You want a fair rent and so does your landlord, but how do you arrive in this land rent utopia?
Commodity prices have gone up since last year, but so have your input costs. Be ready to discuss both and your current projections with your landlord, suggests Gary Schnitkey, University of Illinois ag economist.
“For 2022, projected prices are $4.50 per bushel for corn and $12.35 per bushel for soybeans,” he says. “Those prices are well above the average prices from 2014 to 2019 of $3.66 for corn and $9.91 for soybeans.”
These uncertainties, Schnitkey says, could make a rental agreement with payments contingent on economic outcomes, such as a variable cash rent or a share rent arrangement, a smart move.
Even if you aren’t ready to change the lease format, share your financial data with landlords, says Alan Hoskins, president for American Farm Mortgage and Financial Services.
“A landlord may go to the coffee shop and hear numbers, but when they can see numbers relating to their own farm it can make a big difference,” he says.
PLAN FOR 2022
For 2022, Mark Gannon, owner of Gannon Real Estate & Consulting, says rents are going up 10% or $25 per acre.
“That seems like the easy way out when corn prices are up at least 45% and soybeans up 33%,” he says.
Instead, Gannon uses the guideline that the land should receive at least a return of 33% of the gross income for corn and 40% for soybeans. For example:
200 bu. corn x average price of $4.50 per bushel = $900 gross per acre; 33% of gross = $297 per acre for rent.
60 bu. soybeans x average price of $12 per bushel = $720 gross income; 40% of gross = $288 per acre for rent.
“Everyone says they want to be fair, but the situation has changed and will change again,” he says. “That is a big reason we use flex leases almost exclusively. That helps you get off the ‘guessing and guilt’ train and join the ‘open communication and fair leasing’ track.”
