Minding Ag's Business

Landlords Refuse to Blink

My inbox is filling with irate landowners who took offense at a column I wrote for the October issue of Progressive Farmer on "fat cat rents." Actually, the thrust of the article was that average and below-average rents weren't likely to budge in 2015, only the "fat cat," above-average leases like we've seen at those $400-to-$500/acre Iowa cash rent auctions a few years ago. My message must not have been clear, though, because the landowners' responses showed how sensitive this issue remains:

"So we FAT CAT landlords are supposed to adjust our cash rents to tenants, huh? Let me tell you this, I will lower my rent when I go the county treasurer's office and ask for a reduction of my property taxes due to commodity prices now in the crapper. My property taxes have gone up $25 an acre in the last three years and for 2015 they are slated to take another larger bite off my net cash rent. I have not raised my rent to my tenant in the last three years when he made a ton of money on my farm when corn hit $7+ bushel. Today’s farmer does not have to go crying to me when they are all protected by revenue insurance. Something that was not available to me when I farmed. In fact a farmer today is guaranteed not to go broke. Look for classified farm auctions today. Very, very few. Only retirement or health related auctions.

Most tenants also own some farmland and are they going to negotiate with the county treasurer to scale back the land taxes?

They can pay upwards of 9000k an acre for land and that does not seem to be any problem. Figure a simple interest rate at 3% and that comes to $270.00 and acre which does not include taxes.

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I farmed all my life and am now retired as I had no sons to take over the farm. Most years struggled. So don’t be telling me to negotiate lower rents. I feel I am not gouging on the rent as they could not own my land for the rent I charge them. So get off our backs and tell our side of the story for once." -- Respectfully, Kenneth from Nebraska

Here's another unhappy landowner:

"As a landlord I keep reading how 'Rents' are too high and unsustainable at current grain prices! I understand 'landlords' do not advertise in Farm Magazines so we have no voice. However, I want to see more equitable headlines like: Fertilizer costs prohibitive $600 per ton, Fuel at historic highs, $300 or more for 1 bag of seed corn, $32,000 irrigation pivots increase to $70,000, farm tractors over $300,000, pickups $50,000 to $75,000, Real Estate Taxes up and up. On and on. You get the picture? Authors single out landlords as the evil ones because we do not have a voice. There are many players in this agriculture game. I need to see articles concerning all inputs or I am going to cancel all my farm magazine subscriptions!! It's hard on my blood pressure!"

--Sincerely, Sam of Nebraska

[Marcia's Note: For the record, DTN's weekly fertilizer column has been reporting the stalemate in fertilizer prices for months, with prices failing to match dramatic drops in commodity prices. We've also reported how some growers may be ditching stacked seed in order to hold costs down in 2014. Cash rents get the most attention, however, because they tend to be the top cost in corn production.]

