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Farmland Rental LeaseAs we head into the final stretch of August, farmers are already looking ahead to harvest. While they focus on putting pivots to rest in the near future and begin pulling out the harvest equipment, it’s a good idea for farmers and landowners in rental agreements to remember that September 1st marks the date by which lease agreements must be terminated or terms and conditions changed, if it is so desired by either party.

In Nebraska and most surrounding states, an oral farmland lease begins on March 1st. Farm lease agreements are automatically continued year by year unless one party serves a termination notice or requests a renegotiation of the terms, and Nebraska law requires that this notice be served six months in advance of that date. Many rental agreements are oral agreements, and while it is always recommended that the terms of leasing agreements be on paper, it’s important for those without one to keep in mind that September 1st is fast approaching, should one desire to terminate or change a lease agreement. One of the most common disputes among parties with primarily oral farm rental agreements involve differing recollections of the terms of the lease; as such, farm managers strongly encourage that an agreement be put down in writing, even among family members, to avoid such disputes.

With that in mind, farmers and landowners each have an interest in ensuring that rental agreements are fair and mutually beneficial to both parties. Determining a fair price for farmland can be complicated, as many variables come into play, including farmland location, soil quality, land values, crop yields, personal goals, and the relationship between owner and tenant. Naturally, the factors that have the greatest effect on rental price are land values and crop yields. As these vary—sometimes quite a bit—from year to year, it can be difficult for owners and the farmers who rent the farmland to agree on a fair rental price.

To add to this difficulty, it’s interesting to note that a common way of determining a fair rental price—by comparing them with average county rents—isn’t always the best way. Illinois ag economist Gary Schnitkey found that, while the reported state and county land rent averages are accurate, they also mask a lot of variability among rents. From his findings, Schnitkey reports, “Only 35% of farm cash rents are within $20 of the average rent. This leaves many cash rents that vary significantly from averages.”

How then can farmers and landowners best determine a fair rental price for their farmland? Many are turning to professional land managers. Land managers deal with these types of situations on a daily basis, and are knowledgeable about all the tools available—such a flexible lease agreements—to farmers and landowners. They take into account each party’s unique circumstances and work with them to form a mutually agreeable arrangement, that best allocates risk and return for each. In situations involving family members, they are able to serve as an objective liaison who can effectively work out the rental agreement in a fair-minded way.

Are you wondering if your land leasing agreement is serving your best interests? Contact a UFARM land manager—they are happy to offer you sound advice regarding farmland rental agreements.

United Farm and Ranch Management (UFARM) is a Nebraska-based company devoted to meeting landowners’ needs. 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.

 

Sources consulted:

Caldwell, Jeff. “What’s ‘fair’ cash rent for your land?” Agriculture.com. 15 Nov. 2011. Web. 18 Aug. 2014.

Edwards, William. “Computing a Cropland Cash Rental Rate.” Iowa State University Extension and Outreach. May 2014. Web. 18 Aug. 2014.

Center PivotLandowners are always endeavoring to get the most from their farmland, and this is especially true when negotiating cash rental rates with potential tenants. While there are many factors in play when it comes to lease rates, one of the most significant is whether or not their parcel of land is under center pivot irrigation. As many savvy landowners readily discover, there is a strong correlation between higher cash rental rates and the presence of center pivot irrigated acres.
Cash rental rates have been steadily rising over the last several years, and demand remains high for quality rental acres. Trends over the last several years, when rainfall has been adequate or exceeded expectations, suggest that would-be tenants have been willing to pay a straight per-acre rate for both irrigated and dryland corners in their rental agreements, since the yield difference between the dryland corners and the irrigated acres have been smaller.
However, after 2012’s severe drought, tenants are becoming more interested in negotiating rental contracts with per-acre rates based on the irrigated circle and the dryland corners, this according to survey results conducted by the Ag Econ Department at the University of Nebraska. The survey looked at the five reporting Agricultural Statistical Districts in Nebraska and found that in all five, the cash rental rates were an average of $9-$33 per acre higher when rates were based only on the center-pivot irrigated acres, and not the whole parcel.
Specifically, in the Northeast Nebraska reporting district, the results of the survey found that the center pivot irrigated only price per acre average was $397, versus $379 for the center pivot whole parcel average, a difference of $18 per acre. The difference may also be attributed to high demand for acres to farm and high competition to win leases in this part of the state.
Indeed, it has been noted that it is cheaper to buy an acre of untillable grazing ground in northwest Nebraska than to rent an irrigated farm acre in the eastern portion of the state for one year. The same UNL survey cited the going rate for the highest quality irrigated rental acre was $439, versus $379 sale price for a grazing acre.
So, what does this mean for landowners? Obviously, it’s a great economic benefit to have center pivot capabilities on your farmground, as tenants are obviously willing to pay more for irrigated acres at this time. Landowners seeking to maximize their land asset should take advantage of the economic benefits that come with irrigation. If your ground is dryland, it’s a good idea to evaluate it and decide if the benefits that come along with adding a center pivot are worth the initial cost. The findings of this survey and trends over the years suggest that the higher cash rent premiums that accompany irrigated land are worth the efforts.
Are you striving to make the most of your farmland? Are you wondering whether you are negotiating appropriate rental rates? Give UFARM a call. We have the experience and expertise to help you make the most of your farming operation.
Source:
“Center Pivot Rental Rates With and Without Adjustments for Dryland Corners.” Cornhusker Economics. Agecon.unl.edu. 31 Jul. 2013. Web. 14 Apr. 2014.

