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Economics of Leasing vs. Land Ownership for Grazing

Wesley Tucker

Summary

The large capital investment required for a beginning farmer creates a significant barrier for many young people starting out. Many have turned to leasing grazing lands and even livestock as a means to reduce the capital needed. Short-term, leasing land is much more profitable than land ownership and much easier on the cash flow. However, in the long term, land ownership has proven itself to be a good investment with a nearly constant, steady increase in value. According to the National Agriculture Statistics Service, beginning in 1950, land values may go up or down in any particular year, but have never fallen below a 6% trend line annual increase. Even during the rapid run up in land values during the 1970’s and subsequent farm crisis of falling prices in the 1980’s, prices once again bottomed out right back on the trend line. At a 6% annual increase, land values double every 12 years. Recent sharply higher commodity prices have caused some land prices to go up as much 15% or more in a single year. So which strategy, leasing or land ownership, truly is the most profitable for the livestock producer over time? They both have their own distinct advantages and disadvantages. This complex dilemma for young farmers is what will be explored during this breakout session.

Details

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