Successful Land Rent Negotiations is
More Than Being the Highest Bidder
Farm Leasing Workshops
Willie Huot
NDSU Extension Agent, Farm Business
Management & Economics
“The perfect storm”
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Improved seed genetics
Good yields
Good prices
Low interest rates
Ever increasing demand
Record setting net farm income in some
regions
AGWEEK Feb 1, 2013
(ND Farm Managers & Rural Appraisers group)
• 46% average ND land value increase in 2012
– 53% - Northwest
– 45% - Northeast
– 41% - Red River Valley
– 38% - Southeast
– 31% - Southwest
• 28% average in neighboring MN counties
• (Walsh & Richland Counties; 3 sales over $10,000 per acres)
Red River Valley 2012 Report
(Returns to labor, management and equity capital invested in the business)
Objective
• “Provide information to land owners and
operators with information to improve
their abilities to negotiate rental
agreements that meet the needs of both
parties in an environment of rapidly rising
land costs”
Workshop Summary
Dec 2012 – March 2013
22 workshops conducted
Each approximately 3 hours long
Total attendance = 729
Approx. 55% landowners & 45 %
operators
Methods
Specialists and agents worked together to plan,
promote & delivered educational program addressing
many key topics pertinent to land economics and
landlord/tenant relationships.
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Power point presentations
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Turning Point Technologies
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Hand out materials
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Questions & Answer sessions
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Showcasing pertinent web sites
Presenters
• Andy Swenson
NDSU Extension Farm & Family Resource
Management Specialist
• Dwight Aakre
NDSU Extension Farm Management Specialist
• Willie Huot
NDSU Extension Agent/Farm Business
Management & Economics
Topics Covered
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Historical Land Prices
Factors Affecting Land Values
What is Land Worth?
Understanding Capitalization Rates
What is a Fair Cash Rent Value?
Fixed Cash Rent Methods
Pros & Cons of Flexible Cash Rent Leases
Topics Continued
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Establishing Base Yields & Prices
Flexing for Prices Only
Flexing for Yield Only
Flexing for Both Price & Yields
Important Questions to Ask
Improving Land Lord/Tenant Relationships
Use of Resume’s & Newsletters
Fixed Cash Rent Methods
1. Cash rent market approach
2. Landowner’s cost or desired return
3. Landowner’s adjusted net-share rent
4. Operator’s net return to land
5. Percent of land value
6. Percent of gross revenue
7. Dollars per bushel of production
8. Fixed bushel rent
Flexing Rent on Price and Yield Changes
Current Price Current Yield
Base Rent x ----------------- x ---------------- = Rent Paid
Base Price
Base Yield
Establishing a Base Yield
• Individual farm records
• FSA proven yields
• FCI yields
• County yield data
• Farm Business Management records
• Other mutually agreed upon method
Establishing a Base Rent
• Current cash rent value
• Area/County average rent
• N.D. Farm Business Management records
• Other mutually agreed upon method
Determining Final Yield
• Bin measurements
• Elevator receipts/scale tickets
• Yield monitors
• Yield samples
Determining the Final Price
• Contracted price
• Futures minus basis at a given location
• Harvest price on a certain date
• Average local price during growing season
• Specified beginning and ending date
• Actual planting date to harvest date
Five Important Questions
• What are my competitive advantages to be
selected by a land owner to farm his/her
land?
• Do I adequately convey those advantages to
the landlords/prospective landlords?
Two More Questions
• What are the special concerns, needs, goals &
priorities of the land owner re: his/her tract of
land?
• Do I meet those needs by the current way I
am farming/managing their tract of land?
Last but not least
• How would I feel about our land rental
agreement if I was “on the other side of it”?
Communication is Important
• Some Landowners becoming “further
removed for agriculture”
– View their land primarily as “an asset to generate
wealth” (as much as possible)
• Helps to “Educate & inform them” of
important issues impacting their land & the
potential profitability on a frequent basis
Designing a Farm Resume’
• Management objectives
– Your current & future plans
– What you envision your operation to look like in
the future
• Your experience
– Years farming
– Size & type of farming operation
– Technologies you utilize
Experience continued
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Use of computer technology
Yields in relation to county/area averages
Education
Ag related positions with commodity groups
or other organizations
Biographical Background
• How you got started
• Spouse & family info that is relevant to the
success of your operation
• Community involvement that demonstrates
your leadership & commitment to helping
others
Environmental Statement
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Views on reducing wind and water erosion
Weed control practices
Shelter belt maintenance /tree planting
Cleaning waterways
Building maintenance (if part of the agreement)
• Pesticide Use/ application practices/storage
Livestock
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Breed(s), Types, approximate size of herd
Pasture/range mgt. practices
Rental policies - by acre or AUM’s
Stocking rates
Fence building/ maintenance
Hay/feed storage
Risk Management Strategies
• Cash rent vs crop share
• General statements re: use of crop insurance
• Managing production risks
– Pest control strategies
– Crop rotation
• General marketing strategies
• Rental payment terms & timeliness
A resume should
• Be an accurate statement about you & your
operation
• Be concise
• Be truthful
• Be updated as needed
Landlord Newsletter Information
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“What’s going on”
Crop Conditions
Weather update
Commodity prices
Technology update
Upcoming events
Summary
Contact information
Summary
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Land price negotiations becoming more complex
Needs to be a win/win situation
It’s all about good communication
Good relationships are the vital key
Seek the best means of communication for you &
your business.
• Be sensitive to the specific needs/concerns of
your landlords
Summary of Workshop Evaluation
4
3.5
3
2.5
2
1.5
1
0.5
0
I understand the
I understand the
I am confident in
I understand the
I know the key
I have a desire to create
importance of a written common types of lease selecting and drafting elements to be included questions to answer an alternative leasing
land lease contract
agreements
an agricultural lease in an agricultural lease
when creating dan
arrangement
agricultural lease
Before
After
As a Result of Participating in this Program
350
300
250
200
150
100
50
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I intend to initiate discussion with
landowners (or operators) about a
land lease
I have new ideas and tools to
develop better land lease
arrangements
Yes
No
I better understand how
relationships between land owners
and tenants may be improved
Questions?