Rent based on yield potential.

[farmerguy89]

Guys, I am wondering what is a fair amount of rent per bu of yield potential is?

I have dug up info that says 1.25/bu of corn yield potential, but I have read about $500 rent and I see that everyone has different prices that obviously far exceed that 1.25/bu of corn potential. To me, if your paying 500/ac rent, your taking on to much risk.

Right now, I am paying at most 1.25/bu on some ground, and a lot of land at 0.35-0.60/bu of yield potential cause thats what I negotiated prior.

My 5 year county avg is about 146bpa, with a standard deviation of about 18 bpa. At what dollar per bu of yield potential do you call it quits?

I ask these questions, because I tried to move into a more competitive area, but my entrance was blocked. I was told 180 was the highest that everyone had heard of.. apparently someone went at least 200 or more dollars per acre. Some areas too, I have heard of 400/ac for this type of 150 bu land.

[Shaggy98]

Can you work out an lease agreement based on each individual farms APH? Going off county averages is not a completely accurate method as ground can fluctuate throughout an entire county. I have learned with my own landlords that communication is key to form a quality tenant/landlord relationship. I try to communicate with each of my landlord at least monthly, via text message, email or a phone call. I at very least communicate with each of them verbally every 6 weeks during the growing season. I will take pictures of crop development and send them to landlords either by email or mms every other week from emergence to harvest. I visit with them about what I am doing to improve their land over the long haul, this includes things at my expense such as equipment updates that will reduce inputs which in turn will increase profits. At the present, they are tickled as hell for me trying to improve my precision technology each year.

I guess what I'm trying to say, if we do the best job we can as farmers, and cut absolutely 0 corners, many times our actions speak leaps and bounds over what any words could ever do. Figure out what rent you are comfortable with and are capable of making a profit and stick with it. Rented ground is a liability if it makes you no money. If the landlord isn't pleased with what your willing to offer in exchange of the care you will provide their land, it probably wasn't meant to be.

Last but not least, if you don't attain a lease agreement, don't burn any bridges behind you. Just because you might not be able to rent the ground this time, doesn't mean you won't have another chance down the road. Keep your existing ground looking the absolute best condition you can, and people driving around the countryside will notice this and come calling to you. Small producers can offer services no BTO ever could. GOOD LUCK

[farmerguy89]

Yes Shaggy, it looks like you have got a system figured out. We have veered off topic, but its a good discussion to talk about rapport building.

I have been considering making a newsletter, but I was unsure about it. I think that pictures would help, especially with distant landlords. I find that I can see a great deal of my landlords a large amount of the time. But there are those that I see 2-3 times a year; sometimes thats just the way they are, but sometimes I think things could be improved. I feel like things are fairly good in this respect, but can always be improved.

I've got about 15 landlords too, so I have a lot of work to do all the time.

Anyways, this failed lease attempt was basically a tender a bid for the land type deal, with no contact to the landowner. I located the owner, but nobody was home like 3 times. Basically having to compete with others for land is new to me, and its strange that this particular landlord is just in it for the highest dollar, irregardless of the Tenant's plan for the property.

[Shaggy98]

In my operation, I've only got 2 pieces of land that I rent, but it consists of 4 different landlords. I am fortunate that they don't chase the evil dollar, but are more interested in what I can do to preserve the land for their next generation. One piece of land my grandpa started renting over 50 years ago, I would like to think that open communication is a big part of what has kept us farming these acres for so many years.

If I had someone approach me about renting their ground & all the were interested in was $$$, I would have to think twice before I would enter into an agreement with them. That is just me. Good luck, hope you can get it all worked out.

FWIW, I also have been considering some type of a quarterly newsletter. My oldest son might try to get the initial one started by using it for one of his high school marketing class assignments. This would work out great for me, I believe the first one will be the hardest one to complete.

[rswfarms]

farmerguy- I would look at the Cash Rent as % of Gross Crop Revenue column below as a good source to establishing a fair cash-rent amount. It is from 2003 to 2012. It might help you get in the ballpark on a proper dollar amount for cash-rent per acre.

