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For decades, the US farmland market has been dominated by local farmers as the primary buyers of land, especially in instances where nearby land was added to an existing farm operation. These farmer buyers used a practice which is still prevalent today, and that is cost averaging of the land price with their other holdings, and the spreading of fixed costs, such as equipment, over more acres.


For an investor considering the purchase of a farm, it makes the most sense to utilize the services of a professional in the sector who can quickly provide the investor with a sense of the market in a certain area, along with advice on the most sensible operating method given the investor’s appetite for risk, and an evaluation of various properties. As we have noted, the market is highly fragmented, and unless an investor gets “grass roots� level advice, he or she may be misguided.


There are several types of operating methods for a farm owned by an investor, and we will touch on three of them here. One is a cash lease of X dollars per acre. The tenant receives all of the crop, and takes all of the operating risk. Another is a crop share lease, where the landowner receives a % of the crop, and may pay a proportionate share of some crop input costs. Third, there is a custom farming arrangement, where the landowner pays all production costs, and receives all of the crop. The cash lease is the lowest risk, and the custom deal is the highest risk, of the three approaches. There are ways to mitigate risk using irrigation, multiperil crop insurance, and crop marketing strategies. There are also hybrids of these farming arrangements that are in use on some crops in certain areas of the country.


These are but a few of the many questions that an investor should ask before putting money into farmland. The importance of utilizing the services of an independent professional advisor cannot be overstated.

Ben Palen is a fifth generation farmer with deep experience in many phases of agriculture. He can be reached at ben@agmgmtpartners.com.


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Farmland Investment Strategies by Ben Palen  

Ben Palen is a fifth generation farmer with deep experience in many phases of agriculture. He can be reached at ben@agmgmtpartners.com. Lea...

Farmland Investment Strategies by Ben Palen  

Ben Palen is a fifth generation farmer with deep experience in many phases of agriculture. He can be reached at ben@agmgmtpartners.com. Lea...

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