Inheriting Nebraska Farmland: Know Your Options

Inheriting Nebraska farmland

When it comes to most things in life, the saying “Know your options, or you don’t have any” is generally correct. This is certainly true for those who find themselves the inheritors of farmland. While oftentimes these recipients are already farmers themselves, it is increasingly common for non-farm children to receive land as an inheritance after their parents pass away. Suddenly, they find themselves facing decisions that may be completely foreign to them.

As the age of current farmland owners continues to increase, more and more people will find themselves in this situation. According to recent census data, the average age of farm operators was 57, with the fastest growing group of operators over 65. Landlord age is increasing as well.

Often, farms are jointly inherited by multiple parties—which may include both farm and non-farm children, a circumstance that often muddies the waters, especially should the deceased have inadequate estate planning in place.

For many people inheriting land, no matter their circumstance, enlisting the help of a professional farm management team is the first step toward successfully managing their new investment. Farm managers are proficient in such matters as determining the land’s worth and having it appraised, the ins and outs of land ownership type and how this affects the land’s management, whether or not the land should be sold and the consequences of doing so, explaining types of leases and helping negotiate them, determining the best way to manage the new ground, and many more key details.

A farm manager’s first action in helping inheritors of land is evaluating it: What is its location, and how does this affect the land’s current, best, and future use? What is the properties potential income based on its location? Is the land’s current use its best use?

After this, farm managers help assess the value of the land. Many are certified appraisers, and are able to provide a full, detailed appraisal of the farm.

A large part of inheriting land is knowing how to deal with inheritance and estate taxes that are incurred following the inheritance. Our farm managers are well prepared to help find expert accounting and legal.

After these initial determinations are made, farm managers then help you decide your farm options. Whether it’s to farm the land yourself, sell the land, or to keep the farm as an investment, knowing the options available to you in each instance is important. In each case, farm managers are able to guide you in the best direction in a way that will fit your individual needs and long-term goals.

In short, the decisions that accompany land inheritance are many and varied, and knowing that a knowledgeable person is helping you navigate these waters provides great peace of mind for inheritors. UFARM farm managers are motivated to listen to your needs and concerns about your farmland inheritance—feel free to contact us at any time.

 

Source consulted: Duffy, Michael D. “Getting Started In Farming: Inheriting a Farm.” Iowa State University Extension and Outreach. Iowa State University Extension. Web. 22 Jun. 2016 “So You’ve Inherited a Farm—Now What?” University of Nebraska-Lincoln CropWatch. University of Nebraska-Lincoln Institute of Agriculture and Natural Resources. 06 Apr. 2016. Web. 22 Jun. 2016.

 

Nebraska Planting and Crop Condition Update

Nebraska Crop Conditions

Nebraska planting is almost complete, just in time for the summer heat to kick in. According to the USDA’s National Agricultural Statistics Service’s (NASS) latest crop progress report for the week ending June 12th, 97 percent of soybean acres in the state were in the ground, with 99 percent of corn emerged. 

With average rainfall reported in most areas, the temperatures the past week averaged 6 to 8 degrees higher than normal, with more hot temperatures expected this week. Although corn grows well under hot, humid conditions, growers are hoping to see some more rainfall in the coming weeks to keep irrigating to a minimum.

Looking solely at Nebraska crop progress, the report showed that progress was, for the most part, ahead of last week, last year, and ahead of the past 5 year average for all major Nebraska crops. Corn emerged is at 99 percent, 9 percentage points ahead of last week and 4 ahead of last year. 

Soybeans are 97 percent planted, well ahead of last year’s 89 percent, and in line with the 5 year average. Soybeans emerged are at 84 percent, well ahead of last year’s 73 percent, though lagging slightly behind the 5 year average emergence of 86 percent for this week. 

As for moisture conditions, topsoil moisture supplies rated 2 percent very short, 23 percent short, 70 percent adequate, and 5 percent surplus. Subsoil moisture supplies rated 0 percent very short, 12 percent short, 82 percent adequate, and 6 percent surplus.

