While commodity prices face significant pressure and yields are still up in the air, many producers wondering how they will continue to be able to rent farmland when it’s barely profitable, and in some cases isn’t profitable. How can producers negotiate lower cash rent in the middle of a land rental agreement? It hinges on transparency, says Chris Barron a farmer, consultant and Top Producer columnist.
“As farmers we have a perspective of what we think the land is worth, and the landowner has an opinion of what the land is worth,” he told Pam Fretwell on the Top Producer Podcast. “The better job we can do providing factual information, the more likely we will be able to come to an agreement that benefits everybody.”
Here are three tips to help you have a tough discussion with your landlord.
Be Upfront. When producers rent land it’s all about communication, according to James Mintert, director of Purdue’s Center for Commercial Agriculture and professor of agricultural economics. In some cases farmers might rent land from the same farm ownership for decades. Mintert says if you’re in a long-term rental relationship, even if your lease renews annually, you need to view it as a partnership.
“That means keeping your partner informed of what’s going on,” he says. “When returns to row crop production were increasing dramatically, people who were transparent with their landlords about how returns had changed and made agreements to increase rental rates, they are in a better position now to go back to landlords and ask for a shift down.”
If you keep your landlord informed and you work together to make sure the arrangement is benefitting everyone, you’re in a better position to change things as the economy goes up and down.
Have A Good Reputation. When a farmer leases land long term, you become a steward of the long-term productivity and sustainability of that farmland.
“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 condition long term.”
For Jason Wykoff of Indiana this was a sticking point for ultimately walking away from his lease.
“We want to make long-term investments and build soil health,” he 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 may be hesitant to shift rental rates down based on commodity prices because there’s a chance they could come back up within the terms of the lease. One option Mintert suggests farmers consider is working with landlords to lower your rental cost is to establish a risk sharing arrangement.
“Establish a base cash rent and if gross returns are above a certain amount then perhaps you start sharing profits at gross revenue amounts above a specific threshold,” he says. “That allows the landlord to share in an unexpected increase in returns.”