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3 practices for your cash rent approach

Today’s ag economy requires a different mindset around cash rent.

In this economic downturn in ag, one very important area to manage carefully is cash rent costs. Managing this aspect becomes even more critical if the farm is renting a large percentage of its acres.

I think the farmers who are doing a great job of managing their cash rent have committed themselves to doing three main things. First, they know their exact cost of farming each piece of rented ground.

They’re determining whether the rented ground is performing at levels worth farming. They’re focused on building strong relationships with their landlords, as well as honing their negotiation skills for rent discussions.

Each of these three areas requires some analytical thought combined with the dedication to follow through with what could be potentially tough conversations or difficult decisions. The farmers that will be the most successful at this will keep their farm’s overall goals in mind. They will be able to carry out the decisions that are best for their farm business as a whole, even if it means stepping outside their comfort zone.

Three questions

  1. Is this ground worth it? Managing cash rent costs starts with being financially savvy about what you’ll pay. The return your ground is giving you must be part of your analysis in determining how much you’re going to be willing to pay for rent. Of course, this includes how that ground is producing and all the costs involved in farming it. You need to know what that number is for each piece of ground you’re renting or thinking about renting. That will help as you determine whether the ground is worth what the landlord is asking for, or if some negotiation may be in order.
  2. Am I working to build and strengthen the right relationships? When it comes to having a good relationship with your landlords, it’s all about knowing who they are and what they want most from you. Do you know what matters most to each of them? The answer might not necessarily be what may first come to mind. Work intentionally to grow relationships with them through proactive communication, including questions to help uncover their main priorities for their ground and for their landlord-tenant relationship with you. If you have multiple landlords, you’ll want to determine who you need to get to know better and which relationships are top priority.
  3. What am I doing to enhance my negotiation skills? If you haven’t already needed to sharpen your game in this area, the time is coming where you’ll want negotiation skills in your back pocket. The first step is to have already answered the first question above: Is this particular ground worth it? How much am I willing to pay for this ground – and what am I not willing to pay? Using your farm’s numbers to understand those thresholds is critical. The other part is being open and willing to propose some different ways of approaching rent to your landlord – such as a flex rent lease. Bringing them different options that work toward a win-win for both of you can demonstrate that you’re offering them the opportunity to share in the benefits of good years, as well.

Work to get a proactive game plan in place to manage your operation’s cash rent costs. This summer isn’t too early to start doing that. Look into the different lease options that are out there, especially if you’re dealing with cash rents you want to negotiate. You can talk with one of our ag finance advisors about that and the variety of options you might propose to your landlords.

Read the current issue of the Smart Series publication, bringing business ideas for today’s farm leader. This issue includes perspectives on what to do when a landlord asks for higher rent, how to find the right new employee, a farm business checklist for the spring season, and more. Get your free online issue here.

The opinions of the author are not necessarily those of Farm Futures or Penton Agriculture.

 

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