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Long-Term Cash Rent Decisions Webinar December 18, 2015

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Page 1: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinarDecember18,2015

Page 2: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinarDecember18,2015

Long-TermCashRentDecisionsWebinar,December18,2015

Needmoreinforma,onregardingcashrents?Lookforthisar,cleonhomepageoftheCenterforCommercialAgriculture’swebsiteag.purdue.edu/commercialag

Page 3: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinarDecember18,2015

Long-TermCashRentDecisionsWebinar,December18,2015

MoreResources•  Moreinforma>on&sampleleaseformsavailableonPurdueCenterforCommercialAg’swebsite:

– ag.purdue.edu/commercialag

–  Clickon“Farmland”&Lookfor“RentalArrangements”

Page 4: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

CroppricesRISEfasterthancostsadjustupward:Posi>veMargins

CroppricesFallfasterthancostsadjustdownward:Nega>veMargins

Page 5: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

Fer,lizer18%

Seed15%

Pes,cides5%

Fuel6%

MachineryRepairs3%

Hauling2%

Interest1%

Insurance&Misc.4%

Machinery&FamilyLiving19%

CashRent27%

2016Es,matedIndianaCornProduc,onCosts

1

2

3

4

What’sarethebiggestcostissuesfacingcropagriculturethisyear?

Page 6: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

TheCashRentDilemma

Page 7: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

MakingLong-RunDecisionsØ  Farmersdecisiontorentfarmlandiscomplicatedby

ü  Downturninexpectednetreturnsforcornandsoybeansü  Landowner’sreluctancetoreducecashrents

Ø Ques>onsthatNeedtobeAddressed1.  Ifyouexpecttolosemoneyin2016onatractofrentedland,should

youcon>nuetorentthetract?

2.  Howmuchofapremiumcanyoupaytoretaincontrolofatractun>lnetreturnprospectsimprove?

3.  Howdoespayingapremiumaffectyourfarm’sliquidity?

Page 8: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

AnOp,onsBasedDecisionToolLongTermCashRentSpreadsheet

ü  Inputsforthespreadsheettool1.  2016BudgetsforCorn&Soybeans2.  PricesandYieldsforNextFiveYears3.  WorkingCapitalatBeginningoftheYear

ü Outputsfromthespreadsheettool•  RentAnalysis

1.  MarketCashRent2.  BreakevenCashRent3.  PremiumofMarketoverBreakevenCashRent

•  WorkingCapitalAnalysis

Page 9: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

YourBudgetInputs

(inblue)

Page 10: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

YourBudgetInputs

(inblue)

Page 11: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

Long-RunInputs

Page 12: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

Inputthelocal

marketrateforcashrent

Page 13: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

Analysiscomparesbreakevencashrenttomarketrate&impactonworkingcapital

Page 14: Long-Term Cash Rent Decisions Webinar December 18, 2015€¦ · Long-Term Cash Rent Decisions Webinar, December 18, 2015 Making Long-Run Decisions Ø Farmers decision to rent farmland

Long-TermCashRentDecisionsWebinar,December18,2015

TheBo^omLine

Youcan’taccuratelypredictthefuture

soyoumust

posi>onforthechallenges&opportuni>es


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