In 2012 and 2013, one of the big operators from two counties away came into our area and bid $50 to $75 over the going cash rent. He got 200 acres that we had cash-rented for 12 years. Now we hear the big guy is overextended. We think we may have an opportunity to get those 200 acres back in 2016, but not at current cash rent rates. Any suggestions on how to negotiate our former landlords back down to a more reasonable cash rent? — C.E., Illinois
If we see large crops in 2015, your circumstance will be repeated thousands of times across the Midwest. If the USDA 2015 crop and price predictions ring true, the rest of the exclusively high-end cash rent players will be on their way out of the game via bank credit problems -- that is, unless they join in the economic insanity of selling their own farm ground to sustain their land base of high-end rents.
The big operator cash rent bump is often twice the $50 to $75 margin you referenced. These players are losing millions at current commodity price levels.
Stop a minute and recall that these giant cash rent shows did not exist in the '80s. Why? The cost-price squeeze was on, versus the three major price rallies of the past decade.
Though we cash-rented over 10,000 acres at Norris Farms during this period, our rent levels were only $80 to $130 per acre, we diversified into five vegetables and five types of corn, and our management focused on cutting expenses.
Though farmland owner greed is a sore subject, we have to alter our frame of mind. A key part of capitalism is greedy behavior, and admittedly we all prefer to buy low and sell high. But there are some common landlord financial misconceptions you need to be ready to address.
The January Farm Futures Summit in St. Louis discussed many of them, including these two:
• "Your neighbor is paying that high rent and he must be making money or he would not farm it."
• "Crop insurance guarantees that you will not lose money."
Empathy for a landlord's position is critical, as tenant competition primarily drives high rents more than landlord greed. Offering a competitive base rent, plus an eye-popping price bonus rent is a potential win-win for both tenant and landlord. The landlord needs to recognize that tenant stability enhances land value, while the tenant needs to accept that any flex in the lease to higher rent is a good thing.
More farm manager's notebook: Should I sell my cow herd?
Jerry and Jason Moss operate Moss Family Farms Inc. Questions? Email [email protected]