Considering Giving Up Your Cash Rent Lease?
As cash rental rates continue to increase each year, and in the face of continued low commodity prices due to high-yielding harvest expectations, more and more farmers eyeing their cash flow for 2016 are considering giving up their cash rent leases. Is this a sound decision, and if determined so, what do producers need to know before they part ways with their rented ground?
Farmers aren’t mistaken in feeling the pinch of ever increasing cash rent: According to data collected on average cash rent paid over the last decade by Nebraska Farm Business, Inc., the cost has doubled from $127.71 in 2005 to $258.11 in 2014, after peaking at $274.74 in 2013. This cost accounts for about 31% of the total cost of growing irrigated corn.
Landowners, too, have had to deal with issues of their own, as property and real estate taxes have continued a steady increase as well, and this has obviously entered the cash rent equation.
While giving up land is considered a last resort among most farmers, working for nothing—or even working to lose some money—is not a favorable option. Of course, this decision cannot be made without considerable forethought, and many times isn’t just about the numbers. The chances of ever farming the same ground again after giving it up is unlikely, and should the markets turn around, finding land to farm is difficult. A drought year or other weather disaster in another area of the Midwest can change outlooks instantly. Therefore, it’s no wonder this is a tough decision for many cash renters.
While each producer’s situation is unique, the decision to give up rented ground may come down to the overall financial health of the farm. If an operation is highly leveraged and much of its ground is concentrated around high-rent land, then giving up some of these acres may be necessary over an operation with less/low debt and fewer high-rent acres. Similarly, the age of the operation should be considered. A more established farmer with a higher net worth to fall back upon would have fewer reasons to give up rented ground than a beginning farmer with less net worth.
Should the decision be made to end a cash rental agreement, it’s important to remember that farmers and tenants must notify each other by September 1st . Under Nebraska law, a farm lease automatically continues from year to year unless a notice of termination is given by either party, and this notice must be properly served by September 1st, prior to the end of the lease year.
Owing to a number of factors, among them the nature of the relationship between the landowner/tenant, many farmers hire land managers to ensure that all necessary steps are taken to end a lease agreement. Hiring a professional land manager who deals with these issues on a day-to-day basis helps to make the overall action run smoothly, efficiently, and with as little headache as possible for all parties involved.
If you are in the difficult position of determining whether or not to end a cash rental agreement, please don’t hesitate to talk it over with a UFARM specialist. We are glad to help you weigh the costs and benefits, and determine the best option for the long-term viability of 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: Barrett, Tina. “Should You Give Up Your Cash-Rent Lease?” AgWeb.com. Farm Journal. 04 Aug. 2015. Web. 25 Aug. 2015. Swoboda, Rod. “Lease Termination Deadline is September 1st.” Prairie Farmer. Farm Progress. 14 Aug. 2015. Web. 25 Aug. 2015.
