The Great Balancing Act



By:  Allan Vyhnalek
I have already received at least six calls on setting the cash rental rate for farmland in our area for 2015.  Getting landlords and tenants to agree for this next year will be a great balancing act in my view.

On the landlord’s side, the land taxes have skyrocketed in the past few years.  Ask anyone that owns farmland to talk about this and you can practically see the steam coming out their ears.  I own farmland in Saline County and so I have firsthand experience about those feelings.  Landlords probably better remember that most farmers own land too, they know how land taxes are changing.

On the tenant’s side, it’s not $7 per bushel corn and $15 per bushel soybeans anymore.  With the last USDA acreage and carry-over estimates, the corn and soybean prices plummeted again on June 30th.  Current cash price for corn and soybeans are around $3.80 and $10.70 respectively at local elevators.  That is a significant drop for the second year in a row.  Expenses are not likely to go down.  All estimates that I see for corn production (as an example) indicate that the expense of raising one bushel of corn will be somewhere between $4.10 and $4.70 depending on what the land charge (expense) is. 

So, if I explain the above paragraph to the tenant I usually hear something like this:  “Well, that farmer made too much money the past several years, and I am not dropping my rent, not with land taxes where they are at.”

So we have a dilemma.  The tenant that cannot or should not pay more rent and a landowner that is unwilling to lower rent.  This creates the great balancing act.
We do also need to keep in mind that the lease on farm land is a traded commodity that is ultimately governed by supply and demand.  At this time, the demand is still exceeding the supply, so at the time of this writing, land cash rental rates are not likely to go down significantly.

Both parties need to use a sharp pencil.  Landlords need to get out a calculator and really determine what the land charge for taxes is.  I’ve had landlords think rent should go up by $25 per acre to cover taxes when the tax change per acre per year is $5-7 per acre.  I also think that tenants have added expenses (like fertilizer and chemical packages, new machinery, better more costly seed genetics, as examples) over the past few years that need to be examined closely now that the price of corn and soybeans has changed dramatically.

I will finish this column by saying that 1) cool heads will prevail; 2) share information with each party so no one feels like there is an advantage of ‘secret’ information given to the other party; 3) Consider lowering rents, keeping rents steady, or only increasing rents by the actual increase in land taxes.  What you do will depend on your situation and where you rent is currently.  4) Consider going to some type of flex lease, or modified crop share agreement.

The great balancing act for farmland rental arrangements of 2015 is an interesting situation.  I wish both parties well as they work on determining rent for the next year.   And while I will not mediate a rental agreement dispute, if you have questions, please continue to contact me and I will help as I can.

ANNOUNCEMENTS:  Downtown Office is closed July 7 and July 9-14 (Until Noon) for County Fair.  Call 402-564-7712 to contact us at Ag Park, or come to Administration Building at Ag Park during that week for assistance.  The Courthouse office will open again with regular hours on Tuesday, July 15, 2014.
For more information or assistance, please contact Allan Vyhnalek, Extension Educator, University of Nebraska-Lincoln, Extension in Platte County.  Phone: 402-563-4901 or e-mail avyhnalek2@unl.edu
 

Filed Under :  
Locations : Saline County
People : Allan Vyhnalek




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