WELTE: Farmers look to save money in 2016, prepare for average crop year
GRAND FORKS, N.D. -- As we approach harvest, farmers are already thinking about fall fertilizer and fall tillage. Considering the cost of fertilizer, one of the first questions a farmer asks himself is "Will I be farming this land next year?" Whe...
GRAND FORKS, N.D. - As we approach harvest, farmers are already thinking about fall fertilizer and fall tillage. Considering the cost of fertilizer, one of the first questions a farmer asks himself is “Will I be farming this land next year?” Whether it is extra tillage, fertilizer or fall drainage activity, farmers are watching their spending this year, and are reluctant to spend money improving land they might not be farming next year.
I am seeing an inordinate number of clients with questions about farm leases this summer. My sense is the combination of strange weather patterns, low commodity prices and high input prices will make 2016 a year that is, at best, an average year for profitability. As we have seen in the past, when profitability fluctuates, rentable land tends to change hands.
Many farmers have landlords who have filed a “landlord’s lien” for land rented in 2016, which ensures the landlord will be paid the rent. NDCC 47-16-03 provides guidance for the filing of such liens. The North Dakota Secretary of State is required by law to provide an electronic system that includes the pertinent information from farm leases that could be filed in the central notice system. The landlord can file this electronic statement and obtain the same rights under North Dakota law as if the landlord had filed the lease.
Additionally, if a landlord wants to actually file the lease itself, the landlord can do so by filing it with the county recorder in the county where the land is situated. This option isn’t always favored, because the recording of the lease with the county then makes the lease a public document, and both landlords and tenants don’t usually want their business out there for the entire world to see. Additionally, the option isn’t always favored because there is a July 1 deadline for the filing of these leases if the lien is to remain valid.
The filing of a landlord’s lien can rankle some tenants who see it as an undue complication on their farming operations. But, it is becoming more common, especially in situations involving “flex leases,” where some rent is paid up front and the remaining rent fluctuates depending upon the profitability of the planted crops for the year.
Back to the topic of expenses: many tenants don’t want to rent land on a short term basis. The reasons vary, but a primary reason I hear from clients is that a longer term lease permits the farmer to plan expenses for following years. For example, in a wet year, there might need to be some fall cleanout of field drains. Good field drainage maintenance takes time. A long term lease is an incentive for a farmer to spend the time cleaning the drainage for the following year, since he knows he will benefit from the work completed the previous fall.
Another example of a longer term lease being beneficial to the farmer is when it comes to the topic of fall fertilizer. In a year like 2015, the fall season was dry and crops were generally harvested ahead of normal. This permitted many farmers to put down fall fertilizer, which in turn permits planting to happen earlier in the spring. But fertilizer costs money. In fact, it isn’t at all unusual to spend $60 to $80 per acre on fertilizer. Farmers are reluctant to spend that kind of money unless they know they’ll reap the benefits of farming the land the next year.
Landlords tend to like a three- to five-year lease with a tenant, because it also provides certainty for the landlord, as they know that the land will be farmed with “a plan,” which maintains the land and continues productivity.
Whether your leases are short term or long term, seeking a little legal advice on leases is always a good idea.
Editor’s note: Welte is an attorney with the Vogel Law Firm in Grand Forks, N.D., and a small grains farmer in Grand Forks County.