- Negotiate with facts at hand.
- Present realistic costs, yields and projected prices.
- Determine acceptable return on labor, machinery and management.
Whether you rent from a landowner or work with farm managers, negotiating a lower rental rate may be key to a profit or simply breaking even in 2017. Although rental rates have been slowly coming down, they can't and won't likely adjust fast enough for most operators.
"Land rents typically lag a year behind due to the timing of when they are negotiated and when the final yields, prices and costs are known for that specific season,” says Matt Clarahan, accredited farm manager, Hertz Farm Management, Washington, Iowa. “We generally see land rents lag as commodity prices rise, just as they lag during periods of price declines like we are experiencing now.” he says, “Today's price levels have not been seen since the 2009 to 2010 time period. It will take time for crop prices and inputs to balance themselves back out.” Until then we will continue to see the land rental market remain highly variable with a wide range of rents being paid.
Clarahan reports the operators he works with are appreciative of any reduction they can negotiate. "When the dust settles, he anticipates we will see 2017 rents decrease between 5 to 10 percent compared to 2016, depending on where they have been at historically.”
If a grower hopes to negotiate a lower rate, Clarahan advises them to use a straightforward approach. “The most useful negotiating tools are solid, hard facts, says Clarahan. Present your landowner with current input costs, realistic yield expectations and achievable forward contracting prices for the coming year. Make a case using real figures as to why only X percent is left at the end of the season. By and large, most landowners understand the current economics and potential margins facing operators."
Good land holding value
In the end, falling demand is the biggest thing that will drive down rental rates faster than they are currently falling, suggests Clarahan. As it is with land values, we are seeing better quality land continue to hold its rental rates due to less yield variability. We will see some operators let go of lesser quality land as they manage their field-by-field risk and margin.
"There have always been a percentage of the operators, who are willing to push the envelope," says Clarahan. "We still get a lot of calls from operators who are looking for additional land to rent, which will support current rates and keeps them from coming down as fast."
Understand that others may be willing to accept less.