Crop conditions across the Cornhusker state are doing well. The report showed corn rating at 1 percent very poor, 2 percent poor, 18 percent fair, 67 percent good, and 12 percent excellent.   

Soybean conditions followed suit, with 0 percent rating as very poor, 2 percent poor, 19 percent fair, 69 percent good, and 10 percent excellent. 

Hay growers are off and running, with the first alfalfa cutting at 81 percent complete across the state, well ahead of last year’s 50 percent marker and the 61 percent 5 year average. Alfalfa stands are in good condition, with 2 percent rating very poor, 3 percent poor, 10 percent fair, 70 percent good, and 15 percent excellent. 

Our UFARM managers are reporting that throughout the eastern half of the state the hot temperatures have contributed to very rapid crop growth, although rainfall is beginning to be at a premium, with very spotty rainfalls being reported. However, top- and subsoil moisture conditions are still adequate for the time being, and there are no major crop pest problems to contend with as yet for most areas. 

As stated earlier, however, temperatures this week and into the weekend are forecasted to be in the high 90s, with little chance for rain for most of the state, and growers are anticipating the need to turn on their pivots, have they not already. 

Source consulted:  “Nebraska Crop Reports 2016.” CropWatch. University of Nebraska-Lincoln. 15 Jun. 2016. Web. 16 Jun. 2016.

Current Farm Economics 

 

Nebraska Land Manager

It’s no secret to farmers and landowners that current farm economics are tough. Profit margins are tight this growing season, and myriad reports corroborate this fact. From 2011-14, US farm income experienced a golden period, driven by good commodity prices and strong exports.

Now, according to the Congressional Research Service’s 2016 Farm Income Outlook, it is projected that exports are set to be 6 percent lower from 2015 and well below 2014’s record $152.5 billion, a fact attributed to a strengthening US dollar and weakening economies in several major foreign import countries, including China.

The report also found that national net farm income is also projected to be down—$54.8 billion in 2016—a 3 percent decline from last year. This means that US farm incomes, a key indicator of US farm well-being, will be the lowest since 2002, and is the third year in a row that farms have experienced a decline.

As Nebraska farmers and landowners can attest, land values comprise a significant portion of a farm’s asset base. As such, a change in farmland values is an important gauge of a farm’s finances. Naturally, lower farm incomes mean lower land values, and in this way, the report found that overall farm wealth is likewise set to decline for the second straight year, about 2 percent from 2015.

In this way, reports have found that farmland values of both non-irrigated and irrigated cropland decreased 4 and 2 percent respectively, from 2015. It is expected that cash rents, too, will decrease in 2016, this according to the University of Illinois’ Gary Schnitkey

“However,” Schnitkey says, “projected rent decreases are not large enough to cause farmers to have positive returns in 2016 given current projections of commodity prices and costs. The lagged relationship between returns and cash rents still exists.”

While the outlook is most certainly a pessimistic one, there is always a small silver lining—a mild decline of 3 percent in farm cash expenses in 2016 is expected. Government payments from the 2014 farm bill in the form of revenue support programs are also expected to trigger payments upwards of $9 billion in 2016.

Overall, though, farmers are resilient. Paul Pittman, CEO of Farmland Partners Inc. says that, as tight as things are getting, “Farmers won’t see the same kind of economic crisis they did in the 1980s.” After years of high prices, and only very slight increases in interest rates, most farms in the US are in better financial shape in which to weather the storm.

In summary, the reasons for the tough times are many—production outpacing consumption, a strong US dollar’s effects on exports, lower commodity prices, and a drop in land values—but all boil down to the fundamentals of supply and demand. In a world with a growing population, people must eat, and farmers optimistically hope to weather through this storm until the scale tips in their favor once again.  The recent uptick in soybean prices is a positive sign and corn is trending upward as well.  The summer weather is the wildcard that no one can predict for sure.

Sources consulted:  Bjerga, Alan. “The Crop Surplus is Bad News for America’s Farms.” Bloomberg.com. Bloomberg. 11 Jan. 2016. Web. 23 May 2016.  Schnepf, Randy. “US Farm Income Outlook for 2016.” Fas.org. Congressional Research Service. 16 Feb. 2016. Web. 23 May 2016. Wright, Kevin. “Tightening in the Ag Belt.” KansasCityFed.org. Federal Reserve Bank of Kansas City. Spring 2016. Web. 23 May 2016.

