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Adjusting Cash Rent Not As Easy as Some 'Experts' Make It Sound

Adjusting Cash Rent Not As Easy as Some 'Experts' Make It Sound
Getting landowner to understand shift in ag environment easier said than done.

In answering a question related to cash rent for the December issue of Indiana Prairie Farmer, the Young Farmer Forum panel suggested trying to take emotion out of the decisions. That is easier said than done. One good point the panel made, however, was that both husband and wife should at least communicate what's going on as these negotiations begin, even if the wife works in town.

Getting landowner to understand shift in ag environment easier said than done.

While some ag economists are projecting cash rents will likely go down for 2015, they're noting they won't go down nearly as much as return to labor and management. Based on historical trends, cash rents do tend to fall back in an extended period of lower crop prices, but they don't move down as fast as the net profit to the tenant moves down.

What that means is that on paper, at least, you ought to have a bargaining tool – lower crop prices and lower expected net income – to present your case for lower cash rent. If he or she is willing to take less per acre for next year, it may not be as much less as you think it ought to be. Part of that may depend on if you've been paying at the right rate, too much or too little compared to the ag economy in the past few years.

Related: Cash Rent Rates Should Be Renegotiated for the 2015 Crop Season

Word on the 'country road,' so to speak, is that paying less rent may sound good on paper, but not all landowners have gotten the message yet. In one case, a new owner took over a farm. His answer to the tenant was that if he wanted to farm it he could, but he would pay the same all his other tenants pay. And it's the same they've paid in the past. It would amount to a sizable increase. Plus, this landowner uses a variation of a flexible lease that actually pays him more if the tenant makes above a specified level of net profit.

So much for rent going down. The alternative, of course, is to pass on the farm. That can give someone else a foothold in the neighborhood. It may also mean that in areas where some people no-till and others don't, no-till farms may go under the plow if the new tenant believes in tillage, and the landowner sees more value in top dollar rent than in maintaining the benefits many claim for soil health in long-term no-till fields.

What's the bottom line of all this? In theory cash rents should go down. Even ag economists say they won't likely go down as much as return to land and management, often called profit, goes down for farmers due to expected continuing lower crop prices.

So what do those in the trenches see? Obviously there are cases where rents won't go down at all- they might even go up if transitions in ownership are involved. Keep the pencil sharp, and try to arrive at a rental arrangement that both sides can agree is correct given the challenges agriculture is facing right now.

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