Many Jackson County residents can trace their roots back to the farm within a generation or two. While some folks are no longer involved in day-to-day farming operations, many still have a connection to the farm by retaining ownership of the land. The amount of farmland in Wisconsin that is leased has increased, as farmers retire and rent land to others to operate. According to the latest National Census of Agricultural, 20-29 percent of farmland in Jackson County is rented, while approximately 40-49 percent of Wisconsin farmland is rented, over 60 percent is rented to other operators in Iowa, Illinois and Minnesota.
For those farmers and landowners who enter into rental agreements, the value of farmland cannot be understated. Both parties recognize the importance of the resource, however arriving at an equitable value for both can be challenging. Both the landowner and renter legitimately seek to recover their direct and opportunity costs. The success of the lease agreement depends on meeting the needs of all parties.
Determining an equitable value
Determining rental rates is not an exact science. Local demand and supply conditions, anticipated market conditions and even long-standing working relationships can have some bearing on rental rate negotiations. It is in the best interest of both parties to establish and record rental agreements that are equitable.
To determine an equitable rental rate, each party should first budget their ownership and operating expenses. This will determine an owner’s minimum rate and a renter’s maximum rate, creating a ballpark range. It is also helpful to begin the conversation with an objective source. The Wisconsin Agricultural Statistics Service (WASS) conducts annual surveys of cash rental averages by county. For Jackson County, non-irrigated cropland cash rent averaged $108 per acre as of September 2017. In 2016 the average cash rental rate was $99.50 per acre. Remember that this is an average rate, and Jackson County’s rental range is $45 per acre to more than $200. So how can two parties determine if they are above or below the average, and by how much?
Rental rates are driven by three major factors. Soil type or yield potential is the most important factor either parties should consider. If you do not know the land’s soil type or yield potential, consider using the USDA Natural Resource Conservation Service Web Soil Survey (https://websoilsurvey.sc.egov.usda.gov). The Web Soil Survey tool allows one to look up farmland soil type and yield potential, which could then be compared to the county average. Keep in mind that the yield potentials are a benchmark for what can be expected as a minimum from the particular soil type with average weather.
A second major factor is local demand, which can be determined in a number of ways, including the location of the farmland and competition for farmland in the region. This can often be determined by township, talking with neighbors or advertising.
A third major factor is the number of contiguous acres and ease of farming. A flat 80-acre field with ease of access is more valuable than a cluster of 10-acre fields of odd shape with knolls and swales with springs.
Some other factors affecting rental rates may include enrollment in government programs, which generally have payments tied to those acres from the Farm Bill program. Length of rental contract can also impact rates. A longer-term contract will encourage investment in the property with lime and fertilizer, and perhaps soil conservation practices such as creation of contour strips, grass waterways and low or no-till practices.
Pasture rental rates generally follow a “contribution approach”; a method to estimate the annual costs to own and operate a pasture enterprise. Once the expenses of both parties is estimated, the next step is for the parties to clearly specify the stocking rate in the lease agreement. It is important to specify the stocking rate by number of head and type (bull, cow, yearling, etc.) and weight to be grazed.
Assuming either party is managing fertilizer levels appropriately, production could range from 2-4 tons of grass per acre. Consider a beginning and end weight per animal to determine an average carrying capacity, and the fact that forage intake is roughly 2.5-3 percent of the animal’s body weight. For example an animal with an average weight of 500 pound may eat 13 pounds per day or approximately a quarter ton per month. Low quality forage may sell for $40-50 per ton, therefore the value of the pasture could be $10 per head per month for this type of animal.
Lease agreement examples and crop share agreements
Whichever type of rental agreement parties negotiate, it is recommended to document your rental agreement with more than just a handshake. Proper documentation protects your investments and could give you priority over other potential renters.
Extension’s Ag Lease 101 (https://aglease101.org) offers a number of resources for rental agreements including various examples of agricultural lease agreements and information about crop-share rental arrangements for your farm.
Crop-share agreements refer to a method of leasing crop land where the production (crop) is shared between the landowner and the operator. Many recent rental agreements were negotiated during times when commodity prices were higher. Crop-share lease agreements may allow for greater flexibility for both parties when significant price shifts occur.
Relationships, the key to successful rental agreements
Open communication is essential for successful rental agreements. Relationships are easy when things are going smooth. When challenges arise, the real tests begin. Talk, and more importantly listen, to find out what is valued by the partner in your agreement. A written contract will help clearly define expectations and avoid misunderstandings.
Renting farm assets workshop
For those interested in learning more about renting farm assets and successful agricultural lease agreements, UW-Extension is offering a workshop for farmland renters and land owners. The program will be held on Monday, Nov. 13 at Riverland Energy Cooperative in Arcadia. The program will be offered from 1-4 p.m. and again from 6-9 p.m. Topics to be discussed include:
- Breakdown of land prices around the region/state and what drives farmland rental rates.
- How to include conservation practices in rental contracts and impact on rental value.
- Projected farm profitability in Wisconsin and the Midwest for 2018.
- Review of flexible leases and tools to help landlords and renters decide if a flexible lease contract will work for them.
- Legal issues involved with renting farm assets and what makes for a legal contract.
Guest speakers include Bruce Jones, UW Dept. of Agriculture Economics; Bruce Brovold, Kostner, Koslo & Brovold LLC.; and Steve Okonek and Trisha Wagner, UW-Extension agents. For more information contact the Trempealeau or Jackson County UW-Extension office.