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Published February 18, 2013, 10:29 AM

Hiring expert help

Growing complexity and volatility in agriculture is causing some landowners, especially ones with limited ag knowledge, to hire a professional farm manager. Farmers have a mixed view of that.

By: Jonathan Knutson, Agweek

It’s been a staple of agriculture in the Upper Midwest: direct negotiations between owners of farmland and producers who want to farm it.

The practice is far from dead, but as agriculture continues to evolve, the use of professional farm managers, once confined primarily to the Corn Belt, is expanding across the Northern Plains, officials say.

Though hard statistics are tough to come by, “There’s definitely more of it in the region,” says Brian Stockman, executive vice president of the Denver-based American Society of Farm Managers and Rural Appraisers.

Two main factors are responsible:

n Agriculture is increasingly volatile and complicated, and more landlords are deciding they lack the knowledge to manage the land themselves.

n More landowners today have little, if any, direct connection with agriculture or farming. Often, though not always, they’re the descendents of people who quit farming decades ago. Sometimes the owners recently bought the land as an investment and have no other ties to ag.

“I think it (the use of professional farm managers) has the most appeal for people who are in the dark about agriculture,” says Andy Swenson, farm management specialist with the North Dakota State University Extension Service. “And by that, I mean people who don’t have much knowledge of farming today.”

Farmers, for their part, have mixed views on landlords using professional farm managers.

“That’s not a relationship most farmers would treasure,” says Brad Thykeston, a Portland, N.D., farmer and president of the North Dakota Grain Growers Association. “We’d like the personal relationship, the one-on-one relationship (between farmer and landlord). Hopefully, that would be advantageous to both parties.”

On the other hand, “I can understand it from a landowner perspective when they get several generations (removed) from farming,” says Ryan McCormick, a Kremlin, Mont., farmer and president of the Montana Grain Growers Association.

McCormick, who rents a large amount of land himself, says he personally isn’t seeing more use of professional farm managers. He thinks that may be because much of Montana was homesteaded only a century ago, and that many landlords, even ones who no longer farm, remain close to agriculture.

To be sure, there are no hard statistics to document the trend, which is stronger in some parts of the region than others.

For instance, “We may be seeing a little more of it in central Minnesota. But not much,” says Dan Martens, extension agent in Morrison County.

Landlords in his area generally live close to their land and retain close ties to ag, he says.

Fair to both parties?

Fair or not, professional farm managers don’t always have a good reputation among farmers.

Farm managers generally receive a percentage, typically 7 to 10 percent, of the deal they negotiate for farmers. For instance, a farm management firm that receives an 8 percent fee would collect $8 per acre on a parcel of farmland that rents for $100 per acre.

As a result, some farmers complain privately that professional farm managers are interested only in securing the highest possible rental rate for farmland they represent, thus maximizing their own income.

“They (farmers) think we’re trying to take advantage of them, trying to make money off them,” says Mark Nothwehr, a principal partner of Midwest Land Management and Real Estate in Spencer, Iowa.

His company operates in Iowa, Minnesota, South Dakota and Illinois.

But managers at his company “have farm backgrounds. We try to be fair to both parties,” Nothwehr says.

Fiduciary duty

Professional farm management companies have what’s called a fiduciary duty to their clients. That means the firms have a legal responsibility to put their clients’ interests ahead of their own.

That doesn’t necessarily mean taking the highest bid, says John Botsford, principal of Red River Valley Land Co. in Grand Forks, N.D.

“The highest bid isn’t always the bid you want,” he says. “There’s always a range at the top that’s acceptable,” and sometimes it’s best to accept an offer within that range “from a producer you know that’s solid and will care for the land.

“The most important decision we make is who to put on the farm (as a tenant),” Botsford says.

His company asks potential clients a series of questions about their property.

“Is it tilled? Is it in CRP (Conservation Reserve Program)? Is it in a lease? What are the terms? We do a review,” he says.

The review takes into account “overriding family considerations” such as whether the land has been rented to relatives or neighbors, and whether the landlord wants that to continue, he says.