Successful landowners know what it takes to build and maintain good working relationships with the producers who farm their land. With the high land values and cash rental rates of the last decade, it’s even more important for both landowners and tenants to go into their business relationship with clear goals and a well-defined agreement for how best to manage the farmland.

In many cases, today’s landlords are increasingly turning to professional farm management companies to help them navigate the decisions that need to be made regarding their farmland. Two main reasons account for this change. One is that agriculture is becoming more complicated and volatile. Anyone farming in the last decade, with its rapidly burgeoning land values and commodity prices, can attest to this. Another reason is that many of today’s landowners don’t have close ties to the farm. This may be the result of farmland being passed down to non-farming children or grandchildren, the landowner not being geographically close to the land, or the landowner acquiring the land as an investment, without any prior farming knowledge.

Landlord-tenant relationshipsWhatever the case, many landowners feel they lack the knowledge to farm the ground themselves, or to find someone who is both competent and trustworthy to farm their ground, and so they turn to the expertise of experienced professional land managers to do this for them.

One of the most important decisions that farm managers help their clients make is who to farm the land. Farm managers strive to take into account each client’s circumstances, gathering the pertinent information needed in each instance to make the right decisions. They ask many questions, finding out if the land has been rented to relatives or neighbors, and if the client would like to see that continue or not. Often, there are prevailing family concerns that need to be taken into account, and farm managers have experience when it comes to these often delicate situations.

Open, candid communication is the foundational component to successful relationships. This is especially true for landlords and tenants. A professional farm manager can be an effective liaison between landowner and farmer, securing a mutually beneficial arrangement for both parties. In many instances, an impartial third party negotiator is all it takes to encourage a positive landlord/tenant bond.

When it comes to landlord/tenant relationships, it’s important to negotiate a lease that is agreeable to everyone. Farm managers are knowledgeable about different type of leases. For instance, leases that share the profit and risk, known as flexible lease agreements, are becoming more commonplace. A flexible land lease agreement is an agreement in which the rent is not paid until the after the crop is harvested. The final rate is then based upon the actual prices and yields attained in a year, rather than a set rate. This type of lease may be a good fit for both parties, and will further promote a healthy and open business partnership.

Are you a landowner? Are you striving to get the most out of your farm? Let UFARM help you determine which strategies are a good fit for you, your tenants, and your valuable land asset.

input costsAs farmers reach their last rounds in the combine harvesting 2013’s crop, most are already thinking ahead to 2014. One of their top concerns is input costs and how best to manage them to maximize their bottom line.

The drought of 2012 and its resultant high-demand and low supply of crops led to high commodity prices, but with some drought-relief in major corn and soybean areas of the country in 2013, it is expected that commodity prices will adjust to reflect a better grain supply. With grain prices on the general decline, farmers expect to contend with potentially tight profit margins in the coming harvest year. As a result, analysts expect changes in the money they pay for 2014 input costs such as fertilizer, fuel, chemicals, and seed.

On the whole, fertilizer costs have declined. In particular, potash and phosphate are down 15-17% since last spring, and nitrogen has declined 22% this fall. Depending on how much the weather will allow farmers to get their fertilizers applied this fall will further determine the price of fertilizers next spring. The decrease in the price of nitrogen reflects potential lower corn acres in 2014, as well as an increase in domestic production of nitrogen.

Likewise, fuel costs are expected to be down slightly in 2014. The price of the diesel fuel that runs most farm machinery is expected to be down by 4%. Similarly, the price of natural gas, which is commonly used to dry corn, is projected to be down by 4% as well.

The price of chemicals—in the form of herbicides, insecticides and fungicides—will be mixed. Purdue University farm business management specialist Alan Miller contends that chemical prices will be up slightly, with a 1% increase, with the exception of herbicides, which will remain flat. Experts urge farmers to try to buy chemicals in bulk when possible in order to cut costs. Another way to cut input costs is to consider purchasing seed and chemical package deals when making seed-buying decisions.

Seed prices are predicted to be up in 2014, perhaps as much as 2-3% for the 2014 planting season. However, while producers always attempt to watch their pricing inputs, they will not cut corners when it comes to selecting the type of seed they choose to grow. With the technology that goes into seed genetics and the beneficial ways these hybrids can maximize yields and overall profits, farmers realize that it is in their best interest to choose the right type of seed for their ground, regardless of cost.

Finally, experts predict land and rent prices to remain where they are in 2014. Machinery costs, which have increased an average of 7% per year from 2002-2012, could fall as a result of lower commodity prices, especially if these lower prices are sustained for a longer period of time.

While it is impossible to predict yields and prices for the 2014 growing season, it is necessary for farmers to make input decisions now in order to maximize profit and lower risk where possible.

If you have questions about how input costs will affect the profitability of your land or operation, please contact one of the professional farm managers at UFARM for a free consultation.