El Nino’s Potential  Effects on Crops in 2016

2016 Nebraska Crop Yields

There’s no question that this spring’s planting season continues to be a long, drawn out process, due mostly to increased rainfall activity that has prevented farmers from getting into the fields for more than a day or two at a time. This is largely attributable to the strongest El Niño weather pattern on record since 1997. El Niño is the term used when equatorial-region Pacific Ocean temperatures reach a level of 0.5 degrees Celsius above normal for a sustained period of at least several months. In an El Niño year, those in the central section of the US can expect warmer than average temperatures combined with above average precipitation.

While climate experts did predict a warmer, wetter spring, they were half right, at least here in Nebraska: Nebraska farmers have dealt with higher than normal rainfall, but the warmer temperatures have yet to materialize, despite warmer temperatures in the first half of March.

So how will this strong El Niño pattern continue to affect corn and soybeans during the growing season? Will the strong weather pattern have an impact on corn and soybean yields and a shift in the planting window?

A team of climate scientists set out to try to better understand the potential impacts that El Niño could have on agriculture production in the Midwest, focusing on potential effects on corn and soybeans in Iowa, Illinois, and Indiana.

What they discovered is that there should be little to no adverse yield-related effects. Of the five strongest El Niño events they looked at, the combined yields during those years were either average or slightly higher. They discovered that much of the weather events attributed to El Niño are hyped up, and that, barring any other sort of unforeseen weather-related events or plant challenges, farmers should be able to expect an average harvest.

Jerry Lehnertz, vice president of lending at AgriBank Farm Credit Bank agrees.

“History shows that it’s uncommon to have subpar national crop production results for corn and soybeans except in the few cases where very hot, dry weather occurs during the critical crop development phase in June and July,” Lehnertz says. “If predictions are correct, this could signal higher-than-expected corn and soybean yields this year.”

As far as marketing and risk management goes, Lehnerz recommends that farmers “adjust marketing and operations plans based on short- and long-range weather forecasts, and ensure [they] have appropriate risk-management tools in place to guard against potentially extreme weather.”

On the other hand, climatologists are seeing indications that the El Niño pattern could rapidly reverse to a strong La Niña pattern. Kyle Tapley, senior agricultural meteorologist for MDA Weather Services says that several models now show full-fledged La Niña conditions by the summer.

Nebraska Associate Climatologist Al Dutcher says, “The big question is when we transition from an El Niño to a La Niña type pattern. That will dictate whether it is a dry year.” According to Dutcher, it’s likely the switch will occur in the second half of the growing season.

Do worries about your agricultural land keep you on edge? Feel free to contact UFARM—we are glad to help you plan for these challenging times in agriculture, while keeping your goals moving forward.UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Nebraska Planting Progress and WASDE Report Analysis

Cornfield-with-puddle

Continued rain events have hampered efforts’ in the fields for many farmers in the major planting states so far, although significant gains were made in the last week.

Monday’s USDA Crop Progress Report for the week ending May 8 saw 64 percent of the nation’s corn planted, in comparison with 45 percent last week. This measures up as slightly behind last year’s corn planting at 69 percent, though well ahead of the 5 year average of 50 percent.

In Nebraska, rain delays were especially felt, though Cornhusker State farmers made incredible strides in the last week: As of Sunday, 53 percent of the state’s corn was in the ground, compared to only 26 percent last week at the same time. This is still behind last year’s 71 percent benchmark, and slightly behind the 5 year average of 59 percent.

It’s a similar story both nationally and statewide for soybeans. Overall, 23 percent of soybeans are planted, slightly behind last year’s 26 percent, though well ahead of last week’s 8 percent, and the 5 year average of 16 percent of beans planted.

Nebraska soybeans are 13 percent planted, behind last year’s 21 percent, and the 21 percent 5 year average. In comparison with last week’s 2 percent, however, Nebraska farmers were evidently  able to get into the fields to plant beans at some point.

