Most landowners have heard about record-high commodity prices, and many will be looking to renegotiate their rent. What are the best practices for managing this discussion?
At Tillable, we have learned it is best not to avoid the conversation.
Be Proactive
Reassure them that the long-term health of their asset is in good hands with you.
Make the time to connect with your landowners and be prepared with information on how the year has progressed. Speak in specifics about their farm, and talk to them about how it performs and any proactive maintenance you have done on the farm. If you recently applied lime, or P&K, remind them of those activities and share any receipts you have with them.
Talk to them about the Commodity Markets
Provide them with factual data and set reasonable expectations.
Yes, prices at Chicago Mercantile Exchange are at record highs, but what are farmers receiving in your area? You might reference prices received in your state as reported to the USDA, and we have attached that report here for your reference. We also recommend sharing the production with them to set expectations on what the farm has historically produced.
Make your Pitch
- What do you think the rent should be and why?
- Do you expect yields to be higher or lower than average?
- What do your costs of production look like? (Remember fertilizer prices have also reached all-time highs)
- Should other factors be taken into consideration?
For reference, we generally see cash rents between 30-38% of gross revenue for corn and 40-50% for beans. If cash isn’t right, consider a flex lease.
A crop share can be an excellent solution for recently retired farmers or people deeply engaged in agriculture. Keep in mind that others may not know how to market grain, which could cost them money and eventually the lease. In some cases, it can be in your best interest to suggest an alternative if you feel your landowner is not benefitting from a crop share. It will impact you if they don’t feel like they are earning a competitive rent.
Final Thoughts
Even if you and your landowner don’t reach an agreement right away, you have set the expectation that you will work together and have started that negotiation.
Remember, at the end of the day, a fair arrangement results in a long relationship, and that ultimately benefits you.
Good luck this season!
