Ask a young farmer what he or she is most frustrated about and most often the answer is the same: land. Often times farmer tenants and landowners clash over fair cash rents.
But what if better marketing performance could resolve those issues, especially for young farmers?
That’s the premise laid out by Keith Rogers, a long-time economist, farm manager, market analyst with selectivehedging.com, and author of Hedging Works: Myth or Reality?
I’ll admit: just saying ‘be a better marketer’ is easier said than done. Still, Rogers has put some teeth into his theory, so let me share it.
It all comes down to the potential impact each party has on end-of-year returns, so what goes into that pot? Yield, price, and cost of production. Going into a rent negotiation, farmland has an average yield potential that increases over time. Take that yield potential along with county average prices and annual average costs (provided by universities, for example), and use those three averages to calculate average earning power/fair rent.
What fixed cost does a tenant bring to the table? A small (compared to land) per acre investment in equipment. “If you want to be honest, land contributes 80% and the tenant 20% to productivity,” Rogers says. “You have to be honest about what resources need to be paid for.”
But what if your tenant is above average in both management (resulting in higher yields) as well as marketing (resulting in higher prices)?
That’s the secret sauce. In effect, you hold your fate in your own hands by expanding that pot at the end of the year. A tenant can increase the size of the net revenue pot by increasing yield above local average for similar land, and by cutting costs.
And they can significantly increase revenue with higher-than-average marketing performance, argues Rogers.