Landlords & Tenants: How to Create a Fair Rental Agreement
Good afternoon and welcome to the University of Minnesota CropCast. I'm your host Dave Nicolai, Extension Educator in Field Crops and I'm here along with my co host Doctor. Seth Nave. Seth is University of Minnesota Extension Soybean Specialist And Seth, we have a very special guest here today that's joining with us to talk a little bit about some of those things that are of concern to farmers whether they're landlords or whether they're actively farming or if they even own their own land and that is the cost of farming and when it comes to land rent and rent. And I know Seth that you've had experience with this, some in Minnesota but certainly in Iowa and other states.
Speaker 2:Yeah, so this is always very interesting to me as somebody that's associated with agriculture and works in agriculture, but not really an active farmer myself, I always wonder about how all the economics of this whole thing work. And when times are tight, who ends up really having to really tighten the belt the most? And we know it's usually the farmer. And so we know that fertilizer prices don't go down, other input prices don't go flexibility in this whole system is around land rent. So it's interesting to know.
Speaker 2:It's the one thing that farmers have some bit of control over in terms of their inputs is what they might pay for rent. So I think it's a good discussion. We're at the beginning of the season. Farmers are just finishing up their harvest, so it's a good time. I know people are thinking about this.
Speaker 2:I think it's good for a general audience as well as the more focused agricultural audience that we have here.
Speaker 1:Well spoken and so therefore we've invited in one of my co workers Nathan Halinski who is an Extension Educator in Agricultural Business management and Nathan you're located nearby the Brainerd and St. Cloud office and up in that neck of the woods. But it sounds to me like you have inherited the ability to multiply yourself in around the state of Minnesota to talk about land rent. But before we get into that, why don't we talk a little bit about yourself, your background, school, etcetera and whatever you wanna mention.
Speaker 3:Yeah. Well, thank you. Again, I am Nathan Holinski. I have been with the University of Minnesota Extension for the last nine years. I started with Extension right out of graduate school that I attended at North Dakota State in applied economics.
Speaker 3:I did my bachelor's degree at the University of Minnesota Morris in economics. I grew up on a dairy farm in Central Minnesota, so I have pretty strong agricultural roots. And as Dave mentioned, I live near Brainerd with my wife and son and travel the whole state of Minnesota doing extension programs on this time of year is pretty heavy on the land rental discussion.
Speaker 1:Well, you had some big shoes to fill so to speak. Recent retirement by another coworker of ours, Dave Bowen, Southwestern Minnesota. Dave was involved when I first got an extension from had been for years in a lot of different facets of ag business management including land rental and land rental meetings. And so upon retirement, I'm sure he passed along all his notes to you about the do's and the don'ts. You want to explain a little bit about the program and what you really are doing and involving from an educational directive?
Speaker 3:Yeah, my coworker Dave Baugh started these land rental workshops about twenty years ago. So he started with extension a little before that. And as he was talking with farmers and landowners across Minnesota, he saw there was a need for some of the land rental data. People don't always know where to go to get accurate data. So Dave started, compiling some of the data resources that we have for Minnesota land rental rates and started pushing this to the public.
Speaker 3:It's been a pretty successful program. Like I said, we've been doing this for about the last twenty years. I started helping Dave teach this when I started with extension about nine years ago.
Speaker 2:So starting with the data, you know, I'm a scientist, I'd start with the data. So where does the data what is the data? Where does it come from? I know you compile it, but what what is it made up of?
Speaker 3:Yeah. So there's two main data sources for county specific land rent that we have. The first one is the FinBin dataset. So the FinBin dataset is farm financial data that the University of Minnesota compiles and cleans up in stores on a website. The data comes directly from farms who are enrolled through a farm business management program across the state of Minnesota.
Speaker 3:So there's about a dozen tech colleges throughout the state of Minnesota who have a farm business management program, as well as the University of Minnesota Extension does some specifically in Southwest Minnesota. So farms who are enrolled through that program, their data gets anonymously updated into this database on a county level basis.
Speaker 2:And what's
Speaker 3:That's the the first and one of the larger datasets that we have. And about 10% of large ish farms are in this dataset. So it's a pretty large dataset.