Overall corn emergence stood at 27 percent, ahead of last year’s 23 percent and ahead of the 17 percent 5 year average. In Nebraska, corn emergence was at 15 percent, in line with the 5 year average, though behind last year’s 24 percent.

Of the 18 states that make up the report, Minnesota, Iowa, and Illinois made the most progress, and while Indiana leads in the slowest progress category due to continued rain delays. The report found that 6 other states remain behind 5 year averages: Colorado, Michigan, Nebraska, North Carolina, Ohio, and South Dakota.

The Tuesday, May 10th WASDE Report was expected to be bearish on the grain markets, with estimated corn stocks increasing to 2.3 billion bushels, due to  higher corn acres and trending yields of 168 bushels per acre. New crop soybeans were expected by analysts to be similar to last year’s figure of 440 million bushels. However, that analysis was way off and traders were surprised. The carryover for new-crop bean was 305 million bushels, which caused soybean futures to take off and increase 60 cents a bushel at one time. In addition to the lower carryover,  heavy rainfall in South America and its negative effects on production there continues to be one of the main factors for the more favorable grain markets.

Amid the fluctuating markets, farm economists continue to urge those marketing crops to manage their risk.

“It’s going to be extremely difficult to try to outguess these markets,” according to Mike Mock of The Andersons Grain Group.  

 

Sources consulted: “Analysts: USDA Report Could Bring Out Bears.” AgWeb.com. Farm Journal. 09 May 2016. Web. 10 May 2016. “Crop Progress.” NASS/USDA. USDA. 09 May 2016. Web. 10 May 2016.

 

Property Tax Relief for Nebraska Landowners

 

Property Taxes for Nebraska Landowners

One of the many challenges facing Nebraska landowners are high property taxes and they continue to be a top concern, and for good reason: The Tax Foundation’s 2015 State Business Tax Climate Index ranked Nebraska 12th highest in property taxes and 26th highest in income taxes in the nation.

In fact, property taxes account for 48 percent of the total combined property, income, and sales tax collections statewide.

Perhaps this is why Nebraska Governor Pete Ricketts has made property tax relief the top priority of his administration. Ricketts has been working with Sen. Mike Gloor of Grand Island, chairman of the Legislature’s Revenue Committee, and Sen. Kate Sullivan of Cedar Rapids, Education Committee Chairwoman. The two senators are sponsoring bills—LB958 and LB959—that would tighten limits on budget growth and levy increases for all local governments, and slow the rise in government-assessed cropland values across the state—measures that Ricketts calls “tools to help local governing entities control spending.”

Last month, Governor Ricketts announced the specifics of the proposed amendment to the property tax relief bills, both of which passed first round approval in the legislature. As promised, the proposed amendments include a limit on the carryover of unused restricted funds by community colleges to 3 percent, as well as additional direct property tax relief for ag land property taxpayers.

This is welcome news to landowners across the state. Last year’s efforts by state leaders, who voted to inject $64 million a year into Nebraska’s property tax credit program, created in 2007, and which boosted the amount of state assistance for property taxes by 45 percent, was seen by many as a good start, but more relief is needed.

Looking at the specifics, the amendments would limit statewide aggregate growth in ag land valuations to 3 percent, and further tighten spending limits applying to local governments. The valuation change would trigger millions of dollars in additional state aid to school districts. Other changes would tighten spending among school districts and restrict the amount districts can carry over from year to year.

Still, landowners continue to see increases on their tax bills. Critics of the bill charge that much of these increases may be attributed to rising land values over the last decade that accompanied soaring grain prices, and not all because of local governments increasing their rates. Land values still haven’t adjusted as grain prices plummet, although they are beginning to level out.

However, it is likely that Governor Ricketts will continue to work with senators to make more structural changes in order to better balance the tax system. Despite what critics say, 51 percent of total school spending in Nebraska comes from property taxes, while the national average is only 32 percent.

In the meantime, landowners across the state will continue to push for needed relief.

“I hope to do tax reform every year,” Governor Ricketts said. “We didn’t get to be a high-tax state overnight. We’re not going to fix it overnight.”

