Prices, yields can impact a fair rent
What's a fair rent for cropland in Stevens County?
It depends, said David Bau, an extension educator in agriculture business management for the University of Minnesota Extension Service.
Bau presented a workshop called "What is a Fair Rental Agreement for 2019?" on Feb. 13 at the West Central Research and Outreach Center in Morris.
The average estimated rent paid on cropland in Stevens County in 2019 is $138 per acre, Bau said. Bau calculated that rent from data collected by the USDA, data from the Farm Business Management Associations in southern Minnesota and other information.
As of Feb. 13, corn and soybean farmers should be making enough money to pay the rent in the county, Bau said.
When Bau calculates the direct expenses for farming with the average corn and soybean yield and the price per bushel for corn and soybeans, farmers will have the ability to cover the average rent in 2019, Bau said.
But whether or not a farmer can afford to pay rent depends on other factors.
When overhead costs for items such as hired labor, utilities, farm insurance and interest are included in calculations, the outlook dims, Bau said.
"Farmers are still very strong on paper but their cash-flow stinks," Bau said.
Farmers with cash-flow problems may need a bank loan to help with crop expenses, Bau said. Yet, some many not be able to use the same bank they've been using for a few years. An estimated "20 percent will get turned away from traditional banks. It doesn't mean they won't get financing, they will just have to go somewhere else," Bau said.
Multiple years of low prices, a farmer's cash flow position and other factors may make it difficult for farmers to use the same bank again, Bau said.
Cooperatives that sell seed or fertilizer and other supplies to farmers may also need to provide financing to farmers, Bau said.
Crop prices have reached record lows and rents have remained high when compared to historic averages, Bau said. But, rental prices did go down in the county from the USDA calculated price of $164 per acre in 2017 to the estimated price of $144 in 2018. Prices increased from $104 per acre in 2010 to $161 in 2014 and $158 in 2015, $154 in 2016 and $150 in 2017.
The rent was $90 per acre in 2008 and $98 in 2009.
So, when landowners and tenants consider today's farm economy, it may be time to adjust the rent, Bau said.
Landowners may want to consider several different options for rent other than a flat cash rent per acre, Bau said.
Farmers can use a flexible rent based on gross revenue of the farmland. A base payment can be made during the crop year and a final payment is due after the actual yield and price are determined. Bau said this is the most common type of flexible rent agreement.
Other flexible rents can be based on yield only or price for crops.
With yield rent, there is a base rent and the landlord receives a set number of bushels with additional bushels if yields are higher than determined with the base payment.
With price only flexible rent, the base rent is based on the price of crops. It is usually a one-year's average multiplied by the bushel, Bau said.
A profit sharing flexible rent is one in which the landlord and tenant share the profit at 50 percent each.
"A flexible lease can be a win-win agreement," Bau said.
Bau said landowners should not just think of a rent agreement as so much per acre but rather in terms of flexible rates, clauses on performance, long-term agreements and other factors. What does the landlord want to achieve with rent and what does the tenant want to achieve with a rental agreement, are questions that should be asked and answered with any rental agreement, Bau said.
Landlords and tenants need to use objective data for rental agreements, "not the coffee shop," Bau said.
For one example, Bau talked about a $400 per-acre rental agreement in which the landlord covered some tiling costs on the land, Bau said. "The coffee shop report was $400 per acre rent. They didn't know the details of the agreement," Bau said.
Editor's note: This article appeared in the 2019 Farm Section of the Stevens County Times. View the entire issue here.