Archive for August, 2011

Flexible Farm Lease Agreements

Wednesday, August 24th, 2011

Most absentee landlords have a typical cash rent lease in place with their tenant – The tenant sends them a check every year and that’s all the owner has to concern himself/herself with.  With the jump that the commodity markets have taken recently, some landlords are looking at an alternative to the traditional cash rent lease in order to reap the benefits of high grain prices – flexible farm leases.

What is a flexible farm lease?  Essentially, it is similar in a lot of ways to a crop share lease in that it allows the landlord and tenant to share equally in the gains, and also the risks.  It differs from a crop share lease in that the landlord does not have any out of pocket costs for farm inputs.  With most flex leases, the final rent number is determined at harvest.  The landlord and tenant decide on a predetermined percentage that the landlord will get from the gross farm income (grain sold plus any USDA payments) and when the grain is sold the landlord receives their percentage.  Farm owners that like to be more hands-on like the flex lease option because in years with strong yields and grain prices they can outperform a cash rent lease.  However, the downside is that if yields are down, or the price for grain falls, their profit also shrinks.

Another form of the flex lease is essentially a hybrid of the flex lease described above and a cash rent lease.  In this situation, a farm owner would receive a base cash rent from the tenant and the remaining portion of the income would be determined in the same manner as above, with the landlord receiving a predetermined share of the gross farm revenues.  One quality that appeals to farm owners is the ability to really customize the flex lease, whether it be in the percentage received or the base rent.

Want to learn more about flexible leases?  Iowa State has an article titled Flexible Farm Lease Agreements which discusses the mechanics of flexible leases, along with the pros and cons, of the lease agreement.  If you are considering switching to a flexible lease situation, I would suggest doing some due diligence in all that is required with a flex lease from the landlord’s perspective before jumping in.

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Institutional Investors Weigh In

Friday, August 19th, 2011

We’ve regularly talked about how aggressive many farmers have been in buying land the past several months.  This hasn’t been an intentional slight to investors… it’s just that most of the “winners” at the high priced auctions have been local farmers who currently have the financial resources to add to their land holdings.  I only think it’s fair that we now hear from the investors who have also been active buyers.  A recent article by Seth Lubove on Bloomberg.com (Being Like Soros in Buying Farmland Reaps Annual Gains of 16%) provides some insight into the mindset of the non-farmer land buyer and how they view agricultural property as an excellent investment opportunity, even at today’s prices.

In reading the article, it was interesting to note that many of these investors are motivated by the same factors – farmland is a safe haven during periods of economic uncertainty; the demand for food is growing; etc. – all basic economic reasons that land would be a good investment.  They rarely talk about the emotional pull of owning land (like many farmers) though some do share stories about visiting or working on farms in their youth.  They also consistently talk about owning land for the long term, a trait that we try to stress to all our clients as well.

I hope in ten years that Bloomberg does a follow up story on these same people.  Are they really committed to owning land for an extended period of time, or have they simply jumped into the market because it is currently the most prudent asset to buy?

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Keeping Up With The Market

Friday, August 12th, 2011

We recently released our newest edition of our Land Facts newsletter.  What will you find in this version?

  1. The Farmland Fire Still Burns – John Moss gives his take on the current state of the farmland market.  Also, he analyzes some factors that both buyers and sellers should keep an eye on in the upcoming months and years. Is now the time to be a buyer or seller?  We discuss in more detail in the article.
  2. Loranda and Social Media – In this article, we discuss the various ways that Loranda is using social media as a way to keep our clients up to date with all the happenings in the farmland market.  Whether it is us tweeting the results of a recent farmland sale or uploading a video from our most recent auction, we offer a wide range of timely information to keep you informed.
  3. Lease Information – It is that time of year again for landlords to start thinking about lease termination.  With most buyers placing a premium on a farm with an open lease status, it is important to know what steps to take to make sure your lease is properly terminated.

To read more about these articles and more, follow this link to download the August 2011 Land Facts

Would you like to be placed on our mailing list?  If so, email us at loranda@loranda.com and let us know how you want it delivered.  We can send you future copies by mail or email

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Indiana Land Market Rolls Higher

Friday, August 5th, 2011

Purdue University just published its annual farmland report (Indiana Farmland Market Continues to Sizzle) and to no one’s surprise, land prices are quite strong in the Hoosier Heartland.  Average values across the state were up nearly 25% for the twelve month period ending June 30, 2011.  The Purdue publication is more comprehensive than many other land reports as they also address cash rents, investor interest, pasture rents, and the perceived factors impacting both current values and values in the future.

After thoroughly reading the report, I found the most interesting comment to be in the first paragraph:

“For Indiana farmland values, it seems that history may be repeating itself. Just like the early 1970s, strong grain prices, robust net farm incomes, favorable interest rates, competitive farmland demand, and a limited supply of farmland offered to the market provide the environment for a strong increase in farmland values.”

While I can’t argue with the accuracy of this statement, I’m wondering… if it’s possible that we’re repeating the 70’s, is it also possible that we can repeat the 80’s?  Personally, I don’t see an impending crash, but at these times I also think of the famous quote by the philosopher George Santayana – “Those who cannot remember the past are condemned to repeat it”.  Let’s hope that those who experienced the crash first hand 30 years ago learned from it, and those who were too young will listen to those that were there.

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