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Advisor

Interesting rent article

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47 Replies
Advisor

Re: Interesting rent article

Budgets with $200 losses at those rents make it likely.

Where my crystal ball vows foggy is what happens to land prices as returns are squeezed between rents and rising taxes but interest rates stay at nil forever.

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Highlighted
Senior Contributor

Re: Interesting rent article...question

Agreed, it is an interesting article. QUESTION

Background: Owner and renter of NE Iowa farm contracted last summer for $325/acre for a 250 acre farm. County average rent for this type of farm (i.e. CSR 84) was $350/acre back in September 2014. Since then price of corn has dropped significantly and has caused renter to contact owner to drop a few informal hints about getting some cost relief from the original contract. Notably, renter has been renting the same farm for 35 years and has proven to be a reliable payer and a good steward of the land.

So guys (and gals), here's my question today: What is fair? Would you give a rent cut to the renter in exchange for a share of the future profits should the price of beans and corn rebound? If so, what would be a fair share to ask? If not, is there another way to work with the guy so as to not bury him in a down market? What do you think? Thanks, Packard
Honored Advisor

Re: Interesting rent article...question

Do you think the writer of that story just could not find a land owner and tennant who could relate how they are working through this issue???  

 

Not question anything you added Packard.   I am just thinking out loud how little it took to write that article..... You gave us more to think on than the article did.

 

Honored Advisor

Re: Interesting rent article...question

Packard,

 

Long term relationships take work and mutual respect.  And long term they benefit both parties.

 

 On the opposite side, when a couple of well respected tennants get dumped when the returns don't match the overpriced land, it gets hard to find anyone interested.  

Advisor

Re: Interesting rent article...question

I would have had a crop share contract in place and not had any of these cash rent issues.

 

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Veteran Contributor

Re: Interesting rent article...question

No I would not give a rent cut to the farmer. You negotiate rent before Sept 1 2015. 325.00 seems fair to me. I would like to know what the rent has been the last couple of years with the high prices of corn and soybeans. 

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Advisor

Re: Interesting rent article...question

In the specific case, sure, I'd probably give him a break.

 

But I also speculated here in the past that the most rational thing for older farmers with some owned land might have been a couple years ago to sell the equipment while the market was still very hot and get the longest cash lease they could.

 

Conclusion was that you probably didn't really want to hang somebody you trust to keep paying with that albatross and if it is somebody you don't trust you probably wouldn't get paid anyway.

 

The government has created some cushion for the downside of the cycle and landowners are going to what some of that money. Actually about 200% of it if history is any guide. Even as some operators begin to feel pain there's a lot of capacity out there in terms of equipment and access to capital.

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Honored Advisor

Re: Interesting rent article

Alot of these rent agreements were for "all the rent up front", which was probably smart on the side of the landlord, because when there`s a line formed to shake down the tenant, the landlord goes to the back of the line.

 

This is the trouble, now back 3 years ago, $7 corn $450 rents and such, renters would take any deal just to get "control of the land' and yah with $7 corn we all walk on water.  But there is dynamite sticks on your fingers, when you sign that dotted line, it`s assumed that you`re over 18 and sober.

 

Too many tenants maybe had a $150 rent agreement for 3 years and was rubbing everyone`s nose in it as the fair land rent became greater and greater over $300.  Some tenants would pay "bonuses" to stay in the landlord`s good graces, perhaps now that`s a chip that they can now play.

 

The new "normal" that we knew the past 5 years wasn`t a vacuum, everyone had to adapt to the higher rents and higher inputs.  Now it looks like there will still be another new norm just starting.  what you hear is banks are reluctant to borrow over $325/acre for opperating expense and would like to see collateral to back it up.  That will put the lid on rent.

 

 

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Senior Contributor

Re: Interesting rent article

No, I don't think so. Supply demand will decide rental rates as they have before. It mayreduce rental rates or it may  change the players. But it will be a competitive market as before.  What made rental rates high was people willing to pay it and that will be as always.

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