Thursday, August 07, 2008

Risk is my business..

The swirl of cash rent conversations (it sure came up often at the Corn College) is all over the farm media. (It is interesting to note that all of the articles seem to start with an interview of Murray Wise.  Murray, Murray, Murray! I guess Murray is the Barrack Obama of agriculture media right now, like Kip Cullers was last year).

What I have noticed is the word "fair" popping up everywhere. Almost always this is viewed as an absolute value, and similarly almost always, risk is viewed as a burden.  Therein lies an opportunity.

Suppose, like an insurance company, you made risk your main business, instead of a point of contention with your landowners?  I believe this is really what is happening in the forefront of the grain production industry.  A small number of producers have discovered they can assume all the risks of production and pricing for landowners and have become increasingly expert in doing so.

What this implies is an insistence on "shared" risk or "fairness" actually infringes on their rights to do business in their own way. There is no law preventing those of us who provide this value to our landowners from doing so, and this constant yammering about how rental arrangements "must be" is a holdover from the victimhood mentality of old farm policy.

All the talk about cash renters "walking" on high priced contracts, mining the ground, and cheating landowners is mostly just that.  These guys have been arising in different areas my entire career.  After twenty years or so, I think it is safe to assume their business plan is sustainableBesides, the judge for proper rental compliance is the landowner - not community opinion.

Being the risk stop for landowners is a huge competitive edge and those who master this business skill have the right to offer it on a free market.  And it looks to me like it's selling.

Sounds fair to me.

1 comment:

Anonymous said...

I am one of those "Farm Managers" that some folks want to hurl into the Mississippi river.

I have been running the numbers. Aside from bidding out to BTO's, it looks to me that a some what "outside of the box" 60-40 (60% Landlord 40% tenant)lease redistributes risk and reward. Sure it favors the landlord in "windfall" times. At least though, those landlord's won't be trying to play "cath up" in 2009.

Custom looks good, until you face the reality of the escalated costs and the likelihood of getting the hind teat of the operator's time.

Renting to the BTO's (expert risk managers?) is probably the short run best income/risk decision, until they are the only ones left. Musical farm operators, anyone?