DARKE COUNTY - “Land, whether you’re looking to buy or rent, is very hard to come by in this area,” one farmer stated before the start of a workshop on farmland leasing. Another local farmer added “If you do find land for sale, expect to pay a lot for it.”
Darke County ranked No. 1 in cash rent estimates for 2012-2013, coming in ahead of Mercer, Shelby and Madison Counties, in that order. Cash rents for non-irrigated cropland in 2013 ranged from $177 to $192 per acre, but with corn prices currently half of what they were for 2013, it’s not likely that those cash rents will easily apply to 2014, said Barry Ward, assistant professor with The Ohio State University’s department of agricultural, environmental and development economics.
According to Ward, it’s hard to say what 2014, or any year for that matter, will look like, because farmland leasing is an individualized process, with little public information available for land owners and renters to go on when negotiating a contract for the use of the land.
Ward reported that there’s often little to no information made public about farmland leases or purchases, which can create a scary market in the cases where the information is made public, he noted. Along with little public information is the fact that every parcel of land is going to be valued differently, Ward explained.
“Cropland is not a commodity asset, it’s a fixed piece of land, it’s not going anywhere, and not all parcels of land are equal. They’re not going to be valued the same,” Ward commented.
To determine a fair rental price for farmland, Ward suggested a lot of open and honest communication between landlord and tenant, as well as some strategic planning using enterprise and production budgets, and understanding the economics of agriculture, he said.
There are also many factors to consider when determining a fair price for leasing farmland, Ward said, including the expected crop return, land quality, fertility, drainage, size and shape, buildings and grain storage, services provided by the producer, location, conditions of the lease, reputation of the renter or owner, etc.
Supply and demand for products and land drive the rental market, as well, Ward commented. Rental rates have been in an upward trend, he noted, but will begin to see downward movement, though when that happens is left to be seen, he said. One of the points Ward stressed was that the more conditions a land owner places on the property’s lease, the more difficult it will be to find a satisfactory tenant.
“We’re seeing more and more landowners further removed from the farm,” Ward stated. “Some of them have never even stepped foot on the land, they’ve inherited it from family and rented out like their family did before them…”
That makes it a little “tricky” for some landowners to determine a fair rental price for their land, Ward went on to explain. Enterprise budgets, he said, provide an estimate of potential revenue, expenses and profit for the farm. A sample of an enterprise budget can be found at aede.osu.edu/research/osu-farm-management along with many other resources for land owners and renters.
Along with deciding what’s going to go in the lease, Ward said landowners and renters are faced with another question: What type of lease do they plan to use? There are three types of leases that are widely used in this area, he commented, including crop share leases, cash leases, and flexible cash leases.
Traditionally, a crop share lease has been used to reflect a shared risk and take home for both the land owner, who provides the land and possibly capital, and the renter, who provides the labor and management. The roles of the land owner and renter can look different, and the shares can also vary, but essentially, a crop share lease is meant to share responsibility between the responsible parties.
There are drawbacks to sharing that responsibility, Ward noted, including the cost of new technologies, the cost of harvesting, and a need for honest, open communication between both parties. Ward noted that often, communication in these situations is hard to come by, but said “there’s something to be said for some communication.”
Communication is key in every negotiation, Ward pointed out, which is what a farmland lease is, in every situation, even if it doesn’t seem like it because it’s a negotiation with family. Cash leases require the least communication, as tenants pay a per-determined, non-changing amount, usually partially in advance.
The drawback of the cash lease is that the tenant assumes all of the responsibility in cases of low yield, natural disaster, and any other determining factors in the farming world, Ward commented. The flexible cash lease takes some of that risk away, by allowing landowners to share some of it, without needing to file self-employment taxes, Ward said. And much like the fixed cash lease, the landowner does not have to worry about marketing the product, and the tenant does not have to keep track of the landowner’s share of expenses, he continued.
When it comes down to it, Ward said, there are more farmers in the fields because fewer are retiring, making the agricultural industry a competitive one, he said. Landowners who already rent their farmland, and those considering it, should be aware that there are also many legal requirements to a lease.
Peggy Hall, assistant professor of agricultural and resource law at The Ohio State University, said that a legally binding lease must be in writing; must identify the land with the legal description, address and acreage; must be signed by both parties; must properly name the leasing party and all land owners; must be signed in front of a notary public or local official if the length is longer than three years; and a memorandum of the lease must be filed with the county recorder in the county where the land is located.
Questions on farmland leasing are common, and since it’s such a big subject, Ward and Hall have provided some additional resources: Aglease101.org; aede.osu.edu/osu-farm-management; ohioagmanager.osu.edu; aglaw.osu.edu and sustainablefarmlease.org. For further information and resources, contact Sam Custer, Darke County OSU Extension agriculture and natural resources educator, at 937-548-5215 or firstname.lastname@example.org.