Sources consulted: Gage, Taylor. “Gov. Ricketts, Revenue Committee Agree to Compromise on Tax Reforms.” Nebraska.gov. State of Nebraska. 17 Mar. 2016. Web. 07 Apr. 2016.
Pluhacek, Zach. “Ricketts Backs ‘Structural Change’ to Cut Growth in Property Taxes.” Lincoln Journal Star. Lincoln Journal Star. 16 Jan. 2016. Web. 07 Apr. 2016.

Presidential Candidates’ Stances on Ethanol

Ethanol Nebraska

Despite myriad opinions regarding ethanol mandates among the US population, and even among farmers themselves, four out of the five remaining presidential candidates support the continuance of the 2005 congressional mandate. Also known as the Renewable Fuel Standard (RFS), it requires refiners to blend enormous amounts of biofuel, mostly corn-based ethanol, into gasoline.

Many corn producers offer support for such mandates, naturally, as it creates a demand for corn, artificial though it may be, and helps to bolster the price of corn. Other supporters cite environmental reasons, asserting that ethanol blends emit less greenhouse gases, and is therefore a cleaner alternative.

What many fail to realize, however, is that the RFS was designed to cap corn ethanol after a period of time (in 2015), and ramp up efforts to utilize “advanced” biofuels. Corn is not categorized as advanced, in this case. As such, if the RFS standard remains in place, it intends to gradually displace corn’s market share, transitioning from consisting of biofuels made from corn to those made from non-food and non-feed crops.

According to the Congressional Research Service (CRS), the transition would eventually reduce corn for biofuels to 40 percent.

The American Energy Alliance’s Thomas Pyle writes, “Unlike ‘advanced’ biofuels, which are scarce and expensive, corn ethanol is a viable product that boosts octane and improves engine performance. Refiners would still purchase corn-based ethanol without the RFS. But if the RFS remains in place, corn stands to lose out to products that do not pass the market test, simply because Washington decrees it.”

His solution? Repeal the entire RFS, forcing the “advanced” biofuels to compete against corn on a level playing field. Corn-based ethanol would, according to Pyle, retain its share of the total fuel market.

While we don’t know the likelihood of this happening in the future, only one remaining candidate, Ted Cruz, has voiced support for the phasing out of the RFS. With this backstory in mind, it’s not as cut-and-dried as would originally meet the eye. The other candidates, consisting of Donald Trump, John Kasich, Hillary Clinton, and Bernie Sanders have all voiced support for continuing the RFS put in place in 2005.

Still, Iowa corn farmers pulled away any prior support from Cruz for his RFS position. Whether it is because of a lack of awareness of the RFS’ eventual reduction of corn for “advanced” biofuels, or for other reasons, remains to be seen.

If ones adopts a more cynical position, he/she would argue that such widespread support of the ethanol industry among the top candidates is due in large part to the first primary voting that took place in corn-producing Iowa in February. As such, candidates pander to strong ethanol support in the state, hoping to get off on the right foot from the start of the election schedule.

However, at this point in the election year, it’s safe to say that the RFS mandate will remain in place for the foreseeable future in its current form.

Sources cited:  Pyle, Thomas. “Ethanol Mandate Hurts Iowa Corn Farmers.” The Hill. Capitol Hill Publishing Corp. 26 Jan. 2016. Web. 31 Mar. 2016.

Current Trends for Nebraska Farmland Values & Rental Rates

 

Nebraska Farmland Values

Amid continuing low commodity prices, farmers across the state are facing challenges heading into the 2016 growing season. As expected, land values and rental rates are following suit. According to preliminary findings from the latest University of Nebraska–Lincoln Farm Real Estate Market Survey, ag producers will contend with tighter margins for servicing rent and making debt payments.

Overall, land values in the Cornhusker state decreased an average of 4 percent over the last 12 months, with the average price per acre at $3,135, down $115 per acre since 2015. This is the second consecutive year that values have decreased in the state. Rental rates for agricultural ground in Nebraska peaked in 2014 and 2015 for cropland and grazing land, respectively.

