Are Farm Land Rents Too High?
By: Carl Stafford
Senior Extension Agent
With harvest winding down, landowners and farmers who rent land turn their attention to next year. Unanswered questions relate to the strategy for next year’s farm expenses. What can be cut and by how much? Can land rent be reduced? This is a viable place to find savings but the trick is, will your landowner compromise? Seems reasonable that if rents went up with high crop prices, they can come down with low crop prices – like now.
The other alternative is to stop renting the least productive land. Marginal land should be the first go like culling the bottom end of the cow herd. If rents are the same for two parcels per acre, it’s a no brainer to drop the least productive land. On the other hand, if rent were adjusted to fit production potential, then it could be competitive on a net revenue basis. We are cropping land now I have never seen in crops. Maybe there is good reason to evaluate the returns from these latest fields to be planted.
For the landowners reading this, abandoned crop land should be planted back to grass. Whomever killed the grass should be the one to plant it back. This too seems reasonable, even if not required in the lease. So work with your farmer and they with you to find middle ground you both can live with.
You don’t have to have the best yields to have the highest net return either. If you can shave production costs and obtain medium yields, then net returns can be found. I realize most of you have already cut as many costs as you can. Work with your landowners to see if they will give you some relief on rents. In the long run, both of you will do better. Someone once used the term, “collectible rent” in reference to a house. High rent is great if it keeps on coming. To collect regular payments that may not be the highest, but do generate a steady and reliable stream of income, this is what you want. Extension plans a land rent survey in early winter and we appreciate your responses to this important set of questions.
Horticulture Agent, Shawn Appling pointed out a related situation today. He commented that with increased housing construction, landscaping trees are in demand. Nurseries that failed to plant during the recession, find themselves without ready trees for planting and must buy high cost substitutes. The connection with farming is to plan for the next upswing. What can be in the works? Another crop or another source of revenue from the farm? Working up to a change can take time and the time is now to make plans and make changes in your capabilities for 3 to 5 years out.
I know, you are just concerned with the next 3 to 5 days, much less the next 3 to 5 years. But seriously, with the rush winding down, you will have time to do end of year evaluation and financial work, showing where your opportunities exist. Work with your lender, work with your tax advisor, work with your extension agent or your financial advisor to find workable solutions through next year.
According to recent reports, debt to asset ratios are about half those experienced by the farm sector in the 80’s – a highly leveraged period in farming. This means we have borrowed lately, but have not borrowed as much as we could have. But, repayment is slipping nationwide on these loans. There is less money to go around and payments have to be cut to make ends meet. Ag lenders are accustomed to income variation, just keep them informed and have a plan with them on your next steps.