I learned something interesting from a wheat farmer about cash rent values that makes as much sense in America’s bread basket as it does in Kentucky’s “Biscuit Basket,” where he farms. Sam Halcomb, Walnut Grove Farms, Adairville, Ky., grows corn and double-crop soft red winter wheat/soybeans.
Purdue economists think highly enough of his approach to have invited him to explain his cash rent formulas to the Purdue Top Farmer conference recently.
Halcomb calculates a field’s revenue-generating potential, then offers a landlord 25-33% of that for cash rent. He’s found over the years that 25-33% accurately reflects a point where he can profit from current market conditions, while capturing present market values to satisfy the landlord. It’s based on being a win-win for landlord and tenant through good times and bad.
Land’s revenue generating potential is affected by weather, soil productivity, markets and external factors like geopolitics, he says.
For example a two-year revenue-generating potential average of $4 corn is:
- $4 x 200 bu./acre = $800 revenue generating potential x 30% is $240
- Halcomb would bid $240 rent
- He incurs all the risk with this scenario, regardless of yield and price.
In Kentucky, on corn/double-crop wheat and soybean ground, the rent bid for that rotation is $209.