MU Extension offers tips for negotiating new farmland leases
Lower commodity prices driving rental rates down.
- Published: Friday, Dec. 23, 2016
COLUMBIA, Mo. – Renters and property owners are negotiating new farmland leases in response to lower farm commodity prices, says University of Missouri Extension agriculture business specialist Joe Koenen.
Communication helps landlords and tenants find a middle ground for new leases, Koenen says. Landlords in tune with lower farm prices recognize that tenants will request rent adjustments. “I know of renters who are negotiating leases. Several are being successful,” he says. “Overall, so far it seems relatively smooth.”
Some owners, however, resist the change. Landowners who invested in land with expectations of a set return seem most reluctant to renegotiate new terms, Koenen says.
Open communication between landlord and tenant throughout the term of the lease—not just when down markets hit—is key.
“Communicate every year, not just when prices go down,” Koenen says. Talk to landlords about income and expenses and how that affects your bottom line.
“Agriculture is cyclical,” he says. “We’re in a downturn. Everybody is in the same boat.” He says income on current Missouri corn/bean rotation farms is down more than $150 per acre.
Do not pressure your landlord to accept an unrealistic lower rate, he says. Renters do not want to put landlords in the position of putting the land out for bid. Renters should consider additional factors such as proximity to other ground they farm.
Tenants who are good stewards of rental property should remind landowners of this. Loyalty and tradition still matter in rural areas, Koenen says.
Koenen recommends that tenants offer something of value to landowners to offset the feeling that they are losing. Tenants may be able to offer services such as plowing snow on the landowner’s roads, marketing timber on the property or fixing fences.
Don’t bring up topics such as your new pickup truck or the expensive vacation you are taking, Koenen says. The landlord will be more willing to lower rent if he sees that you are cutting back on your budget.
He recommends that renters do a five-year average of their farm income and expenses before meeting with the landlord.
USDA’s National Agricultural Statistics Service (www.nass.usda.gov) releases average cash rental rates for farm, forage and pasture ground each September. MU Extension studies rates every three years.
Koenen teaches MU Extension classes on farm and recreational ground leases.
For additional resources, Ag Lease 101 helps both land owners and land operators learn about alternative lease arrangements and includes sample written lease agreements for several alternatives. Ag Lease 101 was created by and is maintained by the North Central Farm Management Extension Committee.
Writer: Linda Geist