February 1, 2011
Probably the most important task for growers today is negotiating cash rents. Most of our clients rent about two-thirds of the land they farm, and I think that percentage will go up in the years ahead. So it has a big impact on their bottom line.
Next year this will be a much larger issue as many landowners who set rates before Sept. 1 of last year missed the large increase in grain prices. Since last August, March corn has increased from $4.25 to $6.25/bu., or 47%. Most tenants think their landowners are salivating over this situation and can’t wait until next year’s negotiation comes around.
We will offer you some tips for managing through this minefield while improving relationships and providing for a better bottom line.
First, let’s look at the issue from the landowner’s perspective. With the rapid increase in land prices as well as grain prices, they deserve to have a piece of the action. It’s interesting that money is often not at the top of the list. If the cash rent they’re receiving is grossly below where it should be – and I have observed some of that – it likely moves to the top of the list. But there is generally a reason for this.
Last summer I received a call from a farmer who said the landowner said next year’s rent needs to be increased well over 100%. In researching what had been going on, I found the rate for the prior five years was far under the going rate in the area. I suggested to the tenant that if he had offered something more than the contract called for he could have likely saved money over the long run and had a great friend and admirer. However, when you abuse interpersonal relationships, you generally get what you deserve, not what you want or expect.
We put together a list of what is important in a tenant relationship from the landowner’s perspective. Here is the list.
Look like you can farm it
This list applies to about three-fourths of landowners. There are a number where money is the most important and there’s no way around it.
This winter I spoke with a landowner who owned land in three states and was very perceptive and frank. When I asked him what is most important to him, he said, “I refuse to rent to a whiner or someone who drinks too much.” He said he’d rather take less rent than put up with that. Interesting. People do things for their reasons, not ours.
It might be productive to ask your landowners about the top three things that are important to them. The responses might surprise you.
Transparency means sharing as much information as possible with your landowner. One of the most successful growers I know shares all yield data, fertility tests and rates, input costs, rents and profit per farm with all landowners. The names are removed, and each landowner knows his farm and can compare it to others.
As one client indicated, it’s difficult to keep secrets, and in about two years everyone knows what rents are in the community.
In the next issue we’ll discuss the decision-making issues and challenges from the tenant’s perspective.
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