Why Renting Farmland by Tender is the Smart Choice

5 December '14

In today’s market for agricultural land, demand remains strong for farmland, most notably for quality crop land suitable for growing grains.

With high demand for land, and with land renting on the rise, it’s no wonder lease rates for renting land are such a hot topic.

This is a particularly hot topic for farmland owners. In fact, over 99% of landowners we speak with share the same question: What is the going rate for rental land? Now if you’re not sure why that question is so tricky, we recommend you read our blog about the key determinants of rental land, but in a nutshell – there simply is no ‘going rate’ that can assure a landowner of the rental value of their own land.

So what does this mean? It means that farmland rental prices can be a very murky area.

Despite being so difficult to ‘find’ a going rate, the importance of a fair price can translate into real dollars and cents for a landowner....

 


Land Rental Rates and Relationships: Insights from an Agricultural Economics Analyst

10 December '13


One of our recent blogs was based on a Western Producer article that provided an economist’s perspective on where farmland rental rates are headed. The article shared information that James Bryan, a strategy and agricultural economics analyst with Farm Credit Canada, had presented in a recent Farm Management Canada Agriwebinar: Get the most out of your rental relationship. The Western Producer article and our previous blog focused on pricing rental land, however the full webinar had many great insights that we wanted to cover in more depth. We also wanted to encourage you to check out the webinar video for yourself. (Note: free registration is required, but it's quick and you'll get access to other great resources!)
First, Bryan gave an interesting overview of how global economic growth is driving optimism in the agriculture sector. He described a recent shift in economic growth, away from developed countries and towards emerging economies like China and Indonesia, and the impact this has on global food demand. He contrasted economic growth in developed vs. developing countries as it relates to food consumption. Bryan gave the example that an extra $1.00 accessible to someone in a developed country may result in an extra 10 cents being spent on food. In this scenario, the extra spending is unlikely to increase the amount of food consumed, whereas in a developing country it almost certainly would. In developing nations an extra $1.00 is likely to result in 40-50 cents being spent on food, increasing the overall food demand. Patterns in food consumption may also shift, trading grains for proteins, yet the overall outcome is increased global demand for food. 
 
This paints an interesting picture that helps us understand commodity price increases...

Farmland Lease Rates: Key Determinants

5 December '13


We recently posted a blog article addressing the number one question landowners ask about leasing land: “What is my rental land worth?” This article turned out to be our most popular one yet – the most read, the most shared and the one we've received the most feedback about. It turns out that it also happened to be our longest article. So, we've decided to summarize the main ‘takeaways’ and provide you with a convenient audio file for those who prefer to listen to a discussion about the ‘Going rate for farmland rental.’ 

Determining farmland lease rates can be really challenging. The audio file presents the 5 biggest factors influencing the 'going rate' for leased farmland, including the 'wild card' factor that trumps all the rest! Listen to find out what considerations are most important to pricing rental land... 

Farmland Rental Rates: An Economist's Outlook

3 December '13

The Western Producer just published an article with the headline:'Farmland rental rates likely to flatten'. This piece offers an interesting outlook by James Bryan, an agricultural economist with Farm Credit Canada. The article discusses two dominant determinants of land rental rates: crop receipts and interest rates, and how these factors suggest that future rates are likely to level off. We recommend taking a look at the article for yourself, but in the meantime, here are some highlights along with our commentary. 
The first determinant of farmland rental prices, crop receipts, is directly related to what's taking place in the commodity market. It seems logical that when farmers' margins are tightened, their diminished profitability translates into lowered capacity for land acquisition, both through purchase and rental. Not only is this a reality for individual farmers, but within the sector as a whole, diminished demand also predicts lower land prices. Bryan explains that when commodity prices fall, farmland rental rates face downward pressure, but that the lowered rates tend to lag behind shifts in commodity prices. He describes rates as "sticky on both ends", meaning that they are slower to rise, and slower to fall, in response to overall economic trends. The most common type of rental agreements, cash rents, are usually negotiated on a looking-forward basis for the upcoming year(s); this is another reason why rental prices do not track immediately alongside grain market fluctuations...

Farmland Rental Prices: What is the Going Rate?

26 November '13

 

By far, the number one question landowners have about farmland rental prices in Canada is, ‘What’s the going rate for rental land?’ We are constantly being asked, ‘how much can I get for renting my land?’ Given the current trends in land rental, this question isn’t going away, so we've decided to answer it once and for all.

Those with a solid farming background can be pretty good at ball-parking the price of rental land, but even with a good understanding of a particular parcel of land, nailing down a ‘fair price’ or a‘going rate’ is anything but simple.  For landowners who don’t have the background to approximate their land’s value, it may be tempting to search for a ‘going rate’ for rental, but this approach can be misleading and problematic. 

A fair price for one piece of land does not determine what’s fair for another
. Even two side-by-side parcels can have significantly different values – sometimes drastically different.

Basing a rental price off another land’s price is likely to have landowners expecting too much, or selling themselves short. Either scenario is less than ideal.  Another problem is that accurate information is really difficult to find. Rates that circulate through the grapevine may be remarkably skewed since farmers prefer not to broadcast what they’re paying; in a market characterized by tight supply and tremendous demand, who could blame them? Farmers value their privacy, and landowners do too.  So, point blank – rumored rental rates should not set your price expectations!

But isn’t there some sort of central registry that tracks rental rates? Unfortunately not. Granted, there have been attempts to survey and record rental norms, but these have been limited to particular jurisdictions and are not accessible with in-depth analysis.  There is no comprehensive source of rental rates that can tell you a fair price for your land.

Each piece of farmland is unique and since there are so many factors affecting rental value, we’ve come up with five categories that summarize the most critical determinants of land rental prices...