Low crop prices complicate negotiations to rent Minnesota farmland

For many Minnesota farmers, the cost of renting farmland to grow crops has more than doubled during the past decade, partly because commodity prices reached record levels in 2011 and 2012 and land values also increased proportionately. But corn and soybean prices have dropped significantly during the past two years, leaving farmers stuck with high rental costs. University of Minnesota Extension economists estimate that because of projected low prices in 2016 and expected costs for land, rent, seed and other items, many corn and soybean farmers in the state will be in the red next year. To help farmers and landlords come up with fair farmland rental agreements, Extension specialists have presented 35 workshops throughout the state since early November, with another nine scheduled for next week. The goal, said Extension educator David Bau, is to introduce growers and landowners to different and more flexible ways to share profits and avoid losses. Bau organized the workshops, and answered questions about the issue last week while driving between presentations in Albert Lea and Blue Earth. His answers have been edited for space and clarity.

Q: Why is Extension presenting these workshops?

A: There's not a lot of information out there on rental rates. Extension has pulled together data by Minnesota counties that farmers and landlords might not be aware of. We present that and also explain the economics of the situation, where rents are going up or down, and how they fit into the equation for farmers' budgets. For example, last year, rents in the southern third of Minnesota accounted for 40 percent of the costs to plant soybeans and 28 percent of corn costs. So that's the No. 1 expense in the budget for farmers.

Q: Rental costs have always been one of the main costs for farmers. What's different now?

A: In 2012, Minnesota farmers sold their corn for an average of $6.50 per bushel and soybeans for $13.77. We're about half those prices today, with corn at about $3.25 and soybeans around $8. That's where the economics have changed. Back when prices were higher there was room in budgets for rental rates to go up. Now it's the opposite, and farmers need to look at their costs and find places to cut back. It's hard for them to negotiate a fair rental rate and educate their landlords about their economic situation and what's going on, so we're providing a lot of information at these workshops. We're not telling anyone which direction the rental rates should go, but we're giving them the information and tools to make a fair negotiation.

Q: Who comes to the workshops, and how well have they been received?

A: Attendance varies by site, but we've had up to about 80 people at some. About two-thirds of those who show up are landlords, and one-third are farmers. Most of the feedback has been that they enjoyed the workshop and found it ­beneficial for their situation.

A: We did a survey in Benton County and one-third of the land is owned by producers, and two-thirds is rented. The majority of that rented land is owned by widows or descendants. That's pretty typical elsewhere around the state. I get three phone calls a day, year round, about farmland rents in Minnesota. The calls come from all over the country and even overseas from people who have land in Minnesota. I give them the information we have and they can make their own decisions.

Q: Aren't landowners in the same tough spot, since land values and property taxes have increased so much in the past decade?

A: In some areas, property taxes have nearly doubled since 2007. As land values go up, property taxes go up. Land prices are still holding their own. But if our crop prices stay low, where they are now, land prices and rent — everything will go down and react to that. Right now, rental prices seem to be leveling off. They have not gone down as much as the crop prices have gone down, and that creates losses for the farmers.

Q: Do you get pushback from landlords who say that farmers did well a couple of years ago and now it's our turn?

A: Landlords get used to having the money and it's hard for rents to go down. It's just like anyone else that doesn't want their salary to go down. If you get that money one year, you expect to get it next year. That can make for difficult negotiations with farmers. Right now most of the rental arrangements are year-to-year leases, but there's also a lot of variation out there that include some long-term leases, or provisions where landlords receive bonus rent payments when profits are high, or farmers agree to pay any increases in property taxes.

A: One of the biggest options is flexible rental agreements. There's lots of ways to do that. I've tried to walk through some of those possibilities in the workshops. Rents can be based upon a certain percent of gross profits, or the amount of bushels produced every year, with a price component on top of that or just price only, or they can do profit-sharing. If they can come to terms with a flexible agreement, that can work really well to result in higher rental prices when crop prices and yields and profits are good, and lower rents when prices change. For example, the prices farmers could get for corn and soybeans were higher in 2007 than they can currently get in 2016. Yet the rents averaged $125 an acre in 2007 in southern Minnesota and today they're above $200 an acre, on average. If a flexible agreement was in place, rent prices would probably be closer to $125 again today. But when profits were really high in 2012, landlords might have gotten $400 or $500 in rent. Having more flexibility would mean that on average, landlords would be sharing more of the risks with farmers.

Tom Meersman • 612-673-7388