When it comes to land leases, farm managers are often caught between a rock and a hard place. They work for the landowner but they also know how much revenue farmer-tenants need to make a profit.
The cost of land will be a big factor in 2016 profits. That's why this winter may be a tough one for land lease negotiations. I asked Central Illinois farm manager Steve Myers, of Busey Bank, to share his perspective on the coming year:
I see cash rents in 2016 continuing to soften. In 2014-15, rents went down, probably 10%. I believe 10% further drop in cash rents is certainly within realm of expectations When we sit down to negotiate the lion's share of leases, one thing that will help guide us is the post-harvest 2015 activity in the grain market. A lot can happen – maybe yields are short and prices rally back to $4 corn and $9.50 soybeans. That changes the dynamic quickly.
We want farmers to be profitable. Today's farmers are pretty sharp. We're working with them for a reason.
Farmland owners do appreciate their farmers. You always hear that one big number - so and so rented land for a zillion dollars an acre. There will always be those upper echelon rents that are talked about at the coffee shop, but the vast majority of cash rent agreements work for both parties.
In most cases those high cash rent farmers end up as wreckage alongside the road. You have to weigh the risk, but if you're going to take a whipping one year, don't go back to the same landowner a year from now. It probably would be a good time to reconsider your relationship. Meaning, you may have to walk away.
This is the time to sharpen the pencil. Ask, what can I do to improve my operation? Is it specialty crops? Do I take my semi and haul grain part time? Do I diversify? How do we eke out a living right now?
The most important thing is, know your numbers. Be honest in your negotiations. If you know family living costs, what are you willing to change for your family to live on? Every grower has to make the decisions that are best for his business.
In the last four to five years upwards of 80% of our landowners have converted to a flexible cash rent lease. Cash rent does not have to be a dirty word, and when we have big differences they sometimes can be mitigated through flexible cash rent.
I'm preaching togetherness these days. We've got bumps in the road, but it does not have to be an us-vs.-them mentality. We're not going to grab hands and sing kumbaya, but even in difficult times we can strengthen relationships, as long as we keep communicating with each other.
Read more on this topic in the Oct. 2015 issue cover story, "Cash rent standoff".