels are. Then, make sure the contract stipulates that what nutrients are taken out get replaced.

    If you strictly go with cash rent you'll know what your income off of the ground is going to be.

    If you go with a share type contract you won't know for certain because you'll be sharing in expenses. This puts you in the farming business though and makes you a farmer. Farmers have lots of "expenses" that are income tax right offs.
     
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  17. glockngold

    glockngold Gold Member Gold Chaser

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    Tecumseh,
    This whole tile thing is new to me. I was curious & found some utube vids of folks showing the equipment used.
    I am guessing that it is called tile because of back in the "good old days" drain pipe was made of fired clay & called tile?
    The whole purpose of installing pipe underground is to take bottom poorly drained land & get rid of the excess water so crops won't rot, am I right?
    On my place I have to walk to find a flat spot, so drainage is never an issue. :fisheye:
     
  18. Ruprick

    Ruprick Seeker Seeker

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    From my farm math perspective....farm land seems to be about 3X to 5 X too high....just like average home...the same cheap $ that drove houses up has also driven up land....land has not yet crashed...but it will.

    How can an acre be worth $3000 - $5000? Rent prices suck, and input costs and risks are way too high to make any money off the land.

    I was talking to a farmer around here and he said that he is lucky to cover his costs and come out 20 bushel of corn/acre ahead of all costs.....what is that....$100 - $150 profit from all that risk, capital, equipment, skill.....

    If you owned a farm....you would need 1000 acres (3 - 5 million investment) to make a few hundred thousand dollars a year....and take tons of risks....have lots of skills....tons of equipment....lots of money up front to get to harvest payoff.....the numbers just don't work in my mind.

    No way will land stay at these levels. Divide by 3 to 5 and that is where they are headed.

    My opinion sucks as I know nothing about farmings....but the numbers just don't work in my area.

    Clue me in to what I'm missing? Why is land not $1000/acre?
     
  19. Ruprick

    Ruprick Seeker Seeker

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    So, assuming $3000/acre = $100k land value. $2500 rental income. That is 2.5% gross income....less taxes, etc, what is that ...under 2% return on investment?

    That is my point - land seems way too expensive for the profit it returns.

    Why is land not $1000 or less per acre? That is where it needs to be to make it a reasonable investment.

    I just seem to think land is at least 3X too expensive...and how did it get there? General speculation and cheap easy money sloshing around?

    I'd love to learn more on this topic.

    Another thought - lets look at the demand side of the equation....and who has 3 million $ to buy a square mile? Even 160 acres (quarter of a section) would cost half a million plus.....I do not see how the land prices can stay that high. Where are the buyers at that level? For a chunk of dirt in the middle of nowhere?
     
  20. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Yes glockngold I think that you are correct - relatively new to me as well.

    Installing tile (a subterrainian drainage system) gives you some control over the water table. Numerous benefits - better root development in wet season, less runoff so fertilizer and pesticides are more effective, I think you can even have systems that help keep some water on the land during dry spells with baffles and shut offs on the tile.

    The end result is supposed to be better yield - therefore more income per acre - I don't have the experience to know how much so not certain it is worth the investment.

    I also understand that the tile has a limited effective life - it eventually becomes clogged and the benefits decrease.
     
  21. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Ruprick I tend to agree but I didn't rush into this investment and it seems that maybe you can't use the same metrics as in the past for valuing land. In the late 80's farm land prices got very high relative to cash rents but many farmers were leveraged. That doesn't seem to be the case today.

    I was told by an experienced farmer that the 10 year treasury yield was a good bench mark for the income yield on your investment. At the time we purchased we weren't far from that - perhaps 2% net yield vs. 2.6% on the Treasuries. We would have loved to get the land cheaper but there were other interested buyers and the price we paid was about 20% under what I was told by several area farmers was a fair price.

    Some people believe prices will collapse but I'm not convinced of that. Farmland simply does not have the same fundamentals as commercial and residential real estate. I also believe in short term Ag commodity prices will drive cash rents substantially higher (thus improving yield on investment).

    There are programs (CAUV) that allow you to hold the land with minimal taxes as long as it is used for agricultural purposes (kind of a farm subsidy).

    I guess nobody really knows and historically the market has always eventually pushed the cost of production below the market price of Ag commodities but what is happening globally is somewhat unprecedented with a large developing world increasing consuming and changing their diet to include more meats - which require more grains to produce.

