Talking Crops

Cash Rents – A Landlord’s Perspective

This episode of Talking Crops comes from “Landlords and the Cash Rent Issue” by Harwood D. Schaffer & Daryll E. Ray who are Economists at the University of Tennessee.

Land, it’s the single largest cost in the production for corn, soybeans, wheat, and other crops, and renters don’t have the luxury enjoyed by those who farm their own land of ignoring the opportunity cost of land when prices are below the full cost of production, like they are today. While there is not a magic wand that cane help renters who need to get land rents back to more manageable levels, it can’t hurt to understand a little more about the landlords.

According to the 2012 Census of Agriculture, just less than 40 percent all farmland in the US is “rented or leased from someone else.” And if you just look at the US Grain Belt, that number jumps to over 60 percent.

Of the more than 2 million landowners who rent out their land, “87 percent…do not operate a farm.” And three-quarters of those landlords are “‘principal landlords,’ meaning they are either  individual owners or they have the say-so in a partnership arrangement.”

In 2014, principal landlords, who average to be around 66-years-old were typically older than principal farm operators, who average to be around 58. Also, landlords who were 65 years or older in 2014…. accounted for 67 percent of all rent that was received that year.”

Most principal landlords are college educated, and “fifty-four percent of principal landlords are not currently in the paid workforce,” which you might expect given their average age. Also, just under half (45 percent) of all principal landlords have never farmed in their life.

Of the land that was rented out by non-operator landlords, 54 percent of that land was  acquired through inheritance or gift, 31 percent was purchased from a non-relative, and 11 percent was purchased from a relative. Among operator landlords, 41 percent of the land purchased from non-relative, 37 percent was acquired as a gift, and 17 percent was purchased from a relative. Now of all of this land, it is important to note that “eighty-nine percent of the acres rented out by operator landlords, and 94 percent of acres rented out by non-operator landlords, were completely paid for.”

So, since landlords, as a group, have little debt on their land, that would seem to suggest that they have some negotiating room when it comes to land rents. On the other hand, because most landlords are in or are near retirement, they may have become accustomed to the increase in rents over the last few years and they may not want to jeopardize their living style, or maybe they have other reasons.

If you plan trying to negotiate  with your landlord, renters should do their best to carefully prepare a document showing per acre revenue against expected per acre non-land costs using the high prices of the past and the low prices expected next year. All farmers certainly know their landlords well, but given the fact that a significant number of them have no farming experience, they may not keep up with many changes that agriculture faces today, and may live at some distance from the land they own, a little time spent talking to them about the nature of farming and the challenges agriculture faces could be a wise investment.

From the renters’ perspective hard facts are probably going to be the best hope to convince landowners of the seriousness of the situation and move him or her to a negotiated number that makes sense and is acceptable to both. You may also want to consider adding an agreement that would allow for the level of rent to increase if prices increase. The landlord may see this as a sign of good faith on the part of the renter.

And remember, honest numbers and even-tempered discussion are essential elements of any negotiation.

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