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Contributor

farm cash rent

As I read some if not all of the post here, it seems as though every time the market, "corn and beans" get on the low side, the tenant come driving in the drive way in his new $70,000.00 pick-up and says, can you lower the rent for a few years as he is going to the JD Dealer to see about trading combines, why is it, that the tenant doesn't go to the seed dealer and ask the same question,to the fuel man,to the utility co. to the grocery store, fertilizer co., it's always to the landowner first to lower the rent or he can't put out another crop.

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Honored Advisor

Re: farm cash rent

One Bigshot reportedly said "the secret is to make them think you`re rich"  I suppose it scares the other "sharks" away from feasting on your "prey".   However, the older landowner has been through tough times in the last 50 years and remembering driving the old pickup 20 years or longer, telling the wife that new furniture will have to wait for a "better year" it doesn`t compute, this "spending yourself rich" philosophy.   They only have money so long as the banker smiles when they see them. 

But cash rent might make up half or more of the crop budget and if they feel comfortable enough to ask for lower rent, that is where they will start.  I guess if the tenant was proactive in raising his rent during the $5 $6 $7 corn run up, he or she should be given a little break when corn is $3.  But a new pickup is kind of rubbing the landlord`s nose.  On the other hand, landlords like to see new paint in their field makes them think their farm was good value and productive enough that it all could be afforded.

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Senior Advisor

Re: farm cash rent

I've never actively sought out ground to rent, and gave up a few pieces of less productive ground with low or no "base acres" when grain prices dropped, now farming about half of what I did 5 or so years ago -- my decisions to drop some pieces of ground was initiated by landlords asking for higher rent when I didn't think it was justified, and the low margins often associated with smaller, less-productive locations farther from home.   When I initially rented those places, it was basically because I was farming in the area, and nobody else seemed to want to rent those pieces, yet always paid general market rates for rent.  When I have mentioned my desire to rent from other prospective landlords, it does seem they are most interested in the biggest farmers with the prettiest machinery and trucks going down the road, and often for very little difference in cash rent.  When things turn south, who are the first ones to screw their landlords, the smaller guys with excess equipment capacity (though worn), or the bigger guy with shiny new stuff and big commitments?  Sometimes what you see is what you get -- sometimes appearances are deceiving.

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Honored Advisor

Re: farm cash rent

One technique (frowned on by FSA office) is when times were good was give a "bonus" to the landlord with the last half of the rent.   If one started that 10 years ago, now the rent would be where grain prices were at that time with no bonus.  I doubt the landlord would expect a bonus during this $3 corn.   However MFP payments (perhaps more on the way) the landlord will want a piece of meat.

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Senior Advisor

Re: farm cash rent

I've always explained on rentals that the "base" rent is the actual cash rent, and the "bonus" is in fact a bonus.  When I first started doing this many years ago, the "base" was probably quite near the average rents paid in my area.  There were some years where I paid no "bonus", but that hasn't happened since LDP days.  As general rents increased substantially, I initially paid some handsome bonuses, some exceeding my original "base" rent, and a couple of years the "bonus" was about double my "base" rent.  I have raised my "base" rents over time, though haven't kept up with the general level of cash rents presumed in the area, mostly because of the increased risk, but also because the "bonus" system was more flexible and fair -- I wasn't locked into a high rent in bad years, and I would typically pay more than the competitive total rent (base + bonus) in good years, so it balances out over time.  That said, I do consider the impact of insurance and FSA programs in both my "base" rent and "bonus", basically using my insurance guarantee to help establish my base rent (although "enterprise units" complicates that method).  

Other things I've experienced -- landlords seem quite happy when I increase my own rent, and understand when their bonus is lower -- landlords that initiate an increase in their rent base have a tendency to ask for something to match the highest rent they've heard, and/or they make other arrangements and just give notice instead of trying to actually negotiate reasonably with existing tenant -- some landlords without actual farming experience seem to think that all ground is the same, regardless of crop history, soil type and fertility issues, or access and drainage issues -- have also experienced situations where a prospective tenant tells everyone he has the ground rented, just to thin out or eliminate the competition. 

Several years ago, actually had one landlord that wanted to essentially double my base rent because his neighbor had told his wife that so-and-so down the road was getting that much for their ground -- ground down the road was all decent ground, all in one field, farmed by a Mr. Big -- ground I was farming was much less total acres, in 4 small fields, with 2 fields on each side of a large/deep creek that I had to cross.  I didn't even try to negotiate, just told landlord that they might want to talk to the neighbor's tenant, and don't think I've even talked to that ex-landlord since then.  Have driven by that farm a few times since then, didn't actually look like anyone was farming the ground anymore, but it might be in CRP.