Most experts agree that cash rents and rental terms in general will increase over the next few years.  Many leases for 2007 were already negotiated before the recent run-up in commodity prices.  At our fall meeting, our farm managers felt that small increases were to be expected. One question I’ve been asked recently is “what will happen to the large increase in revenue per acre due to higher commodity prices?”  If the current commodity prices are sustained and farm operators continue to have average to above average yields there could be another $50 - $100 per acre in additional revenue.  Some of that should and will be paid to the landowner.  Of course, farm operators want to feel comfortable that these prices will be sustained and are not a blip like the spring of 1996 in making the commitment to higher rental terms.

Our challenge is determining how much is fair and in what fashion can it best be captured.  Is the best mechanism cash rent or share lease?  To that end we felt that considering (and, if appropriate, recommending) a switch to a cash-flex lease could have tremendous advantages to our clients in this rapidly changing marketplace.

A cash flex lease provides you the landowner a base rent per acre.  If a crop year happens to be very successful in terms of price and yield, then the landowner receives a bonus payment.  As we look forward, there are many unknowns about commodity prices.  If what Dr. Chris Hurt, Ag Economist from Purdue University, believes is true and we move into a market where corn prices remain above $3.00/bushel, then bonus payments could become the norm.  Regardless of the way prices move, this allows you as a landowner the upside opportunity while insuring your base rent per acre.

If you have an interest in a cash flex lease, please contact your area representative for more details on how one might work for you.

Howard Halderman, President
Halderman Farm Management Service, Inc.

My comments on the new farm bill are taken from a variety of sources.  No one has any clear direction or feel how the final bill will turn out. I do think we are looking at reduced federal subsidies and more conservation initiatives.   Here are some things I believe will be key components of the new bill:

1)      Crop insurance will remain a key function and heavily subsidized by the federal government.  It may be expanded to provide more revenue insurance products.

2)      Land stewardship practices may be rewarded more than they are today.  The Conservation Security program may be expanded.

3)      Support for renewable fuels will remain another key component.

4)      The inclusion of more crops, niche markets, specialty crops, etc. will likely be part of the program.

5)      Farmer savings accounts or rainy day funds may be established for farm operators to have a way to save during profitable years with pre-tax dollars.

6)      Carbon credits are also receiving some positive press.  Today there are companies that will pay farmland owners for certain practices that sequester or lock-up carbon dioxide gas, such as no-till, grasslands, forestry, etc.  These companies are required by federal statute to mitigate their carbon emissions and by paying landowners for practices that help offset the deficit they can accomplish this.  Currently a 500 acre farm might be able to sell carbon credits for roughly $900 or a $4,500 contract for five years if certain practices are being utilized.

The World Trade Organization will have a significant impact on the outcome of the final bill.  Support payments such as direct payments are likely to go down and there may be less price support in the future as well.  We will continue to monitor the progress the new Congress makes in 2007 and will have more information as it becomes available.

Howard Halderman, President
Halderman Farm Management Services, Inc.