The Rural Voice, 1982-04, Page 114
involved, the more costly is the error. You
must make your errors on paper before
you make them on the farm."
Hedging is a management tool which
Mooney encourages quite strongly, and
not with just cash crops. He recommends a
combination of forward contracting and
hedging and trying to spread out the
marketings of a product. "The key is to
figure out what your costs are going to be
and then don't be greedy," he says.
"You'll never go broke taking a profit."
It is Mooney's opinion that the normal
way of financing does not take into account
the protection that is there if you are
hedged. The use of hedging as a
price -protection tool is becoming more
common and the banks are working
towakds it. In Canada we have a long way
to go compared to American banks in
terms of hedges. He explained that
tripartheid agreements between the
farmer, the banker and the broker are just
getting started in Canada. The bank
agrees to put money up for margin calls, if
necessary, and the bank has security on
the contract and the cattle (or hogs or
grain).
Mooney would prefer to work with
clients who are using a management
consultant to avoid getting into financial
trouble. "Unfortunately," he says "to a
large extent. the ones we work with
usually come to us too late and that's a big
problem."
He had one bit of free advice for all
farmers: "If you are really in trouble with
your farm operation, don't leave the
telephone call for help too late."
Pros and cons of
Leasing land
by Gisele Ireland
Whether to lease land or buy is a
decision all farmers face at some period
in their career.
Investigating all the possibilities and
making the project work on paper is
criteria number one.
In the present economic situation, if
expanded acreage is a necessity, leasing
would have definite advantages. Finding
land and renting it from someone (lessor)
and working it to show a profit to yourself
(lessee) is something that has to be
worked out carefully and always with a
written lease.
If you are the lessor and looking for a
farmer who will run the land the way you
wish, you would look at several factors:
1. Has the lessee experience and has
he been doing a good job with what
he already has?
2. Is he a responsible businessman?
3. Is he ambitious and willing to use
modern farm practices?
4. Does he take good care of livestock
and equipment?
5. Does he have adequate manpower
and equipment to operate more acres
successfully?
If you are the lessee and looking for
land you would take into consideration
the following points:
1. Is your landlord interested in you
and your ability to make a success of
the farm rented?
2. Is it going to be difficult to decide on
a fair and economical rental agree-
ment?
If a farmer requires extra corn acreage
and he calculates that he would yield 90
bu. per acre and the price at $3/bu., he
would calculate his input costs and would
find that he could afford S40/acre for a
rental fee. The farmer who rents the land
would require a return on his investment
and if he paid 51200/acre with a 13%
mortgage he would determine mainte-
nance and investment costs and find he
could rent it out for no less than $72/acre.
(the figures used are from a table of
averages). The difference would be
where the lessee and lessor would have to
negotiate.
Leases vary in content. Some run on a
yearly cash basis. Some have a longer
term (2-3 years) basis where the
three-year crop could be averaged out on
a profit level. The longer lease has more
advantages to both parties concerning
some security and hopes that commodity
prices would strengthen. There are also
leases where the lessee and lessor share
the risk on a profit-sharing basis. All
leases should be written with the terms
clearly defined to prevent misunder-
standing at a later date. No matter how
well you get along with your landlord or
lessee, a handshake deal could mean
problems down the road.
Many landowners have reasons for
owning land other than strictly as a
business investment. Absentee land-
lords, retired farmers and people who
enjoy living in a rural residence receive
benefits from owneraltip of land that are
difficult to measure in economic terms.
They consider land as a good hedge
against inflation in addition to the
security and aesthetic value it may have
for them. In these cases, the landlord
may be willing to accept a much lower
rent than would normally be expected
from an investment.
HYBRID GILTS,
YORK CROSS
LANDRACE -
OPEN OR BRED
Also
R.O.P. tested and health
approved
PUREBRED LANDRACE, YORK
AND CROSSBRED BOARS
Phone
BRANDY POINT
FARMS
Willy and Kurt Keller
RR#1, Mitchell
519-348-9753 or 348-8043
THE RURAL VOICE/APRIL 1982 PG. 9