Straight talk on land rent

Human beings are prone to classifying the world into good guys and bad guys, saints and sinners, victims and villains. We prefer clear-cut right and wrong, even when reality is complex and nuanced.

That's the case with farmland rental rates, one of the most controversial topics in modern ag.

I'd heard it as least a hundred times in the past year: Farmers complaining about cropland rental rates and insisting that rates need to drop sharply and immediately. They say, "Hey, profitability is way down. Our landlords need to realize that and lower our rates. But they just won't listen to us."

And I've also heard this a few times in the past year: Landlords insisting their rates are just fine. They say, "Hey, farmers are doing better than they pretend. No way I'm going lower."

What's the truth? Well, the economic reality is that rates ultimately reflect profitability. Farm profits have dropped from their peak a few years ago, and so rates overall need to drop overall. Many individual rates, especially on one-year contracts, already have. There are exceptions, though, especially rates that didn't go up much in the good times, even though they should have.

So why aren't rates overall dropping faster and further? Well, terrific yields in much of the region have a lot to do with it; the big yields helped to offset poor prices and strengthen farm profitability.

But there's more to it than that.

Some landlords are stubbornly unrealistic about rental rates. They simply want too much money.

Sometimes it's because of "coffee-shop talk." Their neighbors boast of receiving, say, $100 per-acre rent and so they want $100 an acre, too. Their land may be less productive and worth, say, $80 an acre, but they want $100 nonetheless.

And sometimes landlords want too much because they're locked into preconceived expectations. Their land has an assessed value of, say, $2,000 per acre and they want, say, a 7 percent return. So they demand $140 per-acre rent, even though that amount gives the farmer little, if any, chance of turning a profit.

Those landlords. Bad guys, sinners and villains, right?

But there's fault on the other side, too.

Some farmers - they're called "aggressive operators" or "high-rollers" or names unprintable here - have paid unrealistically high rates. They bet on high crop prices and big yields, or their own managerial skill, to offset the high rates they were paying. In many, if not most cases, they bet wrong.

And some farmers - not many, but they do exist - deliberately and knowingly underpaid when rates were going up. They took advantage of family ties or landlord ignorance to pay below-market prices to rent land.

Those farmers. Bad guys, sinners and villains, right?

What experts taught me

Through the years I've written quite a few stories on farmland rental rates and agreements. I'm no expert, but I've interviewed and listened to people who are. And here's what I learned from them.

• "Fair" and "right" are often subjective. So whether you're a farmer or landowner, gather reliable, impartial information and study it carefully before making an offer.

• Both the farmers' side and the landowners' side are important and need to be reflected in the final agreement. Ask yourself, "If I were on the other end of this table, would I accept the offer I'm making?"

Consistently putting those two pieces of advice into practice wouldn't end farmer and landlord disagreement over rental rates. But it surely would make a serious dent in the complaining.