One of the biggest challenges facing producers today is the rising cost of land. In fact, I recently read that the price of land is the number-one concern of young farmers and ranchers today, with many finding it nearly impossible to compete against established ranchers and obtain the necessary credit to make the purchase. And, once a purchase is made, does the investment pencil out?
There is certainly great risk in purchasing high-priced farm ground. Is the gamble worth the cost?
A recent article in KPC News offered some words of caution for perspective buyers, as well as some advice for renters.
For buyers: One of the dangers is that buyers’ expectations about the future of the market could be wrong and land values or commodity prices could decrease, which can really change profit margins. Buyers need to be careful because farm debt levels will affect how hard the fall could be if commodity or farmland values decrease.
For renters: With the strong market, rental prices for farmland also have been on the rise. If not on a fixed traditional agreement, consider getting creative about the terms of the lease. In a flexible lease agreement, or variable cash, the landlord and tenant agree on a minimum amount of rent and share a portion of the profits. In a crop-sharing agreement, the tenant and landlord both invest in the production costs and share the crop yields after harvest. Both types of agreements help tenants and landlords share the risk associated with crop farming.
Read the entire article here.
For additional reading, check out, “Rising Farm Values Changing Mix of Property Taxes.”
What lessons have you learned when establishing leases for land? What advice do you have for people when looking to purchase a piece of ground? What concerns do you have about the escalated price of land?