There's a lot of" woe-is-me" sentiment at farm meetings this winter, now that frigid temperatures match the mood of commodity markets. But I'm spending part of this week in Florida with about 150 of North America's largest-scale farm operators, and I'm not sensing financial depression here. This is the annual AAPEX meeting, an alumni association of Texas A&M's management course TEPAP (The Executive Program for Agricultural Producers) . Just to give you an idea of how some of agriculture's most adaptable operators think:
--Owner-operator landowners hold the advantage. $4 to $4.50 corn is breakeven only when you factor in fixed cash rents averaging about $275/acre or $300/acre. An operator who holds title to large chunks of land debt-free thinks his breakevens run closer to $2.50/bu. on owned land, so that will be a margin that gives him a partial cushion compared to those who rent the bulk of their base.
--Flex rents hit stride. Some big operators fuss that flex rents are too hard to explain and too much trouble to administer. Some also contend that flex terms set by farm management groups set base rent too high, so don't really offer any consolation during today's big corn price drops. Some of those professional landlords want $300/acre, plus shares above that. However, operators who have written their own flex rent formulas and who have deep landlord relationships swear otherwise.
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"The key here is that our landowners want us to succeed and understand ag may have some rough patches ahead, so they will be reasonable with us," says one flex-rent devotee who didn't mind paying $400 rents when cash corn averaged $7. Land rents in his neighborhood have been running as high as $350 to $400/acre, and his flex-rent formula paid $366 in 2013. If corn should average $4 in 2014, however, his flex formula would automatically lower rent to about $225.
On irrigated land, flex formulas don't need to be complicated. When corn is $2.50/bu., he starts at a base rent of $150 an acre on land with 200-bushel corn potential, then increases $1 per acre for each 2-cent increase in corn based on the Farm Service Agency’s posted county average price. Price is averaged Nov. 1 for the previous year. (Dryland farmers would need something that offset their yield variability.)
Looking ahead, more conservative farm operators have resisted the temptation to pay $500 rents or set new records at land auctions. They believe a number of their neighbors will lose money on every acre of corn they produce this year and will burn through whatever working capital they have saved. That will uncork farmland markets and allow them to rent or buy at bargain rates compared to today's prices. They wonder why farm magazines never write about them.
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