Re: Can someone explain farming on shares?

Posted by Steve - IN on June 18, 2002 at 15:47:33 from (12.222.1.20):

In Reply to: Can someone explain farming on shares? posted by James on June 18, 2002 at 14:07:44:

A guy could write a whole book on economics and valuation to answer that question. Basically, it's whatever you work out with your neighbor. There are a couple of ways of approaching it.

1. Let's say we want to make reward commensurate with risk. He has at risk the product of his land from weather catastrophes, pests, drought, etc and he's just planted some new fields of prime alfalfa. You have at risk the loss of utility for your labor and capitol equipment for a few days 2 or three times during the season. If you go that way, he gets a bigger share. If you're having it done as you say, you have very little at risk.

2. On the other hand, let's say that you're responsible for the inventory of hay whether it sells or not. In that case, the contract suppliers of land, labor, and equipment have far less risk than you -- they get paid whether you manage to sell the stuff or not -- and are therefore generally given far less of the reward. If you split the proceedes from whatever is sold, and he works just as hard to sell it as you do, then the pricing usually splits fairly evenly between the 2.50 minus .90 you quote -- or, he decides he doesn't need your services and hires a baling crew himself.

3. Cost versus sale pricing. Land is generally considered to be just another factor of production... like labor and capital equipment. If, in your case, the land owner is going to get paid for whatever is baled if it sells or not, and you have a big truck to haul the stuff to a market 100's of miles away where the prices are higher, then market forces usually works themselves out to where you get a lot bigger piece of the pie.

Don't know all the specifics from your question, but the basic factors a market considers are generally risk level and unique contribution to the value of the end product.

Steve

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