The conventional belief is that a landowner has the power in land lease negotiations with a tenant, but that isn’t usually true. The tenant has had the power because the farmer is usually more informed on the current ag economic situation and the land being negotiated about for establishing a lease.
Many farmers would like to keep land owners in the dark as much as possible, explained Terry Kastens and Kevin Dhuyvetter, two ag economists with backgrounds at Kansas State University. Dhuyvetter, a Department of Economics professor, and Karstens, an emeritus professor with current farming operations, provided their opinions during an Ag Connect Expo educational presentation.
“In the state of Kansas, it tends to be a little drier in the west and the east a little more like the Corn Belt. We see the pattern with much more crop share in the west than we do in eastern Kansas. It is because we have much more production risk,” said Dhuyvetter.
“Historically, we have had more crop share in areas with more production risk,” he said. If a farmer isn’t sure he is going to produce a crop, then he usually wants the landowner to share that risk with him through crop share.
But even in the higher risk crop production regions of the country, the percentage of cash rents compared to crop shares is increasing at a fairly rapid rate. Everywhere in rural America, more cash rent exists today than 20, 30 or 40 years ago.
Cash rent costs for tenants are increasing as publicity spreads about the per acre rent prices being paid—some of it from bankers serving an assortment of farmers.
The USDA publishes an average per acre cash rent cost per county in the U.S., but those numbers are averaging in low-cost contracts between relatives and long-term leases, including some where the tenant is “screwing the landowner” with unreasonably low leases the tenant automatically renewed with unsuspecting landowners for a decade, explained the Kansas economists. The USDA number does not reflect what the fair market cash rent leases were that parties signed within the past six months to a year.
If a landowner doesn’t have a good idea of what rent should be, then establishing a “cash rent auction” puts the power in the landowner’s hands, and such auctions are becoming more common.
Dhuyvetter said, “Cash rent auctions are typically the way for landowners who don’t have enough information to level the playing field.”