Successful Land Rent Negotiations is More Than Being the Highest Bidder

Farm Leasing WorkshopsWillie Huot

NDSU Extension Agent, Farm Business Management & Economics

“The perfect storm”

• 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 SummaryDec 2012 – March 2013

22 workshops conductedEach approximately 3 hours long

Total attendance = 729Approx. 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. Power point presentations Turning Point Technologies Hand out materials Questions & Answer sessions Showcasing pertinent web sites

Presenters

• Andy SwensonNDSU Extension Farm & Family Resource

Management Specialist• Dwight Aakre

NDSU Extension Farm Management Specialist• Willie Huot

NDSU Extension Agent/Farm Business Management & Economics

Topics Covered

• 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

• 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 Methods1. Cash rent market approach2. Landowner’s cost or desired return3. Landowner’s adjusted net-share rent4. Operator’s net return to land5. Percent of land value6. Percent of gross revenue7. Dollars per bushel of production8. Fixed bushel rent

Flexing Rent on Price and Yield Changes

Current Price Current YieldBase 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

• 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

• 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

• 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

• “What’s going on”• Crop Conditions• Weather update• Commodity prices• Technology update• Upcoming events• Summary • Contact information

Summary

• 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

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