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IANR News Service: News and Publishing, Institute of Agriculture and Natural Resources, University of Nebraska-Lincoln, P.O. Box 830918, Lincoln, NE 68583-0918. http://ianrnews.unl.edu/static/0903180.shtml
LINCOLN, Neb. & Landowners and tenants face difficult leasing decisions for the year ahead, a University of Nebraska-Lincoln agricultural economist says.
It will be especially challenging to determine a fair and reasonable leasing agreement for both parties, said Bruce Johnson, UNL agricultural economist.
"Production agriculture is already risky, but faced with the current financial crisis there seems to be little disagreement that we are, in the very least, staring into the face of a potentially long and deep global recession," Johnson said.
In recent years, Nebraskans and others in the Midwest have enjoyed profitable times. In addition, thanks to the more conservative decisions of both lenders and borrowers, farmers are not experiencing the degree of economic hardship facing many other regions of the country, the Institute of Agriculture and Natural Resources specialist said.
"Nevertheless, serious impacts on the U.S. agricultural sector are still being felt," he said. "As seen by the recent down-turns in agricultural commodity prices, we in the nation's heartland are closely tied to the emerging realities of a global recession that could significantly curtail demand for both food and fuel."
When it comes to farm leases, Johnson said both the tenant and landowner need to realize that risk exposure going into 2009 is greater than ever before.
With a cash lease, the tenant carries the bulk of the risk, and the landowner must realize this risk is growing.
"Tenants can't simply continue to bid up cash rents in light of the fact that there is serious risk exposure on both the purchased-input side and the commodity price side," he said.
The best advice, Johnson said, may be to leave 2009 cash rent rates at 2008 rates assuming those 2008 rates were set at reasonable and competitive levels for the local area.
When one loads current conditions into the UNL Farm Lease Calculator, the results would suggest little economic justification for raising 2009 lease rates much above the 2008 levels. The UNL Farm Lease Calculator and other leasing resources are available on the Department of Agricultural Economics (http://www.agecon.unl.edu) Web site.