Thoughts on Land Rental Agreements for 2015
7 January '15
As we kick off 2015, here are some thoughts on land rental agreements for the upcoming year, from Patrick Lynch, Certified Crop Advisor:
A successful land rental agreement must be beneficial to the landlord and the renter. Landlord concerns include "will I get paid, will my land be worth more next year than it is this year, will my renter take short cuts this in 2015 because of lower commodity prices?”
Renters fears include “will my landlord want more money or even as much as I paid in 2014 and 2013?"
The reality is that for 2015 there will be less profit in growing cash crops than there was the last two years. And it may be no better in 2016.
So how do landlords and renters meet for 2015 and 2016? The first is with openness and honesty. Landlords should ask for and get a report on crops in 2014, yields and quality. They should also get a report on fertilizer applied and nutrients removed in the last 3 years. I think there will be some soils “mined” of nutrients in 2015. This is okay on owned land but must be factored into rented land. A three crop rotation of corn beans and wheat will remove $150 of phosphorous and potassium. This equates to $50 per year. There will be growers who grow soybeans in 2015 without applying fertilizer. This issue needs to be addressed in a rental meeting. The best way to address it is with soil tests and rate of fertilizer applied. There are times when it is okay to mine the soil.
The landlord also needs to have a report on tillage or no-till and anything else that affects the value of the land
A reality is that land looked after will appreciate in 2015 and beyond. This appreciation should be discussed in rental renewals.
There are lots of coffee shop talks about high rents. These tend to be “one-offs”. Sometimes a renter wants to get a piece of land and is more set on getting that land than making a profit. It may be close to other land, or needs it to grow a specific crop such as a horticulture crop or edible beans. These crops tend to take more out of land than put back into it.
Another reality is that larger land renters tend to pay more because of economy of scale.
In my mind land should be rented to someone who treats the land like their own. There is a certain sense of satisfaction in renting to someone who treats the land with respect. And there is value in continuing to rent to the same person even if someone else is willing to pay more.