Table 1. Average Iowa Cash Rent as a Percent of   Gross Crop Value and Gross Crop Revenue ($/acre)
Average Cash Rent Paid 1/			Average Gross Crop Value 2/				Cash Rent as % of Gross Crop Value				Average Gross Crop Revenue 3/				Cash Rent as % of Gross Crop Revenue
Year	Iowa		Corn		Soybeans		Corn		Soybeans		Corn		Soybeans		Corn		Soybeans
2003	$ 128		$ 339		$ 228		38%		56%		$ 382		$ 259		34%		49%
2004	$ 131		$ 371		$ 266		35%		49%		$ 405		$ 281		32%		47%
2005	$ 135		$ 337		$ 297		40%		46%		$ 372		$ 307		36%		44%
2006	$ 137		$ 460		$ 300		30%		46%		$ 494		$ 310		28%		44%
2007	$ 148		$ 595		$ 495		25%		30%		$ 622		$ 505		24%		29%
2008	$ 176		$ 744		$ 463		24%		38%		$ 784		$ 487		22%		36%
2009	$ 183		$ 672		$ 488		27%		38%		$ 708		$ 502		26%		36%
2010	$ 184		$ 756		$ 552		24%		33%		$ 806		$ 568		23%		32%
2011	$ 214		$ 984		$ 584		22%		37%		$ 1,020		$ 602		21%		36%
2012	$ 252		$ 952		$ 638		26%		40%		$ 1,071		$ 667		24%		38%
Average 2003-2007		$ 136		$ 420		$ 317		34%		45%		$ 455		$ 332		31%		43%
Average 2008-2012		$ 202		$ 821		$ 545		25%		37%		$ 878		$ 565		23%		36%

[Shaggy98]

Those prices are localized and represent an inflated value. Soil and land care & condition determine a more fair market rent agreement.

[farmerguy89]

yes RSW you are kind of going in the right direction here. Do you have 5 year yield data for iowa? I would like to extrapolate based off the yield potential of Ontario vs. yield potential of Iowa.. if not I will see what I can dig up here.

I am guessing 200ish is probably fair for my area, for a single year lease.

[Faust100F]

LIsten, when Federal crop pays $340 an acre just on soybeans at a premium of $23 per acre for 75% coverage, why am I listening to a tenant cry about land cost.  If they do not want to farm it, don't rent it, because someone else has it figured out.   Who really gives a rats ass what the CSR is on a piece of land in Iowa, if it can be insured from 60^ to 85% of the county yield.   I mean give me a break.  

The old rule of thumb applies, and you do not need the dumb asses at ISU to tell you what is the best way to go. 1/3 to the crop, 1/3 to the land, and 1/3 to the operator.   That formula has always been fair.  In short, if you are grossing $1400 an acre on field corn, then the land (rent) should be $466 an acre, inputs should be no more than $466 an acre, and the operator (tenant) should take $466 an acre.  

In an earlier time we could trust renters or tenants and share crop the ground in the manner I suggested, but it is just too easy to have a few loads disappear and the landlord left holding the bag.

 If the land is 210 bu. corn ground, then at harvest 70 bushels should be delivered to the landlords name or the rent calculated on that amount, and a lein filed for those bushels to be delivered.  Cash rent upfront is much easier.   With todays crop insurance indemnities I have to go a long way to feel sorry for tenants crying about rent.

The Federal crop insurance is what is driving rents not CSR's or quality of ground being farmed. If the county yield is only 150 bu. then you are looking at $350 cash rent at todays prices;  If it is 90 bu. then you are still looking $210 casn rent.  The real problems you face is not the land cost but the input costs Pioneer et.al. are sticking you with.  

If you think rents are high, you had better look at cutting input costs instead of elbowing your way to the front of the line to get that New "hot" number, you go broke with that mentality, plus if you are with Pioneer you get to share with them four years of production history and sales history and yield history, because they are going to be investigating you to make sure you never brown bagged their seed like they did the seed of Monsanto.  Adios Amigo. John

John

[farmerguy89]

I can understand where your coming from Faust, from a financial point of view, and I come from the same place with regards to bidding up to what my insurance will cover. I would just rather acquire land at 50-100/ac vs 215/ac. Statistically, the most profitable operations arent the ones that pay the most rent. 4 corn doesn't scare me at all for good reasons. Things aren't high priced around me yet.. but an hour south and we are in 200+ land.

alot of land around me has been continually raped for a decade or so, and was selling hay at a loss for a long period of time. ppl are not anywhere near good at applying fertilizer where I am. I acquire land w/ nothing good left on it.

I disagree on your last point.. cutting corners is the wrong way to go. Ya just have to have enough discipline to know when your going to hurt yourself. Some varieties are better than others, and if so will likely produce a profitable response. My seed costs per variety differ by next to nothing... dunno how everyone else stacks up. its the old garbage in, garbage out rule and it applies in full force here.

[rswfarms]

Farmerguy- I would use around a 5 year, total state average for Iowa of 172bu. This is throwing out the 141bu average yield in 2012 and the high yield of 181bu. The 3 remaining yields average around 172bu. Throwing out the high and low yields seem to produce a better picture of a "Normal" Iowa state yield.