Land rent and quick sand: Every move, you only get in deeper
By Dan Martens
University of Minnesota Extension Educator
For an Extension educator to write or talk about land rent might be a lot like being stuck in quick sand — no matter which way you move, you’re only gonna’ get in deeper. But the phone rings, so I’ll share a couple concepts to keep in mind related to my approach to these discussions.
1. Extension staff does not set the price for rent. I aim to avoid telling people what they “should” pay or be paid for rent. If you catch me doing that, pull my chain. The same concept holds true with other questions like, “What should I pay for hay, or corn silage or other things?” I’ll often talk about some numbers, concepts, and ways to do some math, where you might find some market information. But landowners and renters, buyers and sellers need to stay connected to their own calculators, pencils, brain, needs, goals and budgets — and make their own decisions in the end.
If someone tells me they have been paying $30 an acre for the last 20 years, and I’ve got a good sense the land should be capable of producing 130 bushels of corn fairly consistently, with current markets, I’ll probably support their interest in asking more. If someone says, “Dan said you should pay $____”; that’s probably not how the conversation went.
2. I use two sources of county information, none by township. I intend for people to use these as a reference point, not an answer.
A.The National Ag Statistics Service does a cash rent survey each year. They post this information on their Web site in September. For 2012 they reported the average cash rent in Benton County as $65 per acre, for Morrison $65 per acre, and for Stearns $121. Does that mean that was the right or fair rent for people to pay in 2012? I’d say “no”, even if they knew they had “average” land. This just means that’s the average the ag statistics people calculated based on their survey work. There is a wider range of values that make the average.
On another note, the average cash rent reported in Crow Wing County, north of Morrison was reported as $22 per acre. There might be some places in Morrison County where the land is more like Crow Wing County. Soils don’t magically change at a county line. We have a wide range of soil and growing conditions across central Minnesota, even across the same township or quarter section.
B. The second source of information I check is based on records kept by farmers that are part of the adult Farm Business Management programs in Minnesota. New data is posted each year, possibly by mid-April. Web site users can go to a Web site called Finbin to get information. A search for “Minnesota Finbin” brings this pretty close to the top of the list. It will take a little practice to find your way through the menu process and learn what individual reports represent.
This data base requires a minimum number of farms participating in a county to print a county report. Sometimes you have to select several counties that might be similar to get a report. This again is a report of what people did. It doesn’t necessarily tell you what’s right for your situation. Averages can be a mix of people paying too much in some situations and too little in another.
I like to look at the range of numbers reported in the Finbin file for rent, net profit and other things. In 2011, the bottom 10 percent group for profitability across Stearns, Benton and Morrison Counties showed a loss of $69.96 per acre after accounting for any crop insurance and government payments received. The highest 10 percent profitability group averaged a net return gain of $508. I think people across this range would have different ideas about cash rent. 2011 was a tougher than average year with a wet spring, delayed planting and some immature crops in the fall.
As I’ve written before, renters are usually going to consider their crop production budget and net income goals. Land owners might consider a return on the value of the tillable land that is being rented based on its agricultural value. If I own 40 acres with a $300,000 house and 20 acres tillable for rent, the rent for tillable acres may not cover all my taxes or pay much of a return on the whole property.
Beyond the rent, people should consider the prospects of a suitable and reliable working relationship with a measure of respect and appreciation for the things that are important to each of them. These can be difficult but useful things to talk about, but seem to count quite a bit.