July 25, 2014

Getting landlords and tenants to agree on a cash rental rate for next year is going to take some careful balancing and consideration of each other's perspective.

Also see: Frequently Asked Questions — Farmland Leases

On the landlord's side, land taxes for farmland have skyrocketed in the last few years.  (Remember though that most farmers/renters own land too and are quite aware of how land taxes are changing.)

On the tenant's side, it's not $7 per bushel corn and $15 per bushel soybeans anymore.  With the June 30 USDA acreage and carry-over estimates, corn and soybean prices plummeted again. Current cash price for corn and soybeans is around $3.30 and $10.00, respectively, at local elevators. That is a significant drop for the second year in a row.  Also, expenses are not likely to go down.  For example, estimated costs for raising one bushel of corn range between $4.10 and $4.70, depending on the land charge.

Given these cost factors, landlords and tenants find themselves facing a dilemma between tenants who cannot or should not pay more rent and landowners who are unwilling to lower rent. This creates the great balancing act.

We also need to remember that the farm land lease is a traded commodity that is ultimately governed by supply and demand.  At this time, the demand is still exceeding the supply, which means land cash rental rates are not likely to go down significantly.

Reassessing Both Sides

This is one of those years when both parties need to use a sharp pencil.  Landlords need to get out a calculator and really determine what the land charge for taxes is.  I've had landlords think rent should go up by $25 per acre to cover taxes when the tax change per acre per year is $5-7 per acre.  I also think that tenants have added expenses (for example, fertilizer and chemical packages, new machinery, better more costly seed genetics) over the past few years that need to be examined closely now that the price of corn and soybeans has changed dramatically.

Starting Landlord/Tenant Discussions

• First, share information with each party so no one feels like there is an advantage of "secret" information given to the other party.
   
• Consider lowering rents, keeping rents steady, or only increasing rents by the actual increase in land taxes.  What you do will depend on your situation and your current rent.  
   
• Consider going to some type of flex lease, or modified crop share agreement.

The great balancing act for farmland rental arrangements of 2015 is an interesting situation. I wish both parties well as they work on determining rent for the next year. And while I will not mediate a rental agreement dispute, if you have questions, please continue to contact me and I will help as I can.

For more information or assistance, contact Allan Vyhnalek, Extension Educator, University of Nebraska-Lincoln, in Platte County, 402-563-4901 or e-mail avyhnalek2@unl.edu. Also see the Ag Real Estate section of CropWatch for information on lease options and the Economics and Marketing section for land values and crop budgets.

Allan Vyhnalek
Extension Educator, Platte County

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