Editor’s Note: This is the second installment in a two-part series.

Current trends in farm leasing make it challenging to establish a fair rental price from year to the next. That said, a little preparation can go a long way toward making those conversations productive.  Consider the following practical tips for smoothing that conversation with landowners.

Consider these seven tips

Do your homework. These are not the type of meetings to go into without a plan in mind. Spend some time to know and prepare data and trends occurring in the industry as well as on-the-farm level. Most landowners appreciate seeing actual data from their farm and surrounding farms.  

Understand the landlord’s perspective. Recognize what is most important to the landowner, as each may have different priorities beyond just rent. Receiving a fair income may be important, but there may be several other factors as well. Contrary to perception, the “next generation” is not always all about the money.

Offer value. Illustrate any new farming practices which improve the quality of the farm, increase yields, and tactics you use to reduce expenses. Many landowners may not be aware of the costs of new technologies which indirectly benefit them. Are there other ways you can provide value such as assisting in capital improvement projects, etc.

Discuss market conditions. Use data and trends from third party sources such as what I illustrated in part one of this series. Many of us have short memories, so it’s good practice to remind ourselves of how much things have changed in just a few short years. Take this chart, for example. It could be helpful to simply go back to see what rents have done in recent history.

Where are rents headed?

Average cash rents by state in dollars per acre

*Average for southern third of Minnesota

**Average for center pivot irrigated Southwest Region cropland

Data sources: Iowa State University, University of Minnesota, University of Nebraska and University of Illinois

Chart source: Hertz Farm Management seminar

As you can see, rents generally declined 20% to 25% after the 2013 peak in farm income and gradually rose again as income peaked again in 2021 and 2022.

Show your commitment: Reiterate the desire for a long-term relationship, address the other factors that are important to them, and acknowledge how difficult it can be to determine a fair rental price when there is such volatility in the marketplace from unforeseen factors (weather, trade, global influences).  

Present multiple options: Any good negotiation includes offering more than one option. One I’ve personally had success with, as a followup to verbalizing your willingness to offer a fair price, is showing them a process to do so. Below is an example of a variable cash rent lease which I believe is a good tool to manage land costs regardless of whether prices are high or low.

Chart source: Next Gen Ag Advocates

This is an example of a rental rate reduced from a fixed rate of $300 per acre to a variable cash rent arrangement with a $225 guaranteed base rent. In return, when and if prices recover or the farm experiences profits from strong yields, this illustrates a process where the rent will flex higher as the tenant’s profit moves higher. In certain cases, the landowner’s rent may exceed previous levels. A lease which can ebb and flow with the market reduces some of the lag effect we spoke about in part one of this series.

Build trust: In my experience, every strong landowner-tenant relationship includes open transparency and consistent communication. This will reduce surprises, such as the reasons for a rent-reduction ask, and will build empathy.

Downey has been consulting with farmers, landowners and their advisors for nearly 25 years. He is a farm business coach and transition consultant with UnCommon Farms. Reach Mike at [email protected].