A Landlord's Perspective
Harold Smith 04/13/2011 @ 2:17pm
I am a landlord in Indiana and I will be in no hurry to "come down" on cash rent. My operator is a great person and I respect him immensely. I value our long-term relationship, so I will come down slowly if it comes to that. But to be honest, I have watched year after year of RECORD farm income due to the "corn ethanol effect" but most of that upside went to the operator. Sure my rents went up and I am happy about that, but they did not go up nearly as fast as farm income -- also I did not participate in the windfalls of 2008 and 2010 as I receive a fixed cash rent. So if the operator wants most of the incremental upside, he should be willing to take most of the incremental downside too. I feel no "moral obligation" to come down in lockstep with farm income because my rent didn't go up in lockstep during good times. I completely disagree with the author that cash rents should somehow be in a percentage band of gross farm revenue. Farming is a fixed cost business, and at very high volumes (yields) and prices (or very low volumes and prices) those old rules of thumb breakdown. What I am saying is that 30 percent of gross revenue when gross revenue per acre on corn is $1,400 / acre is not at all the same as 30 percent of gross revenue on $700 / acre. At $1,400 / acre the operator is getting a certain amount of income that falls straight to the bottom line with almost no incremental cost and drives improved fixed cost absorption -- this is the part they never share on the way up. Of course that's the operators right -- he is the one in "business". But its also his problem on the way down in my opinion, its just life.
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