Survey results, by district, were as follows: northwest, $820 (-5 percent); north, $1,270 (-5 percent); northeast, $6,095 (-1 percent); central, $3,780 (-4 percent); east, $7,025 (-1 percent); southeast, $5,685 (-5 percent); south, $4,140 (-10 percent); and southwest, $2,010 (-3 percent).

For dryland and irrigated cropland, the decline was about 5-10 percent for 2016, with higher rates of decline indicated for western portions of the state. The survey also found that rates of decline were higher in parts of the state with record rent levels in 2015.

Other survey results found that the largest price decline—17 percent—occurred in the hayland category. Following the demand for forage following the 2012 drought, and the corresponding willingness on the part of cattle producers to pay more for hayland, the subsequent moisture recovery that occurred has led to the price of hay dropping. Some of the largest decline in hayland has been in the north and northwest districts of the state.

Gravity-irrigated and center pivot-irrigated land showed the next highest rate of decline of about 6 and 4 percent. The same is true of dryland cropland with irrigation potential.

The only land class that remained unchanged or showed small price increases was in dryland cropland without irrigation or tillable grazing land potential.

Rental rates for dryland and irrigated cropland declined from 2-10 percent, with pasture and cow-calf rental rates also declining about 5-10 percent across the state, after setting records in 2015. The average monthly rental rate for a 5-month grazing season averaged about $55 per month or $275 for the grazing season, with survey participants attributing the dollar difference to varying levels of service agreed to in leases between landlord and tenant.

Landlords reported higher landownership expenses as property taxes continue to increase, and rental negotiations have centered on these challenges.

Looking ahead, survey participants noted that financially sound producers may still have the ability to secure long-term financing at favorable interest rates. However, meeting annual debt payment on newly purchased property at the current commodity prices will remain tough.

With recent weather trends hinting at the possibility of an early spring, along with rumors of a quick change from El Nino to La Nina, which could bring about hot and dry summer conditions, prices may change for the better. Until then, farmers will continue to focus on managing input costs as they prepare for the planting season.

Source consulted: “Nebraska Ag Land Values Down 4%; Rental Rates Down 2-10%.” CropWatch. University of Nebraska-Lincoln. 11 Mar. 2016. Web. 15 Mar. 2016.

Crop Revenue Coverage for 2016

Crop Insurance 2016

With the 2016 growing season just around the corner, farmers are not only busying themselves with planting preparation, but also with insurance coverage decisions. The deadline to sign up for crop insurance coverage is March 15.

With the latest Farm Bill rollout, Revenue Protection crop insurance has taken the spotlight as not only simply another type of insurance coverage, but also an important financial management tool that many producers should not ignore. Revenue Protection insurance protects a farmer from the combined effects of yield and price risk, rather than only just production. As it protects farmers from declines in both crop yields and prices, this type of coverage is a valuable tool for reducing year-to-year income variability. A number of coverage levels and options are available, which allow producers to tailor the coverage for their own specific operation needs.

Many producers enrolled last year, and if so, that coverage continues unless one decides to change policies. At any rate, now is the time when farmers need to determine how much coverage to purchase.

The USDA’s Risk Management Agency (RMA) recently announced its projected prices for the major crops following the February price discovery, giving farmers a better idea of which coverage will shape up the best for their operations this year. The RMA’s decision uses the price discovery period, based on futures prices for Dec. corn, Nov. soybeans, and Sep. red spring wheat, to determine the final prices and volatility factors for federally sponsored corn and soybean crop insurance protections.

The verdict for 2016? As expected, the crop insurance guarantees are lower than last year’s, and they also may fall below the cost of production.

As farmers look ahead with these challenges in mind, it is tempting to decrease crop Revenue Protection crop insurance in the quest to pare down input costs, and rely more on the Agricultural Risk Coverage at the County Level (ARC-CO). However, University of Illinois Ag Economist Gary Schnitkey cautions against it, based on a recent analysis he conducted using a McLean County (IL) example to evaluate the various levels of protection offered by ARC-CO. He determined that lowering coverage levels may be imprudent, and that Revenue Protection at high coverage levels is still a good choice for crop insurance decisions. He concluded that ARC-CO only provides a limited amount of protection.

