Extension educators predict small increase in southeast Minnesota farmland rental costs

PRESTON, Minn. — Farmland rental rates across the state will increase slightly in 2023, according to University of Minnesota Extension educators.

David Bau, a UMN Extension educator whose expertise is in agricultural business management, said lease negotiations ramp up after harvest and continue all the way through the winter.

“They’re usually done before January, but I’ve seen leases get done in May,” said Bau on Dec. 2 while in southeast Minnesota to host two farmland rental presentations, in Preston and Caledonia on the same day.

The free workshops hosted by Extension happen each November with an average of 20-25 people attending each, estimated Bau, with about a third of the crowd consisting of farmers and the rest landlords. The structure of the workshops is the same every year, but with the latest numbers to be plugged into data-driven formulas that calculate a fair farmland rental rate.

“It shouldn't be too much of a hardship on a farmer if they use those numbers,” said Bau.

Katie Drewitz, Extension educator in Fillmore and Houston counties, presented some of that fresh data that was revealed from the Fillmore and Houston County Land Rent Survey results.

“The unique thing about this survey is that it’s real time data, so it is 2022-23 numbers, whereas most of the national data is a year behind,” said Drewitz at the Preston workshop. “It helps our landlords and renters to able to see what is happening based on current market trends.”

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This year, 63 surveys representing 70 parcels of land were returned in Fillmore County while Houston County saw a return rate of 71 surveys representing 86 parcels. Results from the survey show a slight increase expected for 2023 rental rates in both counties, with the average rent per acre in 2022 being $218.16 and projected average for 2023 at $221.16.

“It wasn't quite as high as I was anticipating, but it was an increase, which I know for some of the renters is hard because of those increased input costs,” said Drewitz. “All of that plays a factor and puts a strain on the farmer.”

Across Minnesota, Bau predicts that farmland rental rates will increase by about $10 an acre in 2023, due to strong prices for commodities.

“Prices going up makes rental rates go up,” he said.

Rent is paid in cash at a fixed amount in the majority of cases, said Bau, but payouts have been good in the last couple years on flexible leases. Flex leases were paying out less than cash rent for a stretch of years before that, he said.

“It's kind of going the other way,” said Bau.

Agreeing to a farmland lease with a verbal or handshake agreement is unreliable, both Bau and Drewitz advised at the Dec. 2 workshop — and bad for any business.

“As much as I would love to say that a handshake is as good as it was in 1920, it's not, and it doesn't have to be a lengthy document and doesn't have to be full of a bunch of legalese,” said Drewitz. “But having something on paper that states your name, the piece of land, the date that it's rented for, the cost of that rent, and how long the agreement is for, is really the best thing you can do.”

Drewitz said she usually doesn’t become aware of verbal or handshake agreements until there's a problem. She’s there to help navigate in those situations but said there’s little that she or anyone can do at that point.

“It breaks my heart whenever someone comes in and they say, ‘oh, I had a handshake agreement, and they went and rented it to someone else, what can I do,'” she said.

Preparing a detailed lease opens a clearer line of communication between both sides, said Drewitz.

“I encourage (landlords and renters) to have really open and honest conversations, because that relationship is a really big piece of it,” said Drewitz, who said that rental rates were always a topic of discussion in her sixth-generational farm family. “If you have a farmer who takes really good care of your land, and is communicating with you, and takes care of fence lines and sinkholes and all that kind of stuff — that has a lot of value.”

There are sinkholes, underground streams, caves and other unique features to farmland in Fillmore and Houston County, which feature karst geology.

“We have a lot of waterway needs, but we also have really, really productive land in the southeast corner of the state,” said Drewitz. “And that's also a part of the consideration, that we do have very productive land, so if you are getting more bushels per acre, then maybe paying a little bit more for that land makes sense.”