Introduction Flex Leases March 20, 2012 Greg Halich Dept. Agricultural Economics.

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Presentation transcript:

Introduction Flex Leases March 20, 2012 Greg Halich Dept. Agricultural Economics University of Kentucky

Agricultural Economics $ Land Rents 1) How Did We Get Here? 2) Can farmers make a profit? 3) How can they manage risk?

Agricultural Economics Pre-Ethanol Era ( ) Stable commodity prices. Stable commodity prices. Stable input prices. Stable input prices. → Stable land rents. → Stable land rents.

Agricultural Economics Only Problem? Profitability was low. Profitability was low.

Agricultural Economics The Ethanol Era (2006 to Present) Steady increase in ethanol prod. Steady increase in ethanol prod. Grain prices inc. dramatically. Grain prices inc. dramatically.

Agricultural Economics First 2 Years Ethanol Era ( ) What Were Farmers Thinking?

Agricultural Economics 3-5 Years into Ethanol Era ( ) What Did Farmers Start Doing? Bought new equipment. Bought new equipment. → Increased capacity to farm.

Agricultural Economics Economic Terms Increased demand for cropland. Increased demand for cropland. Supply inc. only slightly Supply inc. only slightly → Land rents increased.

Agricultural Economics Why Did it Take So Long for Land Rents to Spike?

Agricultural Economics My Speculations Farming community tight-knit. Farming community tight-knit. → Avoided stepping on toes. Bidding wars started with outsiders. Bidding wars started with outsiders. → Or someone that didn’t care what community thought of them.

Agricultural Economics Story from Central KY Help Explain: Competition dynamics. Competition dynamics. Human nature. Human nature.

Agricultural Economics Where Are We At Now? Land Rent Auctions NC Iowa: 2250 acres in 14 tracts acres in 14 tracts. $ /acre range. $ /acre range. $ /acre majority tracts $ /acre majority tracts → How do you think this compares to county average?

Agricultural Economics Where Are We At Now? Main Point: As bad as you think it is now… As bad as you think it is now… → Probably going to get worse. Land mgt company office Indiana. Land mgt company office Indiana. → Stones throw from Ohio River.

Agricultural Economics What is Your Strategy to Deal with this Competition? 1) Hope the storm will pass? 2) Buy land? 3) Get aggressive and expand leases? 4) Renegotiate leases to keep them?