Drawing Up A Fair, Profitable Farm Rental Agreement

Projected high rentals in 2014 will challenge profitability.

Published on: Nov 6, 2013

University of Minnesota Farm Business Management Extension Educator David Bau will be offering a session entitled "What is a Fair & Profitable Farm Rental Agreement?"

The first class is 9:30 a.m. Wednesday, Nov. 6, in Pipestone.

Future sessions will be in Slayton and Worthington.

Bau says that a fair and profitable farm rental agreement is one that makes a profit for the farmer and provides a fair rental payment for the landlord.

"There will be some high rental numbers for 2014 that will be hard for farmers to make a profit at the current 2014 corn and soybean prices," Bau says.

Negotiating a fair rental agreement that satisfies both the land owner and the farmer is a challenge that can be approached from many angles, he adds. There are several ways historical averages projected forward provide trends, projecting 2014 costs, yields and prices and a way to share the projected net revenue between landlord and tenant.  The FINBIN database is a place farmer's and landlords can look at historical budgets and what rental rates were on various crops and corresponding net farm incomes for prior years.

Drawing Up A Fair, Profitable Farm Rental Agreement
Drawing Up A Fair, Profitable Farm Rental Agreement

Bau says that many rental agreements are simply a fixed payment, either paid up front or in two payments in spring and fall, but with this agreement the farmer is taking all the risk and will get all the rewards, but as the rental rate gets higher, the amount of the reward diminishes. A flexible rental rate depending on prices, yields or both can share the risk and reward between landlord and farmer.

"I have an online Excel spreadsheet that can help to determine a fair farm land rental rate for both parties," he says. "It can be found at the Southwest Research and Outreach website:http://swroc.cfans.umn.edu/ResearchandOutreach/FarmBusinessManagement/index.htm. Once there you can click on the link, 'Operator's Cash Rent Worksheet.'"

To learn more, plan to attend one of the upcoming meetings. Topics covered at the meetings will include local historic and projected farmland rental rate trends, current farm land values and sales, a worksheet that will help determine a fair and profitable rental agreement.

Input costs for 2014 will be presented along with current 2014 corn and soybean prices.

Worksheets will examine 2014 costs and what is affordable rent that a farmer will be able to pay in 2014, the rate of return to the landlord at current market values and examine flexible rental agreements.

Attendees will receive informative worksheets and fact sheets that will help to determine what is a fair and profitable 2014 farm land rental rate is.

The following meetings take place in southwestern Minnesota:

-Pipestone, November 7, at 9:30 am at Minnesota West College in Room 127 at 1314 North Hiawatha

-Slayton on, November 19, at 2 pm in the 4-H Building on the Murray County Fairgrounds

-Worthington, December 4, at 9:30 am at Extension Regional Office, 1527 Prairie Drive.