Landowners are aware of increased commodity and input prices; both data points are essential to finding that elusive “fair” rent. However, other variables such as high fuel and land prices, inflation, and high-interest rates will make this year’s conversations even more challenging.
High input prices mean farmers must be transparent about their costs for planting every acre of rented land, and landowners must be transparent about selling or keeping the farm in today’s high price selling market. The best farm land rental agreement negotiations happen when both parties understand the gross revenue potential and projected cost of production on every acre. It is integral for landowners to know the income and expenses that occur on their farms. That information can give a farmer a strong argument as to why they believe the rent they offer is fair even with increased income potential.
Whether you’re a local landowner, remote farmland owner, or a farmer, you can arrive at a fair farmland rental agreement by leveraging a little data, defined goals, and clear communication.
Here are a few concrete strategies anyone can adopt when it’s time to negotiate the cash lease of farmland, along with a couple of pieces of information to have on hand to arrive at a fair farm land rental agreement for the 2023 growing season.
Get started on the right foot: plan your conversation
No matter how long you’ve known your counterpart, you should take a professional approach to this conversation. What does this mean? Set up a call or send a letter or email outlining your questions, expectations, and a timeline for negotiations.
The landlord typically starts this conversation, but it’s not a bad idea for a farmer to reach out about renewal if a farm lease termination date is less than 30 days away. If unsure when the termination date is, check your state’s date here.
Put yields front and center
When it’s time to negotiate your farm land rental agreement, the main subject should be how the land performs and how it can be reasonably expected to perform in the next growing season. Whichever side of the table you’re sitting on, the condition of the ground and the proof of its past production provides are critical pieces of information.
In your discussion, you should plan to dig into yield histories, but looking at the average rental cost as a factor of overall revenue can be beneficial.
Everyone should come to the table with data in hand
Both parties should come to the table with data in hand. Farmers in these negotiations typically have more access to data. Still, in a healthy land rental agreement, most of this data should already have been shared with the landlord on an established timeline.
Landowners should prepare for cash rent farm lease negotiations by educating themselves on current rents in the market. If it’s not your first year working together, you can also prepare by reviewing past yield records and any other historical data you have on hand.
Bring your concrete goals for the year ahead (in writing)
In your initial request for a call or face-to-face meeting, you should agree to bring concrete goals to your conversation in writing. Putting pen to paper, in this case, is helpful not only because it’s easy to forget what you were hoping to achieve at the moment but because it’s essential to think deeply about your values and financial needs before you enter the negotiation process.
Fifty percent of farmland owners don’t farm their land, and their concerns can be quite different from those of the person farming that land. Writing out goals can be helpful for both parties: if both parties’ goals don’t align, it may be time for you to look elsewhere for land or a tenant.
When it comes to sustainability, many landlords will want to discuss:
- Making it a stipulation that farmers plant an annual crop rotation.
- Fertilizer and pesticide applications maps.
- The frequency of tillage in the past year.
- Whether or not tillage practices are allowed going forward.
Farmers may be concerned with:
- Managing costs.
- Maximizing yield.
- The length of the lease term
If you don’t articulate your priorities upfront, you may find yourselves in conflict later. It’s best to discover this early and have a frank discussion.
Find what’s “fair” in your relationship
When arriving at a fair farmland rental agreement, the word “fair” is significant. It can mean different things to different people.
For example, price fairness is important. But fairness in other objectives is equally important. Both parties have to work to find a balance between their business needs and equilibrium in their personal relationship.
To extend this example, if you’re a farmer who’s had a tough year due to extreme weather, you may be hoping for help from your landlord. But next year is a new year with new potential, and your landowner may view their property as strictly a business asset. In this case, you’ll need to consider your priorities and how much you can compromise and still meet your goals.
Farming for the future
For landlords, it’s not just about how much cash rent you can get this year but also about working with a farmer who is a good steward of the land. For farmers, the process may be about finding someone who takes good care of their land and is on top of soil management.
Whatever your goals, at the end of a negotiation, landowners, and farmers both want to see a positive financial outcome and sustainable practices in place. With yield data and a clear set of goals, this can be achieved for the next growing season and the one after.
We would love to help you prepare for your lease conversation. Contact us to set up your free farmland insights review.
Your Farmland Insights Review Includes:
- An overview of essential farm data such as your soil maps, crop history, and how that information compares with nearby farms.
- A free rent evaluation and a custom estimated range
- Information on best practices for managing your farmland asset