During the last two weeks have I have started receiving land rent inquiries for 2009. It appears several things are causing this early interest, Iowa law, not Minnesota law sets a September 1st timeline for notifying renter’s of termination of rental agreements. We live close to the border so we hear of such things. Minnesota Law is not as specific to date, just reasonable notice.
I plan to work with the local FSA Offices and see about mailing out a 2009 Rent Survey in September, with results available sometime in October. The bigger and better the response the more confidence I have in the data.
Another source of information is the Cropland Rental Rates for Minnesota Counties, the land rental data is extracted from FINBIN, a database of from record summaries of nearly 2,400 Minnesota farmers. The farmers participate in MnSCU Southwestern and Southeastern Farm, Business Management Program at the following website: http://www.extension.umn.edu/distribution/businessmanagement/M1195.html
News of higher crop prices raised questions for some people about 2008 land rent and this discussion is continuing into the 2009 rental situation. Here are some of the things you may want to keep in mind when looking at land rent questions. You can decide whether any of them are useful to you.
1. The good years have to cover the lean years, so when the crop producer is able to do better in a year, they probably can't pay away all the gain in more rent.
2. If the crop producer is able to do better, it makes sense to share some of that with the land owner while keeping the previous point in mind. The land owner's cost of living is going up too.
3. Cash crop producers do not sell the entire crop at the top of the market. Rent expectations probably should not be based on the highest prices heard in the coffee shop.
4. All of the price gain is not profit. Production costs in most cases are higher too.
5. Livestock producers are challenged with higher feed costs.
6. From a landowner’s perspective, we used to consider land rental rates based on a return on the investment value of the land. Because there are non-agricultural factors that influence land values, this doesn’t work very well for a lot of land anymore. If we’d like a 5% return on land we think could be worth $2-3,000 per acre that makes $100 to $150 per acre. We see some land rents like that in some parts of Minnesota, but it won’t work for all the land that might sell for $2-3,000 or more.
7. There could even be some cases where the limited productivity of some land or the inflated value of some land makes it difficult to pay an average rental rate.
8. In addition to a rent rate, owners and renters should consider other factors such as care of the land, prompt and dependable payment, care for fencelines, trees, grass waterways, and other things that are important to them on the landscape.
9. Use written agreements as a record of the commitments owners and renters are making to each other and seek legal counsel for a clear understanding of legal issues.
10. Landlords can file a lien on the crop to protect their chance to get paid if payments are scheduled later in the growing season - in case a renter goes into financial default. Some land owners ask for all the rent before spring work begins. Rent might be a little lower in this case because the producer has more money tied up before there is income from the crop.
11. Rent data and statistics may give a reference point for discussions, but owners and renters need to work together to determine a rate that fits their situation the best.
12. We really are not able to pull a chart off the wall or from a website that says this is what the rent should be in this township or for this type of soil. We do have some worksheets with information that describes the math you might use to estimate some possibilities.
For the renter this usually means estimating the amount of income they might reasonably expect to produce, then subtracting out all the direct and overhead expenses – including what the crops need to return for their labor, management and family living to be worth doing. Risk is a factor. What’s left is what could be considered for rent.
For the landowner it usually means considering taxes, insurance, other ownership costs, whether there can be a return on the investment - what the land might provide toward their living.
13. Rent questions are more difficult today than they were 10 and 20 years ago because things are a lot more different today from farm to farm than they used to be.
14. THE KEY PERHAPS: The best rental arrangements occur when the owner and renter care about how well things work for the other party as much as they care how things turn out for themselves.
A portion of this article was information provided by Dan Martens, University of Minnesota Extension