Follow me on Twitter@MarciaZTaylor

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Comments

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Anne Gibbons
4/24/2015 | 12:05 AM CDT
You all have valid points. I only hope this debacle doesn't induce our government to implement legislation whereby we, as land owners, cannot bargain a 'fair deal' because we are already bargaining with one hand tied behind our back. Goodness, 'they' don't make any more land, and that's a fact. You have what you own-for now, and rent what you can. The Mid-west feeds America and many other countries, and where I live, we are still in a drought. Pasture land in my area recently brought 2350 per acre, and it didn't have a fence around it, and it was covered with cedar trees. Yes, I inherited the land I now own. But I am not an absentee landowner. I love it here and it is my home. We rent out 4500 acres in central Nebraska. Real estate taxes are through the roof. So, our cash rent DOES pay the bills. At this point in time, we are currently in legal litigation because our tenant (of 10+ years) has been stealing from us over the course of the last 5-6 years. Yes, he (they) paid their rent, which wasn't enough, but at the same time, they were stealing our irrigation pipe, while we were installing pivots to improve the value of our land and make it easier to farm. And, real estate taxes went up. Legal fees are also through the roof. So, no, I don't sell tractors, pivots or combines, or fertilizer, or fuel, but I do sell the use of my land for ALL of those inputs to work. Tractors, combines, fertilizer, and labor are just an 'input' from my side of the coin. You as the tenant need my land, more than anything to make all the rest work. And, I need the tenant. But it has to be the right tenant and the right price. Take care of my land, that affords you the 'right' to rent it and make a profit from it, and treat me fair at the same time. That's a hard one to figure in my book. And, just for 'fun,' how many WOMEN are doing this for a living?
Raymond Simpkins
10/31/2014 | 10:32 AM CDT
Todd What collage did you learn all you farming expertise?
Bonnie Dukowitz
10/31/2014 | 5:16 AM CDT
That idea Todd, is the most ridiculous concept I have ever read or heard of. The only thing mandates mandate are more mandates. What in the world would a landlord, without livestock, do with a couple of hundred acres of hay or corn silage. Whoops, more mandates?
Todd Young
10/30/2014 | 1:27 AM CDT
Unlike other businesses like retail where there are way too many income & expense transactions to have anything else other than a rental agreement....in farming you only have a few if not one income instance(s)/inflow w/ only a few major expenditures/outflow i.e. fertilizer, chemicals, seed, etc. to put out a crop. So I say legislatively outlaw agricultural cash rents & everybody operates on 50/50 crop share basis/agreement. This would probably crash land values because it could chase the non-farmer/city/absentee land owner from ownership, leaving a much more affordable land price for the ONLY ones who should be buying/owning farmland in the first place....the U.S. farmer. Another result would be the importance of the farmer who does a better job of marketing than his neighbor competitor. Not just in overall picking a higher CBOT/cash price....but having a better marketing plan in place w/ specialty crops garnering a premium such as white corn, specific corn traits for ethanol, high oleic or food grade soybeans, etc. But finally, w/ the now obvious trend of volatile grain prices a foreseeable trend in agriculture due to the emergence & reliance on ethanol which has left no room/cushion for a supply shock not only in the U.S. but in any major world supplier (the double edged sword aspect of ethanol).....it will have a ripple effect w/ every aspect in agriculture for inputs, cash rents, etc. as they become more volatile as well. If I was a land owner I wouldn't want such volatility in determining cash rents....the constant renegotiating or being too low during the boom/grain price periods like the past few years or too high on rent during the price slide now or in the expected near term future just as you're trying to catch up for any delay on the increase up. However, if the landowner doesn't want to be caught in the middle between the "hassle" of having to renegotiate cash rents much more frequently now than in the past due to grain price volatility OR having to price/market their crop under a crop share arrangement due to the same volatility....they can do the same thing as the city/absentee/speculative land owner (if they are not one in the same person anyway) mentioned above.....they can sell their land & leave this now volatile agricultural landscape to again.....the American farmer!! (I was raised on an East Central IL grain farm) And by the way if legislatively outlawing crop cash rents doesn't work in the favor of the U.S. farmer the law can always be changed back to the way it is now. Nobody said it has to be permanent. But I sure would like to see it tried. I'm betting that it wouldn't be the end of the world.
TOM DRAPER
10/29/2014 | 8:56 PM CDT
Not many "neighbors" left, mostly competitors now.
Unknown
10/29/2014 | 7:20 PM CDT
Show me the money, baby. If you don't, one of your neighbors will.
Raymond Simpkins
10/28/2014 | 3:36 PM CDT
