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4 Ideas for Managing Farmland Rents

4 Ideas for Managing Farmland Rents
With land rent challenges likely to come in 2015, it's time to do a farm sensitivity analysis and project cost structure four years out, specialist says

For beginning farmers and those who have a lot of rented acres, land rent challenges will be significant in 2015, says Barry Ward, associate professor at Ohio State University. Here are some helpful tips in managing the land rent game:

Do a sensitivity analysis and project cost structure four years out

Think about your equity position and working capital. From a financial standpoint, Ward says it is important for producers to do a sensitivity analysis, plugging in the current cost structure and prices for two to four years out. It's also important to see what it will look like at $3, $3.50 and $4 corn, and evaluate what it will do to one's equity position and working capital. "Take the time to really think out what may happen in those different scenarios," he says.

Re-evaluate what you might have in your line of credit. Although producers have been forced to use less of their operating credit in recent years, it is important to understand what you do have. Ward also suggests making sure operators have a good give-and-take with their lender.

What's in store for land rents next year? How will lower commodity prices impact farmers' marketing and input choices? Get a head start on 2015 with Farm Futures' Farm Business Summit, Jan. 7-8, 2015, in St. Louis.

Start a conversation with landowners on the farm economy. For those landowners who are not as close to the farm, it is important they're aware of the changing farmland rent outlook compared to the last four years. Landowners should be willing to work with growers, but producers may also need to share some information to help educate on what sets up an acceptable rate. This is an easier discussion if the farmer was agreeable in keeping rents close to the market, which creates an easier conversation as things turn the other way. "There should be some symmetry in the way rents go down," he says.

Understand all rents may not go down. Ward warns that not all farmland rent prices will come down. Those landowners who didn't hold their farmers' feet to the fire at high levels of rent, may also choose to not lower land rents much, just as they didn't go as high as they could in previous higher-profit years.

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