Fontanelle, IA | Otto Ulyate - 1/5/2025 00:12
Here's my scenario... I've posted before but now have better numbers at hand.
Farming in Africa, excuse my use of hectares.
A corn seed company who lent us money to build my own farm (280ha of towable valley pivots) have secured land nearby which again is exceptional quality and have cleared a tree line and put on 200ha of pivots with power and pump houses complete. Fully installed and ready to go, they have spent $1.5m to get the show ready and have offered me to rent this 200ha for $100,000 per year ($500/ha/yr) over the next 15 yrs.
Now, for the numbers.... we should net $1,500/ha before this rent with our seed corn.
The also help finance inputs and are offering to put a drier in (to keep the seed quality up and could allow us to grow a second crop of wheat in one year). We would have to pay the drier off during 5 yrs, so say an additional $50,000 a year for the first five yrs.
Feels like a good deal to me but am I missing something? What does good land and pivots hire for in the US?
I honestly don't know what you are supposed "to feel" regarding this "opportunity" - but my manager in a previous life said that "feelings make bad business decisions"....
10 ton/ha would be around 160 bushel per acre here. that is with hybrid genetics. In seed production, you'll be using INBRED lines which probably Gross yield on average 40-50% of the gross bushels that HYBRID / F1's yield. Through drying/shelling/sizing & grading processes in the seed plant, the ultimate net yield is substantially less than the Gross yield your seed fields produced when the pickers ran through. You need to be crystal clear What yield you are / will be paid on and How that yield is priced. Who is at risk of loss if a hungry herd of elephants or wild grazing animals sweep in during the middle of the night and completely ruin the crop to 0 (zero) salvage value? How would you be paid out? What happens if your neighboring villagers all raise sweetcorn or popcorn or indian corn and the cross pollination from your neighbor's backyard crops ruin the seed quality (both appearance and genotype within the hybrid)
I think the seed company is confusing Net $1500 profit with GROSS $1500 profit that your rent payment of $500 would be subtracted from.
The rent offer might be a "loss leader" that the seed company will / could recoup on the backside from you. ie. they spend $1.5 million upfront to develop the property and will rent it to you for literally Principal (no interest) payments over 15 years. (15 years @ $100,000 = $1.5 million)
I'm not saying this is either a good or bad business deal. But, I'd tread a little carefully. You are obviously a farmer of great status /high integrity/good reputation to have been selected a prospective farmer to work with a seed company. I tip my hat to you for a job well done and I wish you the best while you are understanding this opportunity.
The $250,000 seed corn drier seems cheap to me but if you have to borrow any money to put it up, that $50,000 per year in principal probably needs to add another 12-15,000 in average interest per year over the same 5 years .... so say $63-65,000 per year divided by the 200 hectares = $315 per hectare drier payment |
How should I feel renting good land with new pivots?
