The last few years have been tough for row crop farmers across the US. Input costs have risen sharply, margins have tightened, and working capital has been stretched thin. Even with strong yield years, it now takes more cash than ever to put a crop in the ground.
USDA data underscores this ongoing pressure. The USDA Economic Research Service reports that farm production expenses reached record highs in recent years, including 2023, while net farm income fell sharply from the peak in 2022. For many operations, this combination has eroded liquidity and reduced financial flexibility.
As a result, operators are seeking ways to inject cash into their businesses without relinquishing the acres they farm. One option is a sale-leaseback: You sell the farmland to an investor and immediately lease it back under a long-term agreement. This converts your land equity into immediate working capital while allowing you to continue farming the same ground. The added liquidity can help cover rising input costs, pay down operating debt, or provide a buffer for cash flow during lean years. Additionally, you can continue to spread equipment and operating costs over the same number of acres.
Understanding the economics is crucial. The price a buyer pays for the farmland is closely tied to the cash rent you agree to pay under the lease. A higher rent can justify a higher sale price, but it also creates a fixed annual obligation that must be met, regardless of yield outcomes or commodity prices.
Sale-leasebacks can enhance liquidity and introduce more predictable fixed costs into your operation. However, they come with meaningful trade-offs. After the sale, you no longer capture future land appreciation, and rent becomes a non-negotiable expense even in down years.
Taxes are another key consideration. Selling appreciated farmland can trigger capital gains taxes and potential depreciation recapture, which reduces the net proceeds flowing back to your operation. These impacts should be modeled upfront with your tax advisor.
While a sale-leaseback isn't the right solution for every farm, it can be an excellent fit for operations needing to strengthen their balance sheet without disrupting day-to-day management. It can also be a solution when the operator needs to raise capital to purchase a farm closer to home, or one that may fit better into their operation than the farm they are selling.
At Peoples Company, our nationwide team of agents has deep experience in farmland transactions and access to diverse capital sources, including family offices, 1031 exchange buyers, and a broad network of land investors. We've successfully helped operator clients execute sale-leasebacks to unlock working capital while keeping their acres under management.
If this strategy aligns with your goals, please reach out. We're happy to serve as a confidential resource.
