Making sense out of land rent….

Tue, 13 Jan 2009 22:15:00 +0000

The past few months have been exciting and eventful. I’ve been with Minnesota Extension now for four years. As of October 1, I assumed a new position that moves me into a role with more emphasis on education programming. From the first day in the new position the most frequently asked question was, “what’s happening with land rent?�?
While most (not all) arrangements have been finalized for 2009, discussion on this topic will continue through the winter months. The toughest part about land rent is that it is a negotiated deal. In most cases, both parties (the landlord and the tenant) want to be fair to each other, but the amount of reported farm profitability over the last two years has gained a lot of attention. Local bidding wars and aggressive producers trying to increase their acreage have pushed some rents in southern Minnesota well above $200 for 2009 (in some spots a LOT higher than $200).
The apparent concerns with these high rental rates are:
1. Significant increases to input costs (fertilizer, seed, chemicals & fuel)
2. Current commodity prices
Land rent is only one of a whole list of expenditures that has increased significantly over the last several years. Land rent really should not be based upon the local coffee shop talk. Considerations for soil productivity, drainage and previous yield data are key parts of the decision process.
The role of Extension in the land rent dilemma is clear: information and education. I’ve had people call my office and before I can get a pen out of my pocket, they’ve told me the county, township and section the property is in…. and then ask what the land rent should be. I’m very careful to inform the caller that I can guide them, but they need to make the decision on what to charge or pay.
Information that provides a range of land rents for a county is helpful as that gives both the landlord and tenant a starting point in the process. FINBIN is a financial database maintained by the Center for Farm Financial Management at the University of Minnesota. The FINBIN database has financial information from over 3000 producers and is public information. Access to the database is FREE. The link for FINBIN is:
http://www.finbin.umn.edu/
From the FINBIN page you may run summary or benchmark reports to get averages for a variety of input costs, including land rent. Once you get into the FINBIN database, the input screen allows you to set the criteria for your search. You can search a specific area of the state or an individual county or group of counties. The possibilities are just about limitless.
The only problem with using FINBIN numbers is that the 2008 data will not be collected until January of 2009….so you are always running a year behind. However, running a multi-year report can give you a very good look at trend information.
One other good resource for land rent information is an Ag. Business Management publication titled, “Crop Rental Rates for Minnesota Counties�?. This report was compiled using data from the FINBIN database and shows multi-year trends for many Minnesota counties. This publication is available in PDF format at the Agricultural Business Management web site (as of the date of this post, it was the third article listed):
http://www.extension.umn.edu/agbusinessmanagement/
While at the Agricultural Business Management web site, also check out the “Projected 2009 Enterprise Budgets�?. These budgets estimate input costs for the 2009 crop and can be a great tool for playing a little “what if�? with land rents.
Another suggestion is to look seriously at a “flexible lease�?. A “flex lease�? is a lease arrangement with a base cash rent amount. At the end of the crop season, the landlord may be entitled to an additional rent payment based upon crop yields and market price. This offers the landlord more up-side potential in a good year, but the landlord also is sharing more in the risk. Conversely, the producer has rent protection in a poor year, but increased rent expense if things are good.
Bill Edwards at Iowa State has assembled quite a bit of material on farm leases and flex leases. This information is located at:
http://www.extension.iastate.edu/agdm/wdleasing.html

Rob_Holcomb

Making sense out of land rent….