The True Cost of Cheap Rent

Ultimately, bushels are what make money. Cost per acre matters, price matters, but bushels are what actually bring in dollars and cutting yield short by renting cheaper land could cost more.

“Bad ground isn’t necessarily worth it,” says Michael Swanson, Wells Fargo chief ag economist. “It’s often just slightly cheaper than good ground, so forget the bad ground.”

According to Swanson, six expenses make up 90% of production budgets—land is one of the biggest. Because land is so closely tied to yield potential, it’s important to make sure you’re getting appropriate ROI from that investment.

Corn following soybean expenses
(Via wells fargo insight)

In $/bu.

Low Yield

Average Yield

High Yield

Spread, Low

to High

corn yield

136

170

204

68

variable cost

$2.74

$2.43

$2.12

$(0.62)

machinery ownership

$0.74

$0.59

$0.49

$(0.25)

family and hired labor

$0.27

$0.22

$0.18

$(0.09)

Cash rent

$1.11

$1.15

$1.21

$0.10

Total cost

$4.86

$4.38

$4.00

$(0.86)

 

“Yield growth exceeds population growth, expect flat agricultural prices,” Swanson says. “You can’t market your way out of this problem. Cost of production dominates marketing, go where the money is.”

Check out more land rent coverage from AgWeb:

Volatile Markets Make Setting Cash Rent Even Tougher

Cash Rented Farmland: How Do You Know It's Time to Walk Away?

Farmland Values Hit New High

Three Ways To Wow Your Landlords

Three Tips To Lower Farmland Cash Rent

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