Flexible land leases in volatile times

Flexible land leases in volatile times

By: Jeff Caldwell 11/06/2012 @ 11:02am

Interest rates are low, grain prices are high and land values continue to follow those high grains to record or near-record levels. It all adds up for good justification to consider flexible cash lease arrangements moving forward, an Ohio State University (OSU) Extension specialist says, especially when there's a lot of potential volatility in both grain and land prices.

Despite all the bullish factors lining up for the land market, there's a lot of room for sharp fluctuations in these values, making a flexible cash lease a good way for both farmer and landowner to avoid suffering massive shortfalls as a result, says OSU Extension production business management specialist Barry Ward.

"To manage risk of volatile crop and input markets, producers and landowner should also strongly consider flexible cash leases," Ward says. "Cash rental rates will see continued upward pressure as higher commodity crop prices and good prospects for profit in 2013 drive competition in local markets. Producers that want to continue to operate their existing rented land base will have to pay at or near the market rate for their area."

Land prices in Ohio show no signs of declining; Last year saw a price increase of, on average, 13.6%, and this year, Ward expects that trend to continue, especially when you add in factors like interest rates that are expected to slide along at low levels through the middle of 2015.

Ultimately, though, Ward says despite the continued surge in prices and the lingering potential for a lot of volatility, there's still going to be plenty of demand for good farm land, and it will likely be farmers -- not investors -- leading the demand charge.

"With strong balance sheets in spite of the drought many farmers will continue to be in the land buying mode," Ward says.