Perspective: It's Past Time To Have The Talk

August 4, 2015 12:00 PM
Perspective: It's Past Time To Have The Talk

You’ve unsuccessfully tried not to think about it. As a responsible grown-up, your duty to face unpleasant tasks is unavoidable. The longer you wait, the higher the stakes. You’ve heard stories about train wrecks after putting off “The Talk” too long.

Maybe you harbor a flickering hope they will get the information from peers. You could risk an awkward conversation—and possibly blurt out stuff that makes you look like an idiot, something you’re pretty sure they already suspect you of being. So you gamely try to convince yourself silence is working.

Yet you also know getting the explanation from “wherever” does not mean getting accurate information. Straightening out a faulty view is even harder than explaining it in the first place.

Another part of your brain says, “Maybe they aren’t ready.” In a few more months, gradual growth in understanding could solve the whole problem. The kindest thing might be to just wait until they ask instead of bringing it up. Besides, you are busy, they are busy and things are OK right now. 

In the cold, dark hours of the night, though, when you wake and find you’ve been dreaming about your cash-flow budget, the chilling truth is inescapable: You have to talk to your landowners about reducing the cash rent. Now.

Cash Rent Ultimatum. You rehearse this day for months, but you will feel no more prepared than when that first realization arose. Perhaps a down-market day triggered it. Or a university report about costs and revenue. Negotiating down is nothing like agreeing to an increase. Rarely does anyone walk away happier. 
Share- and flex-rent beneficiaries often think themselves astute for avoiding the risk of cash rent. One neighbor told me, “We just didn’t go in for that cash rent game.” I wanted to say, “That’s because you were lucky.” Those of us who cash rent land rarely opted for this level of exposure so much as responded to an ultimatum: The rent is $X.

The share rent advantage might become exceptional. The tide seems to be flowing away from shared risk. Some of us struggle (briefly) with our schadenfreude when a smug share competitor is confronted with an ownership change or unexpected bid, suddenly facing all the risk and less reward.  

Perversely, renters who keep landowner interests at heart can experience doubly difficult decisions. You know how important the rent is to a fixed-income widow of modest means, for example. 

I try to balance the urge for shrewd self-interest with the vision of a landowner realizing someone took advantage of them. I’d rather regret the money.

Name Your Price. Let’s say 15% of your acreage is at stake, enough to jeopardize your viability or cause painful cutbacks. The negotiations could go either way with a landowner with whom you have a respectful but arm’s length relationship. Ask yourself what it would be worth to never go through this again. Write down that number in dollars per acre and store it.

Fast forward to the next time you consider buying a desirable field. You are feverishly massaging your spreadsheet to make it happen. When you get to your absolute, teetotal top offer, drop to the cell underneath. Insert the number you have carefully saved from your cash rent drama and add them to get your real value for that property. 

This is not some gimmick. If you successfully renegotiate your rent this year, your brain will likely smooth the painful edges of the process, making the remembrance less uncomfortable. 

Right now, in the grip of uncertainty, you can best determine that figure. What few acknowledge when calculating the “right” price for land is that an owner does not buy just a piece of dirt. He buys the right to choose the farmer. That right has real value, but one economists and accountants seldom consider because it is hard to evaluate, a number that can only be felt. 

That feeling is why you haven’t had “The Talk.” Coping with it is how we will earn much of our income in the years ahead. 

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Spell Check

terry g
hendrum , MN
8/1/2015 08:12 AM

  when i was a kid and started farming, you could pay the average going rent and if you worked hard and were lucky in about 20 years you could rub a couple nickels together and maybe start to buy some land. private treaty of course as there have always been vultures that would not allow a young guy to win at auction. today i do have a good chunk of it about paid for. but now, it seems, i am supposed to subsidize my rented land with the land i own and have went through heaven hell and high water to get it in the good position that it is in. i am soon ready to allow the recreational land (rented land) go to the greedy folks who put it there. you know, farmers and landlords. i have noticed, its hard to negotiate land rent with kids who inherited the land and didn't have skin in the game at any level. they seem to only consider what some jagaloon up the road will give them, even if said jagaloon's farming is less than par. when time comes for me to take rocking chair money, taking care of the resource will trump what the high bidder will pay. i have been impressing that on my kids as some day, they will be the ones renting it out as well.

Person Family
Britton , SD
8/1/2015 05:29 PM

  Some cash rents have to come down, but it seems each year when land comes up for rent someone bids more for it than it is economically fiesable for my family. My point is some rents are to high and some are not. The true culprit in our cash flow battle are all inputs not just cash rent. Fertilizer, chemicals and seed stay too high also. I feel you are saying it is easier to beat some old farmer down on the cash rent than it is to tackle the chemical and seed companies. Thank you


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