Survey: High Rents Might Lead Some Farmers To Say 'No Thanks'

November 22, 2016 10:57 AM
 
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For Indiana corn-and-soybean producer Jason Wykoff, determining how to handle landlords who aren’t interested in long-term relationships has become easier over 22 years of farming. Just this past year, he says, he walked away from 1,200 acres because a landlord had asked too much for rent when it came time for renewal. That’s a growing trend among farmers, according to Pro Farmer’s annual LandOwner Survey.

“We find 44% of our members and subscribers are willing to walk away from a cash lease if that lease is not lowered going into 2017,” says Mike Walsten, editor of LandOwner, part of the Farm Journal Media family. The percentage of producers who “absolutely will” walk away if there’s not a significant cut in cash rents is up 2 points from a year ago.

There isn’t a widespread move-ment to break contracts and walk away from cash rents, points out James Mintert, director of Purdue University’s Center for Commercial Agriculture and a professor of agricultural economics. Yet it’s very common for farmers to not renew a lease because a landlord won’t budge. 

“Based on the returns, from my perspective, that’s entirely reasonable,” Mintert says.

3 Tips to Negotiate Lower Rent

Be Upfront: When producers rent land, it’s all about communication, says Purdue University’s James Mintert. Even if you’re in a long-term rental relationship or if your lease renews annually, you need to view it as a partnership. “When returns to row-crop production were increasing dramatically, [some] people were transparent with their landlords about how returns had changed and made agreements to increase rental rates,” he says. “They are in a better position now to go back to landlords and ask for a shift down.”  

Have a Good Reputation: When farmers lease land for the long term, you become a steward of the land’s long-term productivity and sustainability. “It’s recognizing as a farmer that the landlord owns an asset that has a very long lifespan,” Mintert says. “You want to have the reputation of keeping that asset in good condi-tion.” For producer Jason Wykoff of Indiana, the issue proved to be a factor in walking away from 1,200 acres this past year. “We want to make long-term investments and build soil health,” Wykoff says. “Without a good strong relationship and a contract that allows for that, there’s no room to do those things.”

Consider a Risk-sharing Arrangement: Often, landlords are hesitant to shift rental rates down based on commodity prices because there’s a chance prices could increase within the terms of the lease. Mintert suggests developing a plan to share the risk with your landlord. “Establish a base cash rent, and if gross returns are above a certain amount, then perhaps you start sharing profi ts at gross-revenue amounts above a specifi c threshold,” he says. “That allows the landlord to share in an unexpected increase in returns.”

Reasons For Leaving

Wykoff decided to not renew the 1,200-acre lease when his landlord ended their share-farming arrangement and requested cash instead. Wykoff says the price was too much for him to 
be profitable and his relationship with the landlord was not strong. 

“This situation started us on a path of deciding we had to put landlords in two categories: one that was those that value relationships and want to work parallel with us into the future, and those [who], for whatever reason, just need to chase the highest rent,” Wykoff says.

Mintert advises farmers to talk to landlords about lowering rates before washing their hands of a piece of rented ground. “You’ve got to have conversations with your landlords and explain how the row-crop business has changed,” he says.

Cash-rent rates are declining, which is good news for farmers. In Wykoff’s home state of Indiana, rates have been on a steady decline since peaking in 2014, according to a Purdue survey conducted in July. 

“I don’t think that’s reflective of people walking away from leases,” Mintert says, “but more reflective of farmers having conversations with their landlords that prices from years past aren’t the world we live in now.”

Trend Picks Up

USDA data support a nationwide cash-rent rate decline. This year, rates fell 6% nationwide year over year, the first time that’s happened since 2007. And 74% of farmers included in the LandOwner survey expect cash rents to decline next year.

“This suggests that the issue of decreasing the cash-rental rate for 2017 will likely come up in three out of four rental rate discussions this fall and winter,” Walsten says.

“The decrease anticipated is relatively restrained, however. Some 46% say they expect rents to decline by less than 10%. That’s up from 42% who looked for a decline of less than 10% in 2016 cash rents.”

Whether farmers stick with a loyal landlord or walk away from a pricey cash rent, they will face a number of difficult decisions over the next year.

“Rent decisions can be emotional,” Wykoff says. “Once we try to take the emotion out of it, they actually then become very easy.”

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Comments

 
Spell Check

Michael
Dallas City, IL
11/22/2016 04:43 PM
 

  With all the variables and market fluctuations the renter and landlord need to meet at the table and come to an agreement on a rent where everyone makes a profit. Personally to keep a good farmer you need to work with them because they are an asset to care of the land. Cash Rent went through the roof when corn and soybeans were high, but it was just a bubble in time. Now we are in a price slump and the inputs continue to increase. Rows can only get so narrow to get maximum production. Paying a lower cash rent may be the only factor in the equation where the farmer can see profit.

 
 

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