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Successful Land Rent Negotiations is More Than Being the Highest Bidder Farm Leasing Workshops Willie Huot NDSU Extension Agent, Farm Business Management.

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Presentation on theme: "Successful Land Rent Negotiations is More Than Being the Highest Bidder Farm Leasing Workshops Willie Huot NDSU Extension Agent, Farm Business Management."— Presentation transcript:

1 Successful Land Rent Negotiations is More Than Being the Highest Bidder Farm Leasing Workshops Willie Huot NDSU Extension Agent, Farm Business Management & Economics

2 “The perfect storm” Improved seed genetics Good yields Good prices Low interest rates Ever increasing demand Record setting net farm income in some regions

3 AGWEEK Feb 1, 2013 (ND Farm Managers & Rural Appraisers group) 46% average ND land value increase in 2012 – 53% - Northwest – 45% - Northeast – 41% - Red River Valley – 38% - Southeast – 31% - Southwest 28% average in neighboring MN counties (Walsh & Richland Counties; 3 sales over $10,000 per acres)

4 Red River Valley 2012 Report (Returns to labor, management and equity capital invested in the business)


6 Objective “Provide information to land owners and operators with information to improve their abilities to negotiate rental agreements that meet the needs of both parties in an environment of rapidly rising land costs”

7 Workshop Summary Dec 2012 – March 2013 22 workshops conducted Each approximately 3 hours long Total attendance = 729 Approx. 55% landowners & 45 % operators

8 Methods Specialists and agents worked together to plan, promote & delivered educational program addressing many key topics pertinent to land economics and landlord/tenant relationships.  Power point presentations  Turning Point Technologies  Hand out materials  Questions & Answer sessions  Showcasing pertinent web sites

9 Presenters Andy Swenson NDSU Extension Farm & Family Resource Management Specialist Dwight Aakre NDSU Extension Farm Management Specialist Willie Huot NDSU Extension Agent/Farm Business Management & Economics

10 Topics Covered Historical Land Prices Factors Affecting Land Values What is Land Worth? Understanding Capitalization Rates What is a Fair Cash Rent Value? Fixed Cash Rent Methods Pros & Cons of Flexible Cash Rent Leases

11 Topics Continued Establishing Base Yields & Prices Flexing for Prices Only Flexing for Yield Only Flexing for Both Price & Yields Important Questions to Ask Improving Land Lord/Tenant Relationships Use of Resume’s & Newsletters

12 Fixed Cash Rent Methods 1.Cash rent market approach 2.Landowner’s cost or desired return 3.Landowner’s adjusted net-share rent 4.Operator’s net return to land 5.Percent of land value 6.Percent of gross revenue 7.Dollars per bushel of production 8.Fixed bushel rent

13 Flexing Rent on Price and Yield Changes Current Price Current Yield Base Rent x ----------------- x ---------------- = Rent Paid Base Price Base Yield

14 Establishing a Base Yield Individual farm records FSA proven yields FCI yields County yield data Farm Business Management records Other mutually agreed upon method

15 Establishing a Base Rent Current cash rent value Area/County average rent N.D. Farm Business Management records Other mutually agreed upon method

16 Determining Final Yield Bin measurements Elevator receipts/scale tickets Yield monitors Yield samples

17 Determining the Final Price Contracted price Futures minus basis at a given location Harvest price on a certain date Average local price during growing season Specified beginning and ending date Actual planting date to harvest date

18 Five Important Questions What are my competitive advantages to be selected by a land owner to farm his/her land? Do I adequately convey those advantages to the landlords/prospective landlords?

19 Two More Questions What are the special concerns, needs, goals & priorities of the land owner re: his/her tract of land? Do I meet those needs by the current way I am farming/managing their tract of land?

20 Last but not least How would I feel about our land rental agreement if I was “on the other side of it”?

21 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 basis

22 Designing a Farm Resume’ Management objectives – Your current & future plans – What you envision your operation to look like in the future Your experience – Years farming – Size & type of farming operation – Technologies you utilize

23 Experience continued Use of computer technology Yields in relation to county/area averages Education Ag related positions with commodity groups or other organizations

24 Biographical Background How you got started Spouse & family info that is relevant to the success of your operation Community involvement that demonstrates your leadership & commitment to helping others

25 Environmental Statement Views on reducing wind and water erosion Weed control practices Shelter belt maintenance /tree planting Cleaning waterways Building maintenance ( if part of the agreement) Pesticide Use/ application practices/storage

26 Livestock Breed(s), Types, approximate size of herd Pasture/range mgt. practices Rental policies - by acre or AUM’s Stocking rates Fence building/ maintenance Hay/feed storage

27 Risk Management Strategies Cash rent vs crop share General statements re: use of crop insurance Managing production risks – Pest control strategies – Crop rotation General marketing strategies Rental payment terms & timeliness

28 A resume should Be an accurate statement about you & your operation Be concise Be truthful Be updated as needed

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

30 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. Be sensitive to the specific needs/concerns of your landlords



33 Questions?

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