3 tips for new farmers to rent land
Renting land is a big risk for all farmers, but it is one of the greatest business risks for new or young producers. According to University of Nebraska Extension educator Tim Lemmons, farmers need to consider different strategies for renting land for production. Here are a few tips from Lemmons for beginning or young farmers.
• Spread out risk against multiple properties. “It’s important to know what you can give for land rents,” Lemmons says. “Economists often preach that if rent is too high, you need to let it go. But in the real world, you need to cover variable and indirect costs, so it is necessary to move equipment over ground,” he explains. “So, if the goal is $200 per acre, for instance, you might find one parcel that rents for $180 per acre and another that rents for $220 per acre. Assuming both parcels have comparable yields and size, overall rent across those tracts of land is $200 per acre.
“If, even blended, land rents exceed your maximum cost, it might still be best to let it go, because there is no need to throw good money after bad,” he notes. “You can use this strategy when a blended rent allows you to maximize income or minimize losses.”
• Use trade-offs. “In many cases, it is possible to trade services for rent,” Lemmons says. He gives the example of a landowner who wants a rent of $200 per acre, but that is $20 more per acre than the prospective renter wants to spend. Maybe it is possible to trade labor — roughly one hour of labor per acre desired to rent. If the field is 100 acres, the renter could trade 100 hours of labor for a reduced rental rate. “This labor might come in the form of building fence, mowing or helping maintain farmsteads,” Lemmons says.
• Use flexible cash leasing. These rents adjust up or down, depending on the overall performance of the operation.
“If performance is better than expected, then a base rent goes up,” explains Lemmons. “If performance is less than expected, cash rent goes down. When margins are tight, it is possible to approach a landowner with an opportunity to make more money than expected.”
Lemmons suggests offering a rent to the landowner at your calculated breakeven, but also using the opportunity for a bonus rent as a bargaining chip for greater returns. If the farm performs poorer than expected, land rents will decline.
“With good crop insurance strategy, young and new producers will have more financial resources available to cover both direct and indirect costs,” he says. “It is important to get properly educated in the different ways these tools might be used before implementing them.”
This article published in the March, 2016 edition of WALLACES FARMER.
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