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Sorgonomics™ Negotiating Cash Rents. Is it Time? By John Duff


can also be a liability. Having the diffi cult discussions about land and how it’s


F


working for (or against) the producer isn’t oſt en fun, but it is essential for the fi nancial health of the operation. About 40 percent of farmland in the central Sorghum


Belt is leased. T is number is much higher in the Mississip- pi Delta where farmland in many areas is over 60 percent leased. Much like land they own, farmers oſt en view their leases and rental agreements as assets that can never cost them money. According to southwest Kansas sorghum farmer Jim Sipes, that isn’t the case though. Sipes recently renegotiated


300% 250% 200% 150% 100% 50% 0%


Rent 16 Variable Costs


arming is a business. And just like any other business, it has assets and liabilities such as land. While most farmers see land as an asset, it is important to realize it


his crop share leases with a success rate of more than 70 percent. Still, he had to walk away from some of his land because it wasn’t performing as he needed it to. “I look at each farm as if it is an investment,” Sipes said.


“Would you keep a stock that’s losing 10 percent each year, or would you replace it with a stock with a better return?” This isn’t an easy decision for farmers whose lives


are devoted to caring for the land. Although it shouldn’t be taken lightly, the option of walking away must be on the table. For farmers who keep land solely for per acre fixed-


cost management, high variable costs and poor yields on those acres can take a toll on equity. “Rented ground that provides you no opportunity for


profi t oſt en costs you more than just time,” Sipes said. “Eq- uity can be at stake.” Farmers must be realistic about


multi-year losses and the potential for recovering those costs. Many farmers aren’t comfortable walking away from land that has accrued signifi cant losses over time, but doing so can help min- imize the chances of serious fi nancial distress later. “When we looked at our chances


to recover losses, we found them to be very low,” Sipes said. “T at’s when we decided the leases would have to change or we would need to consider cutting our losses.” Structuring new leases can be


challenging. In most cases Sipes ne- gotiated for a modest cash lease with a


INDEXED COST AND INCOME Income


show large discrepencies between what farmers in the Sorghum Belt are spending and what is being taken in. Data provided by USDA NASS .


SORGHUM Grower Fall 2015


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