Jim Luzar has seen the good, the bad and the ugly when it comes to negotiations between farmers and landowners over cash-rent agreements. His job is to help both sides avoid pitfalls. Luzar is an Extension ag educator in Parke County, Ind.
He uses this example to illustrate how not to approach cash-rent negotiations this fall.
“Suppose a farm has rented for $225 per acre the past two years, with no flexible rent provision,” he begins. “The tenant reviews yield data and price outlook, and feels $30 per acre needs to come off rent for 2018.”
One approach is the “take it or leave it” method, Luzar says. “The tenant could send a letter to the landowner stating his request to pay $195 per acre for 2018.
“This will likely be taken one of two ways by the landowner. He reads it as the tenant has no interest in communicating, or the tenant has no real interest in continuing to farm the parcel.”
Another approach is to call the landowner. “It’s very easy to not communicate the desire to continue farming over the phone, with more accent on the downward adjustment,” Luzar says. “The emphasis is still on avoiding conflict.”
FRANK TALK: Jim Luzar isn’t shy about advising farmers when it’s time to talk to landowners about cash-rent negotiations. Honest, frank face-to-face communication is best, he believes.
If you’re serious about continuing to farm the land but truly need to try to lower the rate, Luzar suggests these six tips.
1. Make it a personal visit. Consider Skype if the owner isn’t nearby. Have a script prepared in advance, Luzar suggests. It’s just good planning
2. Establish good rapport from the beginning. Start out by thanking the landowner for the opportunity to farm the parcel.
3. Don’t gripe or whine. Have some hard numbers to lobby for downward adjustment in cash rent. These might include yields not panning out, corn price looking to be down by 15%, or whatever the case may be. Avoid the old complaint that “your farm just isn’t that good.”
4. Rehearse with someone how you will respond to pushback. The landowner counts on that income. He or she is likely to have a comeback to your points. Getting this part of the process right takes practice. If you don’t practice, you may say or do something that isn’t productive.
5. Develop a couple of short responses that show you are empathetic. Let the landowner know you understand he or she lives off the rent, pays taxes on the land and possibly invests in land improvements.
6. If you cannot forge an agreement, agree to table the discussion and resume the dialogue later. You may reconsider the net financial impact of the parcel in more strategic terms. Perhaps it spreads your overhead costs, creates goodwill in the community, opens up chances to rent more from other family members or provides a long-term opportunity to purchase. Remember that most of us like to avoid conflict. A good robust dialogue between tenant and landlord can help clear the air about what’s important to both parties. Face it — this isn’t going to be the only instance when you will need to speak to a landowner about something you would rather not discuss.