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Here are some strategies to consider heading into 2021.

Ben Potter, Senior editor

August 31, 2020

2 Min Read
Photo by DragonImages/iStock/Getty Images Plus.

Picture, if you will, a stereotypical ag lender – glasses on, sleeves rolled up, staring intently at a series of spreadsheets.

According to Jackson Takach, chief economist with Farmer Mac, that imagery should inspire farmers as they begin the 2021 budgeting process.

“As lenders, we like to do portfolio analysis,” he says. “We look at the macro level, but we dig down, too. Farmers should be taking the exact same approach. Know the profitability of every inch of your fields – it allows you to rethink practices and your approach to negotiating everything from cash rents to input purchases.”

There are an increasing number of software offerings that can help mine these kinds of insights, Takach says.

“That kind of data can give you more firepower to stand on when you make requests at the negotiating table,” he says.

But despite half a decade or more of low commodity prices, cash rents and farmland values have been stubbornly stable this year, according to Randy Dickhut, senior vice president of real estate operations at Farmers National Company.

“Cash rents could be steady to slightly lower next year,” he says. “But landowners will be hesitant to drop them if they think there will be more governmental support.”

Good farmland is still selling well, Dickhut adds. There’s plenty of demand, both from farmers and from outside investors. With historically low interest rates and volatility in other markets, farmland remains a very savvy, stable investment, he says.

Related:Winter banker meetings don’t have to be scary

The Federal Reserve of Chicago mirrored this opinion in a recent newsletter, noting: “Farmland values seemed to benefit not only from the rebound in crop revenues and higher government payments, but also from lower nominal interest rates and a ‘flight to safety’ mentality spurred by the pandemic.”

The so-called “local effect” often comes into play, too, Dickhut adds.

“If the farm across the road comes up for sale for the first time in generations, you might do whatever you can go get it bought,” he says.

Like Takach, Dale Lattz is a big advocate of carefully documenting income and expenses when negotiating rents. Lattz, a research associate with the University of Illinois, notes that variable cash rent leases have significantly increased in popularity over the past 10 to 15 years. They are worth revisiting from time to time, he says.

“You still need to go back and look at the terms because things still change over time and may need to be adjusted,” he says.

Sometimes, the numbers don’t just add up, and it might make sense to walk away from rented ground if it’s consistently unprofitable. It’s a tough call, Takach admits.

Related:Interest rate cut means it’s time to call your lender

“It’s both a financial and a personal decision to walk away from a field,” he says. “But again, it helps to understand the data. It doesn’t remove emotion completely out of the equation, but if you have the numbers and honestly look at profitability, you can think about things without clouding your judgment as much.”

About the Author(s)

Ben Potter

Senior editor, Farm Futures

Senior Editor Ben Potter brings two decades of professional agricultural communications and journalism experience to Farm Futures. He began working in the industry in the highly specific world of southern row crop production. Since that time, he has expanded his knowledge to cover a broad range of topics relevant to agriculture, including agronomy, machinery, technology, business, marketing, politics and weather. He has won several writing awards from the American Agricultural Editors Association, most recently on two features about drones and farmers who operate distilleries as a side business. Ben is a graduate of the University of Missouri School of Journalism.

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