How to renegotiate cash rents
My landlord’s farm management company served me notice of termination on my cash lease. Farm manager says he’ll negotiate a lot of rental agreements, including mine, between Jan. 1 and March 1. How do I prepare for this meeting?
What figures or records should I show the farm manager who represents my landlord? I think high rents farm managers are demanding for their landowners are pushing ag toward a financial wreck. But they’re finding farmers willing to pay high rents based on today’s grain prices.
Edwards: If you have a summary of your costs of production for 2011, along with projections for next year, you will have a good idea of what you can afford. Combine this with expected yields based on past crop insurance data and forward price offers for harvest 2012 from local elevators or processors, and you will have an estimate of margins available before paying rent. You could also estimate your potential crop insurance guarantee using current futures prices for December 2012 corn and November 2012 soybeans, minus expected basis.
Swanson: I agree, the high cash rents currently being negotiated could potentially be a problem financially should the markets recede. However, any adjustment downward will be difficult to achieve because of competition for farm leases.
You need to individualize the farm you rent with actual yields over time such as your actual production history used for crop insurance records or the corn suitability rating. There is a tendency for farm managers to use a blanket set of lease terms for all farms without consideration for the different production potential of each farm.
If you have segregated the input expenses for that farm, reviewing those with the farm manager might be beneficial as well. Also, there are a number of variable cash rent leases that have been developed that take into consideration both yield and market price that can be adjusted both up and down based on current conditions.
Gassett: With intense competition to rent land, farm managers have had no difficulty finding farmers willing to pay high rent based on today’s grain prices. Suggestions of things you could take to the meeting are a list of nonfinancial benefits that the landlord receives by renting the land to you. Items a landlord may appreciate are conservation tillage, well-maintained waterways, brush control, mowed ditches or well-maintained tile lines.
At time of this writing, December 2011 corn is trading at about $6.50 per bushel, and much of the Corn Belt has experienced two years of favorable yields and dry high-quality grain.
You might point out that as recently as June 2010, December 2010 corn was trading at about $3.50 per bushel, and as recently as 2009, much of the corn crop was wet and of poor quality. This demonstrates that farming is a cyclical business, and you could propose a cropland rental agreement that is a base rent plus a bonus to accommodate these cycles.
This article published in the December, 2011 edition of WALLACES FARMER.