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Rental Negotiations and Agreements; Some Tools & Common Sense to Consider By: Willie Huot Extension Agent/Grand Forks County Farm Business Management &

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Presentation on theme: "Rental Negotiations and Agreements; Some Tools & Common Sense to Consider By: Willie Huot Extension Agent/Grand Forks County Farm Business Management &"— Presentation transcript:

1 Rental Negotiations and Agreements; Some Tools & Common Sense to Consider By: Willie Huot Extension Agent/Grand Forks County Farm Business Management & Economics

2 Historical Land Values (50 years ago) Ramsey Co. ?? Pembina Co?? State Average??

3 Prices (Per Acre) in 1959 Ramsey Co. $53.00 Pembina Co$ State Average$52.00 Source – ND Ag Statistics

4 3A: Benson, Bottineau, Cavalier, McHenry, Nelson, Pierce, Ramsey, Renville, Rolette, Towner, Ward 3B: Barnes, Eddy, Foster, Griggs, LaMoure, Steele, Stutsman, Wells

5 2009 Cropland Values

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10 “Farm Belt Booming” Increases since 2009 –10% Upper midwest –13% Iowa –11% Indiana –11.8% Nebraska ((Irrigated) –12.2% Kansas –(Source - Federal Reserve Bank)

11 North Dakota Increases Jan Jan 2010 NW Region – 11 % to $527 SE Region - 9% to $1481 SO RRV - 7% to $2136 SW 6.5 – 4% to $598 NE “ “ $887 S Cent “ “ $712 N RRV “ “ $1546

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17 StateAve Value 2007 Ave value 2008 Ave Value 2009 % change Ave Cash rent 2009 Iowa$3,600$4,260$4, $180 Illinois$4,150$4,850$4, $170 Indiana$3,640$4,40$3, $141 Wisconsin$3,370$3,600$3, $89 Alabama$2,450$2,650$2, $42 Minnesota$2,420$2,700$2, $116 Nebraska$1,760,$2,050$2, $164 Irrig $100 Dry Louisiana$1,690$1,830$1, $89 Irrig $67 Dry Ohio$3,820$4,140$3, $100 Missouri$2,330$2,500$2, $90 North Dakota $670$810$ $45.50 Land cost Trends Selected States

18 Project Ave Cash Rent 2011 $43.30 Northeast Region –Towner, Cavalier, Ramsey, Nelson $40.80 North Central –Incl. Rolette, Pierce, Benson $65.20 North Valley –Pembina Walsh, Grand Forks $46.10 East Central –Eddy, Foster, Stutsman

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20 Net farm Income trends

21 So How much rent is “too much?” Difficult question to answer Will vary a great deal between producers –Balance sheets –Debt to asset ratios –Production efficiency –Costs of Production –Longer term projected commodity prices –Long term goals for your operation –Risk bearing tolerance –Quality of land being rented

22 Recent study revealed Lease preferences are influenced less by risk aversion than by characteristics of the leasing relationships –Threat of opportunism from the landlord –Potential returns to producers management ability

23 2010 was a year of: Good yields Good prices Low interest Favorable capitol gains

24 2010 a year of Continued excessive moisture in Lake Region Unplanted acres –Excessive moisture –Inaccessible acres Late/unharvested acres Excessive snow fall in late Dec

25 Some Tools & Strategies to Consider Web soil survey –Determines relative productivity of land being considered –Calculates soil productivity index FAIR RENT SOFTWARE –Determines what a fair rental price based upon you individual situation. Good Communication Strategies –Critical for good relations between parties

26 Web Soil Survey Based upon original soil surveys conducted in 1980’s –Updated information –All web based –Determines a relative productivity index for soils being considered –Developed by NRCS –Counties beginning to use Productivity Indexes to determine taxable valuations

27 Basic steps to Follow Go to website: Define the “Area of Interest.” Create the soil map for your area of interest. Determine the productivity index for each soil type. Determine the “prorated” productivity index for your Area of Interest.

28 Three Examples Sec 21 T 153 N R 60 W (NW of Lakota) –Productivity Index of Sec 20 T 154 N R 65 W (Near Grand Harbor) –Productivity Index of Sec 8 T 157 N R 61 W (NW of Edmore) –Productivity Index of 69.41

29 FAIR RENT SOFTWARE A great tool to analyzing your land costs!!

30 Input Features Include Revenue projections for each crop in the plan Expense projections Government program information

31 Output Provides Full analysis of the land rental picture –Cash & share rental analysis –Comparing different rental arrangements –Rent sensitivity based on both price & yields –Direct & Countercyclical payment estimates

32 Will Answer These Questions-- What can I realistically pay for cash rent? What happens if my yields and/or prices drop below projections? What are my break even yields & prices What yields/prices it will take to break “asking price” Determine the difference between different share rental arrangements.

33 Let’s an example “Lakeside Acres 1600 acres Four Crops –Wheat –Barley –Soybeans –Canola

34 Public Relations Strategy Frequent communication with landlord(s) Educating landlord(s) about current ag conditions Explain farm input & out put changes Provide regular crop reports during growing season Good maintenance of property appearance Treating landlord(s) we would like to be treated

35 Communication is Important Some Landowners becoming “further removed for agriculture” –View their land primarily as “an asset to generate wealth” (as much as possible) Helps to “Educate & inform them” of important issues impacting their land & the potential profitability on a frequent

36 Some examples/ideas Input & output the time of lease negotiation. (Crop budgets) Scheduled s/newsletters throughout year to update owners of ever changing conditions during year –Crop stages & conditions –Pest problems –Unexpected weather events/conditions

37 Landlord Newsletter Information “What’s going on” Crop Conditions Weather update Commodity prices Technology update Upcoming events Summary Contact information

38 Guidelines for operators Written lease agreement Clearly defined cropping plan Inform & educate landlords Cost & Income information Regular Updates Alert landlord(s) of problems Encourage landlord(s) to visit your farm PAY EXPLICIT ATTENTION TO THE NEXT GENERATION OF OWNERS

39 Guidelines for Landlords Written leases Ask questions Stay informed !! Visit the farm/ranch often Schedule yearly meeting Be rational & realistic

40 Landlord-Operator Checklist Understand the goals Managing risks Lease preferences Communication plan that fits both parties Attitude toward changes Understand the constraints WIN/WIN strategy

41 Trends For 2010 Vary by regions Rents likely to remain level or rise modestly in most regions Rental rates increases continue to lag. increases in land value increases. Increased interest in flexible rental agreements or share rents. Land rent auctions tend to go higher than negotiated agreements.

42 Trends (Continued) Rent negotiations often getting more difficult to do between parties. More owners demanding more cash upfront. Land value increases have reduced the rate of return on land investments; especially in the more competitive regions of the country. Few record high sales continue to “raise the bar” on expectations of what landowner believe their land is worth.

43 Trends (Continued) Many absentee landowners attempting to “cash out” on high land prices; Most sales going to larger, better positioned farm operators Increasingly difficult for younger, under capitalized farmers to compete. Greater percentages of sales are being made with substantial amounts of cash up front.

44 Summary Land price negotiations becoming more complex Needs to be a win/win situation It’s all about good communication Good relationships are the vital key Seek the best means of communication for you & your business.

45 Questions ? Thank you Contact information (701)

46 Presentation posted on Grand Forks County Web site


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