Whatever decision is made, profitability is expected to be tough for many growers this year.

“Expectations are for costs to exceed revenue even with the inclusion of ARC-CO and crop insurance payments,” Schnitkey said. “This is not a year in which crop insurance can be used to assure a profit. Rather, crop insurance this year will limit losses to hopefully more manageable levels.”

Do you need guidance with your crop insurance decisions for the 2016 growing season? Please don’t hesitate to contact an experienced UFARM land manager—we are glad to help you choose which options work the best for you and your farming operation.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Sources consulted: Rice, Alison. “Crop Insurance Prices Set for Spring Crops.” AgWeb. Farm Journal. 29 Feb. 2016. Web. 01 Mar. 2016., Rice, Alison. “Crop Insurance and ARC-County: Do You Really Need Both?” AgWeb. Farm Journal. 27 Jan. 2016. Web. 01 Mar. 2016., Schnitkey, Gary. “Should Prospective ARC-CO Payments Impact 2016 Crop Insurance Decisions?” FarmDocDaily. University of Illinois at Urbana-Champaign. 26 Jan. 2016. Web. 01 Mar. 2016.

 

3 Things to Consider When Negotiating Your Nebraska Farm Lease

farm lease

Of the numerous decisions to be made by farmers and landowners, many deal with farm leases. Often, questions arise when it comes to leasing matters, be they large questions (how much should I charge?) or smaller questions (are grain bins included in my lease?) However, it’s very important to know your leasing options, especially now when cash rents have remained high. Here are 3 key things to consider when you negotiate your farm lease, whether you’re the landowner or the tenant.

Calculating a Fair Rental Rate
Arriving at a mutually agreeable rental rate is important, and this determination can be complex. It is usually based on several factors, including the rental rates of the surrounding area to the ground in question, from information obtained from professionals such as farm managers and/or real estate professionals, survey data , percentage return on investment, or percentage of gross income, to name a few.
Farm managers often have valuable insight as to a piece of ground’s potential, and have many years’ experience in helping landowners and farmers secure fair rental rates that accurately reflect the contributing variables. They are readily able to determine the percent of gross income, for example, or to calculate the ROI you’d like to receive.

Determine Which Lease Type to Choose
Part of determining a fair rental rate will stem from what type of lease agreement is chosen. Whether it’s a crop share lease, cash lease, or flexible rate lease agreement, farm managers can help you determine which lease type best suits your needs, based upon your unique situation, the state of the market, and the like. From there, the distribution chosen will depend on the final inputs, such as the tenant paying all seed and chemical costs, while the landowner pays all the land and drying costs.

Determine the Details
Once it is decided which type of lease is mutually agreeable, farm managers are able to get the agreement written down on paper, with terms clearly determined ahead of time. Enlisting an experienced professional to help set forth the particulars of the lease agreement provides peace of mind for both parties should any issues arise down the road.
Leasing agreements should include more basic information, such as deadlines for termination, should one party so choose, as well as other particulars such as grain storage considerations (are grain bins included or excluded in the lease?) electricity matters (should a separate meter be maintained?) or improvement/maintenance of fences.
Having these details worked out on paper ahead of time is key to maintaining a good landlord/tenant relationship, and farm managers act as impartial third parties in such cases, working to prevent any misunderstanding down the road.

UFARM land managers have years’ worth of experience in helping Nebraska farmers and landowners sort through their leasing options, and setting forth clear terms that are beneficial to both leasing parties. If you have a leasing question, don’t hesitate to give us a call, and we can discuss what options are available to you and your farming operation.

UFARM offers a full range of Nebraska land management services, including real estate sales, rural property appraisals, consultations and crop insurance. UFARM has operated in Nebraska since the early 1930’s. Contact us today!

Source consulted:Vyhnalek, Allan. “Frequently Asked Questions—Farmland Leases.” Institute of Agriculture and Natural Resources Agricultural Economics. University of Nebraska-Lincoln. Web. 22 Feb. 2016.