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Verbal contract is still a contract

I agreed to my landowner’s request for $15 per acre more cash rent next year when it was raining and markets were up. Now they’re down, and I should have offered less, not more. Am I stuck?

Verbal contract is still a contract

Meet our panelists

David Erickson, Farmer, Altona, Ill.

Mark Evans, Purdue Extension Director

Dan Gottschalk, Financial Consultant, Delphi, Ind.

Steve Myers, Farm Manager, Busey Ag Resources, Leroy, Ill.

I agreed to my landowner’s request for $15 per acre more cash rent next year when it was raining and markets were up. Now they’re down, and I should have offered less, not more. Am I stuck?

Erickson: It sounds clear to me that you agreed to the cash rent rate for 2010. If you now feel uncomfortable in meeting your obligation, then discuss it with your landowner. You must realize that asking to renegotiate this lease may give the landowner the opportunity to terminate the lease and seek a new tenant.

Evans: Legally, you are stuck. Indiana lease law says verbal and written agreements are binding. Learn from this when making future agreements. Make a plan to budget future increases from cutting costs or boosting yield. The $15 is about 1.5 bushels of beans and 4 bushels of corn at current prices (as of early January). Next year’s weather most likely will affect you either positively or negatively more than 1.5 bushels of beans or 4 bushels of corn. Don’t be glum yet!

Gottschalk: You may be stuck. It depends on your relationship with your landlord. If you want a flexible cash rent lease, several examples are available. If you want a fixed rate lease as prices and costs change, someone will always think they are on the wrong side. If markets go above the level of the time you negotiated the price, will you be willing to renegotiate? The biggest risk you face is causing your landlord to consider other renters. Be careful in your approach.

Myers: I believe a deal is a deal. The cyclical nature of markets can lead anyone to second-guess themselves, but I suggest you stick with the arrangement. For next time, consider taking advantage of pricing opportunities as they present themselves to combat such remorse.

Feeling lied to

In the fall of 2008, I booked my seed order to get a 10% discount. After my salesman had assured me it was the best price all season, I heard other farmers were getting the same deal in the spring of 2009 as the seed company attempted to get rid of inventory. I feel like I was lied to. Going forward, I feel like I’m caught between a rock and a hard place. I want someone I can trust, but I need to purchase the best seed for my farm. Would you change suppliers?

Erickson: It appears you still got the best price, but had to commit to it earlier than some other customers did. You probably had the opportunity to buy elite hybrids, some of which may not have been available later. I doubt if your salesman knew how the company policies were going to change as the year progressed, so I would not blame him.

Evans: The business climate changes for seed reps just the same as the farmer selling grain. Most likely with the wet spring of 2009 and the shift to soybean acres rather than corn, there was corn sold at less-than-normal prices. If the dealer has been reputable otherwise, don’t let one incident change your entire relationship. Certainly discuss this matter with your seed rep. At the time the rep sold you the seed, he may have been telling you what he most honestly knew at that time.

Gottschalk: If the seed is top quality, the price is reasonable, and it performs well on your land, I would work to reconnect with the salesman. I would think very hard before I changed. If you are determined to change based upon your answers to my three points, try a few acres with another company. It takes a long time to develop trust and just a few minutes to destroy it.

Myers: If you want to stay with that same company, a conversation with your salesman is in order. Discuss the specifics, supported by facts, of what has caused this situation. After that meeting, if you still do not trust the supplier, it is time to change.

This article published in the February, 2010 edition of PRAIRIE FARMER.

All rights reserved. Copyright Farm Progress Cos. 2010.

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