With crop margins tightening again in 2016, land costs could make or break your bottom line. In part one of this two-part series, "What do landlords want? Negotiating the best land lease for next year," we focused on ways to connect with land owners.
Related: Keep landlord relationships strong
Next, get out a piece of paper and write down three unique strengths of your farm. This is your "X factor," says Lance Burditt, senior director at Water Street Solutions, a consulting firm in Peoria, Ill.
Burditt, born and raised on a Missouri farm, says the key to success is to know what each individual landlord expects and needs beyond a rent check.
How are you different from others in how you run your business? Is it how you communicate with landlords? How you give back to the community? Do you have both youth and experience in your family business? Is it how you present data to landlords each year? What's the most successful project your farm ever did, and why?
"Unless you know your strengths, you're not going to be able to create a differentiating factor from your competitors," Burditt adds.
Another way to differentiate is through transparency. Many farmers won't share data with landlords, but it may be a way to set yourself apart from others. Maybe it's just a cover page summary of your costs and income, for those who only take a casual interest. For those who like more detail, you can share more, along with some historic perspective to add value. People respond to a story or narrative.
"You need to put what your business is experiencing into context with your landlords, so the numbers have more meaning," says Burditt.
Take your X factor and figure out how it can be used to create a brand around your farm business. This marketing sets you apart in the community.
When people in the community think about agriculture, you want them to think about your farm.
Farm land lease negotiations
Once you have established how you communicate and how you are different from your competitors, you're set to negotiate. What do you want to get out of a land negotiation? What's your goal? Do you understand what the other side's goal is?
In any negotiation situation, whether it is over land or farm supplies, make sure you answer these questions before you get to the bargaining table.
Next, think about what you have to trade or offer, and what the other side has, beyond just dollars or assets. Third, what are the alternatives if you reach a stalemate? Do you know what your landlords' alternatives are? Do you know your "walk away" point — how far you are willing to go before leaving the discussion?
Before going in, consider expected outcomes from that discussion. Who has the power in the relationship? Is it the person you are talking to, or someone else?
Next, make sure you are ready to discuss all available options. If your lease of choice — say, a flexible cash lease — is no longer on the table, are you ready to discuss other choices, such as straight cash rent? Do you have access to a feasibility tool that helps you evaluate potential outcomes?
Purdue has released a long-term cash rent spreadsheet that helps make 2016 farm land lease evaluations based on crop budgets, breakeven rents and working capital burn rates.
How you communicate with each landlord will make a difference during negotiations. If you visit landlords in person to deliver a rent check, it can have a big impact, says Burditt. "Ask about their family, give them a tin of ice cream, wish them a Merry Christmas. This is still a people business, and any personal touch will not hurt," he concludes.