How much is your farmland rent per acre? It can be a challenge to determine what the fair market value of your farmland is, and this is a big part of why leased American farmland is undervalued by an estimated $8 billion dollars each year.
Fortunately, with a little research and a small time commitment, you can gather the information you’ll need to ensure your farmland is being rented for at least fair market value.
1. You don’t have the data
You can’t tell how healthy soil is just by looking at it. You need to have hard data to help you estimate your land’s potential for the next growing season, and this isn’t an extra requirement— data is the baseline on which you’ll calculate cash rent on your farmland.
If data-sharing requirements aren’t already in your cash rent lease, be sure to add them.
Ask your farmer for data and maps to back up their report on how the farm has been performing, and what fertilizers or nutrients they’ve applied in the past year.
You’ll also want to go into lease negotiations having researched the county average and how well your farm performs compared to others in the county. This data will equip you to have an informed conversation and to set an appropriate price per acre.
2. The status quo is comfortable
If you’ve been working with the same farmer for years, you may find yourself in a comfortable rhythm where it feels like the lease on your farmland renews itself nearly automatically. You may have a strong relationship founded on trust and years of timely payments, but that doesn’t mean your cash rent is still aligned with the local market rate.
Even if it doesn’t feel necessary to ask for extra information about the soil’s health or the land’s performance, it’s important to periodically check-in to make sure your agreement still works for everyone and to put your cash lease agreement in writing, if it isn’t already.
3. You’re using the wrong points of reference
Don’t negotiate your cash rent based on last year’s yields and challenges. You may want to give your farmer a break after a tough season of heavy flooding. Even if you go this route, it’s important to collect the necessary data points to know where your land’s value sits outside of that context so that you know exactly how much of a price break you’re giving.
Your farmland is likely your most valuable asset, and it’s important to operate it as a business. Value your land by the health of the soil and your farmland’s potential yield in the growing season ahead.
4. You’ve developed a bad track record
Say you’ve been switching farmland tenants on an annual basis for the past decade. Prospective farmland tenants will take note of a high turnover rate, and it may hurt your ability to get market rent for your land.
Consider the situation from a farmer’s perspective: If a prospective tenant sees that the farm always changes hands, they’ll have reason to believe they won’t be farming it next year. Why should they pay a premium to farm land for one year when they could partner with a landowner who’s invested in the long-term stewardship of the land?
Even if you have a string of recent tenancies that each lasted a few years, you should be aware of how your farm’s maintenance appears from the outside. Do you invest in your farmland by maintaining waterways, terraces and tiling? If not, you may be developing a reputation as the kind of landowner who doesn’t put money into farmland maintenance.
If this is the case and your land’s not in great condition, farmers may not be willing to pay market rent for your farmland—and in fact, if your farmland is below average, then you really shouldn’t be earning more for it until you address the problem. To avoid this scenario, talk to your farmer about what the land needs and come up with a system to keep tabs on the condition of your farmland, even if you don’t live nearby.
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Attorney Dennis Composto, Esq. discusses some of the biggest mistakes that landowners make when it comes to protecting themselves and their assets.
5. You don’t take the time to talk to multiple farmers
It may sound like a hassle to field multiple offers from potential farmland tenants, but these conversations will help you get the rate you want for your farmland rental next season and help you find a farmer who is on the same page as you. In fact, the process of price discovery is how fair market value is determined for other assets, and it also makes sense for farmland.
If you don’t take the time to get offers from a few prospective farmland tenants, you’ll be stuck with the price your current farmer is willing to pay. Particularly if you are thinking about switching farmers, make time to get multiple offers before you sign a contract.
Your farmland is a valuable, long-term asset
The primary reasons that farmland is under-rented are related to farmland owners asking for information and learning how to field competitive offers. If you find that time is the major factor that prevents you from getting the price you’d like per acre, you have options.
For remote landowners or anyone who needs help understanding their farmland data, Tillable’s Free Farmland Checkup is a great way to save time and to get the information you need to have an informed negotiation.
As part of this process, our team eases the burden on farmland owners by assessing your farmland’s health, doing local market research and providing information that will help you understand your farm’s current situation.
Farmland is an incredible, stable asset. Actively participate in the stewardship of your farmland by maintaining its value, which includes collecting the data to prove its annual worth
A certified appraiser can help you determine the value of your farmland. Find one through the American Society of Farm Managers & Rural Appraisers. Getting help from a professional is useful because it’s often unclear what the market rate on an acre may be, since record-keeping and yield can be hard to track. Unlike many other assets, productivity growth plays a substantial role in determining the value of farmland. As productivity improves, output (yield) rises, and the value of farmland increases due to future production potential. This isn’t the case with other real estate investments, where income derived from the property is the exclusive driver of value.
There are 8 types of data that are most important to understanding farm performance and land stewardship:
- Yield data
- Soil sample tests
- Fertilizer maps and other nutrient inputs
- Herbicide applications
- Removal rate of the last season’s crop
- Planting and harvest dates
- What’s planted on the land and its maturity rate
- Seasonal data including precipitation, crop rotation and tillage
Soil health can be tracked and monitored through soil testing. This analysis assesses the health and quality of your farm’s soil and helps determine fertilizer needs and recommendations. Soil tests commonly determine soil composition, nutrient levels and pH, and should influence soil management practices.
As a landowner, you’re looking for your farmer to be a partner in making sure your land is healthy and profitable over the long term. Most landowners will say they have a good farmer, particularly if they’ve worked with that farmer for many years. However, if you have a truly great farmer—one who goes the extra mile to prove they treat their leased land like their own—it’s important to recognize it so that you can show your appreciation, and continue to cultivate that extremely valuable relationship. Learn more about how to know if you have a great farmer in this blog post.
Communicate, communicate, communicate. Landowners and farmers need to be open about their expectations for the farm and the terms of the agreement. Use data as the foundation of your discussions about farm performance and land stewardship—being able to discuss real data points will help make sure everyone’s on the same page, and it makes it easier to see that your shared goals for the farmland are being met. Landowners must be open to recommendations from their farmers in terms of necessary land improvements or other ways to enhance the profitability and health of the farm, and farmers must be forthcoming with the expertise and information to support those recommendations. Both parties should be committed to an agreement that satisfies a shared definition of what’s fair, and work together to help each other be successful while making sure the land thrives.