    Side benefit is some ground to hunt.

    Here are two opposing viewpoints:

    http://www.agweb.com/article/farmland_values_soaring_for_now/

    http://www.agweb.com/article/9_reasons_to_be_bearish_on_farmland/

    You raise a lot of good points but ultimately the market sets the price so there is no knowing or explaining.

    I'm hoping to hold this for 20 years or more so I'm not too concerned about it right now.
     
    Last edited: Jan 21, 2011
  22. Ruprick

    Ruprick Seeker Seeker

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    Tecumseh,

    Thanks for the insights. My comments were not directed at anyone here in terms of their judgement or investment....just general comments at how much $, effort and risk is needed for such little income. It just amazes me from a casual "farm math" perspective.

    Don't get me wrong - I want to own a crap load of land myself....but frustrated at the cost that seems to be crazy high (and has been for the past 20+ years)...and you are right = it is the market that sets the price.

    Perhaps the market is in for a radical change.

    I'm looking to ride this PM market to the moon ....and then hope to catch LAND flat on it's ass and ride it up over time.....very wishful on my part.

    Good luck to all - and I'm sorry that I hoping for a land bust.

    All very interesting stuff - and nobody really knows the future.

    For sure - PM is a solid bet for the time being.
     
  23. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Yeah I think we have the same idea Ruprick.

    I liquidated a large portion of my metals to buy the land. I had planned on holding longer. I had pretty much doubled up on my initial investment and this property became available so I jumped.

    Its not really in the middle of nowhere - if you have Google Earth it is pretty much directly south of Lorain County regional airport. (literally across the street).

    It has some decent timber and a gas well too.

    We bid on another larger parcel (140 acres) that was only 45 tillable and 95 of pretty much timbered out wetlands but we didn't get it (yet anyways). One owner told me he is in contract with a hunting club and I also heard through his partner that the local Metroparks was buying it so who knows. They were looking for $350k which is nuts and like you say would be a terrible yield.

    Good luck to you as well - if you end up on some good ground we'll swap hunts or something.
     
  24. UNCKLEBUCKIE

    UNCKLEBUCKIE New Member

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    Long time lurker, new member... found this thread interesting so will reply to your original post. I purchased some farmground in central Nebraska 5 years ago. Paid $1500 per acre, taxes are appx $20 per acre and liability insurance is a rider on my personal insurance and is only $100 per year. I am currently cash renting it to a area farmer for $150 per acre. I came up with that price 4 years ago by determining the yeilds that the plot was currently producing, subtracting the cost of fertilizer and electricity (for the pivot irrigation) and dividing it by 2, I then reduced it 5% to come up with the amount. the 5% reduction was to entice the farmer to take the cash rent option rather than me hassel with a share agreement. Current rental rates in this area would allow me to get $180 per acre so this year I am going to take the rent to $160 per acre. The reason I don't go for the $175 is that the farmer I am renting this to is reliable, takes good care of the property, maintains the pivot irrigation and I dont want to rack him with too big of an increase ( in hind sight I should have been taking small increases all along... live and learn). I am slowly gathering some older small acreage equipment and my plan is to farm this myself in a few years. I would think every area and every different plot has different attributes that you will need to take into consideration when you negotiate your rent. If you look on your areas ag university website there are likely some sample rental agreements that you can use to help you with drawing up your agreement, good luck.
     
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  25. pwt3time

    pwt3time New Member

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    I purchased a 140 Acre farm last fall. 95 ac. tillable 45 timber. We are suppose to close March 1. The realtor stopped in and told me he had an offer to buy me out at time of closing. I could cash out and make $120,000. What would you do?
     
  26. UNCKLEBUCKIE

    UNCKLEBUCKIE New Member

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    I guess it depends on what your intentions were when you bought the property, where you looking for quick buck and dump it or where you looking for longer term capital appreciation with rental income and a place to hunt. Where I live I dont think we are anywhere near the top of the agricultural land grab. If you have another place that is as safe as the parcel you bought to park your money, then sell it. This is something that only you will know.
     
  27. Tecumseh

    Tecumseh Silver Member Silver Miner

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    Thanks UncleBuckie and welcome aboard!
     

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