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Perspective

February 6, 2009
By: John Phipps, Farm Journal Columnist
 
 


You Made the Deal; Now Keep It

There's no shortage of serious advice on cash rents negotiated in 2008 (the early "fun" months) and the consequences now facing renters.

The gist of all I have seen is this: The world has changed, and farmers need—nay, are entitled to—a "do-over." Curiously missing in the advice to nervous renters is executing the contract as written. Simply fulfilling these contracts may be too obvious a solution to list, but I think it should be at least mentioned. At the top of the list, actually.

There are justifications to persuade landowners to shift to lower rents because prices have dropped, schemes to off-load a portion of risk on owners with variable rents and philosophical opinions about "fairness." These arguments are focused on the good of tenants. However, they are based on the presumption that landowners are in better shape to make adjustments and therefore should provide the answer to suddenly above-the-market rates. Some owners are wealthy, but in the absence of data showing comparative net worth, for example, the argument seems based on convenient stereotypes, not actual humans.

To be sure, many suggested when profits poured down like water that a little kicker to the landowner would not be a bad idea. It left me with the impression of tipping your waiter, not really dividing windfall gains.

You can be voted out. One reason is the peculiar conviction of our industry that what exists right now is the way things should be. In other words, those who rent ground today should be accommodated even at the expense of those who would like to rent. The power of incumbency doesn't apply only to congresspersons.

Consequently, losing ground because you bid too high, likely due to competition, of course, seems draconian and unsociable—from the view of the sitting tenant. Adding to that the implied view of landowners as less deserving of risk protection, tenants begin formulating worldviews that provide escape clauses for special people like themselves. (But certainly not fertilizer dealers!)

It is this abstract dissociation from owners that is most troubling. My owners are nice people looking at 401K meltdowns, diminished pensions and financial setbacks. Rather than piling on to nudge my net income in 2009, making sure their farm investment performs can be a welcome refuge. For an industry in which tenant security is eroding, a chance to engender trust, even at significant cost, should not be dismissed lightly.

Morally right. I'm looking at crisp new rental contracts, wondering where my head was last March. But I also see a credible case for painfully keeping my word.

To begin with, it is morally right. As sanctimonious as this sounds, trust is evaporating in our economy and promoting contract renegotiation simply because economic conditions have changed voids the very reason contracts are forged: to provide both parties with predictable future actions.

Also, when I talk with prospective landowners about renting ground, I want to say I have never reneged on an agreement.

What if prices recover or take off? It's not like we have been good at predicting them. That would make an interesting background for 2010 rent conversations. More importantly, if we do not support contract sanctity, it encourages the very rent speculation that outraged us.

Tomorrow will dawn and other ground will come up for rent. Promise keepers (to borrow a phrase and a principle) will have one powerful augmentation for their offers: trustworthy under duress, not just prosperity.

Finally, 2009 is a chance to prove how valuable an offer to absolutely assume risk can be to a landowner. The maxim that risk should be shared in rental agreements ignores those of us whose business plan is to provide risk protection for landowners. This year will likely raise the premium on that service for future negotiations: In 2010, a lower offer from a proven payer may be worth more than a higher offer from a renegotiator.

All told, 2009 offers a unique chance for renters to differentiate from many competitors. And contract fulfillment is a tactic at least as practical as meticulous roadside maintenance or colorful newsletters.

So how about this alternative guideline for 2009: A deal's a deal.

 



John Phipps, johnwphipps@gmail.com, is a sixth-generation farmer from Chrisman, Ill. He is the TV host of "U.S. Farm Report." For local station listings, log on to www.AgWeb.com.

Top Producer, February 2009

 

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