“We take direction from our clients,” Botsford says. “We try to put ourselves in their shoes.”

Not all farm management companies use the same approach, Nothwehr says.

“There are different ways of doing things,” and landlords need to understand in advance the strategy that their farm management company will employ, he says.

Landlords’ perspective

A landlord, before negotiating personally with a tenant or hiring a farm manager to do it, should do some serious thinking, Martens says.

“You need to identify your goals and objectives and values as a person or as a family,” he says.

“You need to know what kind of relationship you want to have with the farmer. You need to know what kind of relationship you’ll have with the farm management firm.”

Martens compares a professional farm manager to a car mechanic.

Some people want the mechanic to handle everything and won’t ask any questions about repairing the car. Other people prefer to ask a lot of questions about what repairs are made, and why, he says.

Whether it’s a mechanic or farm manager, “Do you just want to put yourself in this person’s hands, no questions asked?” Martens says.

He also suggests that landlords ask themselves this question about hiring a farm manager:

“Will that person and that firm continue to do things the way I’d want them to be done?”

New generations, volatility

There’s no mystery about why professional farm managers are becoming more popular, Stockman says.

“Part of it is just the natural evolution of society,” he says. “Part of it is the volatility (in modern agriculture).”

When a family quits farming, ownership of its land typically becomes more diffuse over time, Stockman says.

Land that once was owned by a single farmer often passes to his children and then to their children, he says.

“You have one owner, then two, then six. It becomes kind of difficult to manage. One of the best ways to do that is to hire a farm management firm,” he says.

Sometimes those descendents live far from the land they own. Sometimes they continue to live near it, farm managers say.

Even current owners who live near the land may “not be in the loop. They’re not close to the local ag world,” Botsford says.

Landowners of all ages and educational levels can benefit from professional help, farm managers say.

Botsford says his company represents “a number of younger, astute clients.” Agriculture, however, “is outside their normal world. They need guidance from someone who’s close to the marketplace.”

Farm managers also cite volatility in agriculture as a reason their services are in growing demand.

For instance, a recent survey by North Dakota farm managers and rural appraisers found that average land values in the state rose a whopping 46 percent from 2011 to 2012.

So much volatility persuades some landlords, especially ones with no current ties to ag, to seek professional assistance, Stockman says.

“Grandpa had this land with the same guy (farmer or tenant) for 20 years. It may be the best deal going, it may not. They just don’t know,” he says. “People want to know if they’re getting the best rate.”

‘Arm’s-length relationship’

Farm managers also say that some landlords turn to them because they don’t want the stress or hassle of negotiating directly with a tenant.

“They want to take the family stress out of it,” Stockman says.

In some cases, a landlord wants to stick with the same tenant. But they decide “we need a third party to negotiate for us so we have an arm’s-length relationship,” Botsford says.

Even some landlords who have a good relationship with the tenant want third-party help, Nothwehr says.

“Sometimes it’s hard to keep it on the business level. You want to be fair to them (the tenant), but what is the fair price? A third party can come in and make it fair to both parties,” he says.

There also are times when professional farm managers “take accounts over that are so distorted that there’s some animosity created,” Botsford says.

In some cases, a new tenant might be the best choice, he says.

Spreading out

It’s unclear how many acres of U.S. farmland are managed by professional farm mangers. But members of the American Society of Farm Managers and Rural Appraisers handle more than 25 million acres of farm and ranch land for absentee landlords, bank trust departments, foundations, nonprofit organizations and investors.

Farm managers provide a wide range of duties, including selecting a tenant, recommending a specific lease and handling paperwork. They’ll also market the commodity raised on the farm or ranch, if the landowner is paid with a share of the crop rather than cash.

Typically, managers charge a higher fee when they provide more services.

At one time, professional farm managers were most common with high-value farmland in the Corn Belt, Nothwehr says.

But the use of farm managers continues to spread to land that’s less fertile than what’s found in the Corn Belt, he and others say.

“I think it’s a business that will continue to grow,” Nothwehr says.

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