A young farm couple wants to rent 400 acres of land in their township. They esti

Question

A young farm couple wants to rent 400 acres of land in their township. They estimate that their average costs of production per acre for a corn/soybean rotation would be as follows: Seed, fertilizer, pesticides $200 Machinery - ownership $60 Machinery - operating $40 Labor - operating $30 Miscellaneous $ 10 $340 They expect the following long-run yields and prices: Corn: 175 bu/acre @ $4.00 Soybeans: 50 bu/acre @ $10.00/ bu Calculate the expected gross income per acre if they plant half corn and half soybeans. How much income will they have available to pay cash rent after all expenses have paid? Would you recommend they bid this high (the amount you calculated in part (b) for cash rent? Why or why not? List at least 2 other methods they might use to calculate a "fair" cash rent.

Explanation / Answer

a.Expected gross income per acre if they plant half corn and half soyabean.

b. They will have $104,000 for paying rent.

c.Yes we recomment to bid high.

d.The other two method of calculating fair cash rent is Return on invest and Share of gross crop value

Corn $ Soyabean $ Total Corn(175 bu/acre*200acre*@4)          140,000          100,000    240,000 Soyabean(50bu/acre*200acre*@10) Less: Cost Seed, fertiliser, pestiside(200acre*$200 each)            40,000            40,000      80,000 Machinery ownership(200acre*60)            12,000            12,000      24,000 Machinery operating(200acre*40)              8,000              8,000      16,000 Labour opoerating(200 acre*30)              6,000              6,000      12,000 Miscellaneous(200 acre*10)              2,000              2,000         4,000 Total cost            68,000            68,000    136,000 Expected gross income            72,000            32,000    104,000

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