I farm, I rent and I own.I don't want to hear any crying about how you can't afford your rent. After all who agreed to that rent figure in the first place?Did you really think prices would last forever? talk about greed, you only rented it because you wanted to keep up with Joe Blow who is now in the same position as you.I had lots of opportunies to rent the past few years but when these guys got stupid you let them have it.Made more money doing a good job of farming what we have.
Farmer Johnson
10/28/2014 | 1:44 PM CDT
Sorry landlords but there is going to come a point when even the the big operators aren't even going to be paying you your coffee shop money. And btw...do you really think mr 10k+ acres farmer who is paying you money is REALLY taking care of your land???? You know, it really ticks me off when the small guys do all the little things, maintain fertility, organic matter, cover crops, manage every little detail and then you greedy landlords say the heck with it! Do all that AND pay me more money even though it means you go in the hole! Worse yet is landowners who inherited ground, don't have a dime in it, and could care less about what goes on in the field and only care about their pocket book, this whole system is broken! Give me a Tylenol!
RJZ Peterson
10/28/2014 | 9:05 AM CDT
As a renter, and a landowner, I can see both sides. But what about those landowners who are all out for the almighty dollar no matter who farms their land. There has been life long friendships and relationships broken up the last few years over landlords getting renting their land to complete strangers just for the top dollar. Well guess what, those are the landlords that get to drop their prices considerably and now they have no idea who is going to be "farming" their land or "taking care" of their land. Who do you think benefits the most from high commodity prices...? DING DING DING, the landlords always come out of high commodity price cycles better than most farmers. I do agree that yes seed, fertilizer, chemicals, machinery etc etc is also very expensive, but that is less negotiable on a personal level than land rent. To drive down the rest of those prices it takes a significant decrease in farmers' business nationwide. But, land rent is one input the farmer can negotiate.
Unknown
10/27/2014 | 8:43 PM CDT
Not true, Marcia. Rented Farmland is a commodity just like imputs subject to market influences. As we all know too well, markets can remain irrational as long as it takes to bust the out of position trader.
Marcia Taylor
10/27/2014 | 10:42 AM CDT
Because most farmland has no alternative use it remains in production no matter what it is paid. We saw this in the 1980s when land values fell but almost all land continued to be farmed. This suggests that if prices remain low land owners will have no choice but to accept lower rents, because farm operators simply cannot afford to pay what they did in the past. While other input suppliers can reduce production or sell to other counties farmland has no alternative options that can generate money for the owner. An important question in this environment is what will the recent buyers of farmland who thought it was going to continue to appreciate do if their income falls? Do they walk or stay? --David Freshwater, University of Kentucky economist
Pedro Sanchez
10/27/2014 | 8:42 AM CDT
Thanks Greg. I appreciate (and I am sure your renter does as well) that you have skin in the game. Your cash rental equivalent should be the highest of all (i.e. share, flex, straight cash). I understand the quibble from the landowner's side. They are the only ones being asked to lower their rents because they are the only input that is "negotiable". Every other input price is set by someone else that is selling a product. Hence that is where everyone goes to seek relief. Now for the farmers who had the high flat cash rents, they will be hurting and those rates are most likely not long term sustainable. For the landlords, stop going back to $7 corn as a tag line. Most producers did not have corn to sell at that price (the reason corn got so high was small supply). Even if they did have corn that year, there was a substantial amount pre-priced. Everyone needs to understand that you can pick the high's and low's and claim I got "screwed" on each end of the scale. Be reasonable to each other. Renting ground is a relationship between the landowner and the tenant. If you make it a transactional relationship, don't complain either way.
greg schimkat
10/24/2014 | 11:06 PM CDT
As a landowner in SD I receive 1/3 crop as rent. No renegotiating necessary and I have skin in the game. Farming is about risk.
Bonnie Dukowitz
10/24/2014 | 7:22 PM CDT
How about this to describe the mess on all sides? It is not the cost of living that is high, it is living high that cost. (author not known)
Marcia Taylor
10/24/2014 | 3:42 PM CDT
So how far under water are typical Midwest grain producers who rent most of their land? University of Illinois economist Gary Schnitkey forecast the steepest losses in at least 15 years for an average Illinois cash renter who paid $262/acre with corn production. For 2014 losses could average $109 an acre and in 2015 $143. "These are large losses from a historical standpoint," said Schnitkey. The only other time since 2000 corn growers averaged losses was in 2009, when gross revenue minus costs equaled negative $21/acre. Get Schnitkey's full report at: http://farmdocdaily.illinois.edu/2014/10/cash-deficits-projected-for-corn-2014-and-2015.html