Speaker 2:And what are the total numbers? Approximately how many?
Speaker 3:There's approximately 2,500 crop farms worth of data in the data set through FinBin.
Speaker 2:Okay.
Speaker 3:So again, it's a pretty strong data set. And then the other data set that we have for land rent is the USDA. So The United States Department Of Agriculture, they collect a lot of information and they collect annual land rental data through both. Have survey, so the USDA has census data that goes out every five years. They also have survey data that they do annually.
Speaker 3:Some of the survey data is monthly on some of the price data that they collect. They have annual survey data on land rent. And that is again compiled on a county level basis and each county, USDA team verifies the data and they publish that around the September every year.
Speaker 2:Okay. And then what do you what do you do with it? What if it's just all in this nice package, why does anybody need you to talk about it if if it's all right there for them? So what what's what's your value add to this whole deal?
Speaker 3:I help compile all the data. Not all of the USDA data is super user friendly to use or find. So that's kind of the one main role that I have is compiling the data in a easily readable format. And I help compile it both geographically or regionally across the state, and then there's some statewide numbers as well. So I compile it in one specific easy to find source at the University of Minnesota Extension's website and help people find what they are looking for.
Speaker 2:Fantastic.
Speaker 1:Now, when you have these land rental meetings, you have two types I understand. One, some of them are in person going through the fall here into the year into the winter. The other option people might be able to leverage a webinar in terms of that you're presenting information perhaps more in a portion of the state say for example Northwestern Minnesota or Southwestern Minnesota with that. Are those the two main types of educational situations available for people to obtain this? Are there other mechanisms as well?
Speaker 3:Yeah, so I do there's about a dozen workshops that are scheduled starting in mid November. So we have in person workshops scheduled throughout the state of Minnesota. And as Dave mentioned, we also have a handful of webinars scheduled, and some of those will be recorded and posted to our YouTube page so that people can view them whenever they want to after the fact. They don't have to be at a live session to gather the information, And almost all of the information that's available on the workshops is also available at the University of Minnesota Extension's website. So we make the data widely available for everybody to access and find.
Speaker 2:So who shows up at these meetings? Is it the little old widowers and widows or farmers? And do you segregate them? Do they have to sit on different sides of the room? Or do you have different days for the landowners versus the renters?
Speaker 3:We do not segregate landowners versus farmers, but we definitely get a mix of both at all the workshops. Historically, we have had approximately one third of the attendees be farmers and the other two thirds being landowners. So there's more landowners at these workshops than farmers, But the information that I do provide is non biased and it's open. It's fair to both the farmer and the landowner. And a lot of the attendees who attend the workshop, I have there's a handout that I provide attendees.
Speaker 3:They take two of them, one for themselves and one for the farmer slash landowner on the other side of the aisle from them just to share the same information so everyone's on the same page.
Speaker 2:I guess that's probably the whole theme here, right, is it's kind of this transparency in this whole thing so that farmers and landowners don't feel like they're the they're cut out of the conversations or they they don't know what what's the going rate or what's happening around them that they can just lay it on the table and then they can have a discussion around those numbers.
Speaker 3:Correct. This unbiased information is just helpful to both sides so that there's a lot of coffee shop talk out there where if you're in the farming community, they say, oh, man, I hear farmer John down the road paying $4,500 per acre for land rent. And you never really know if there's any truth to that statement or not. Where the information that I provide is very clear cut on where the data came from, and it's always reliable resources that I'm sharing that's accurate and safe to spread around us back.
Speaker 1:I know we're going to do this more than once, but can you mention real briefly because this is a podcast. There's a short little link that people can go to in order to find out where these locations are at. If they're listening to this podcast and we'll talk about it again in more in write up but why don't you go ahead and so forth if they're interested to where quote you will be appearing and or and or other seminars here this year in giving land rent.
Speaker 3:Yeah. So again, this information is on the University of Minnesota extensions website and the shortened URL to find that is z.umn.edu/lr25.
Speaker 1:Okay. You keep that memorized Nathan. We'll come back to that a little bit here at the conclusion with that. Do you want to talk about when you have these seminars besides just you know giving numerical average for that area or that County? There's a number of other things I know that goes on in terms of people ask questions and say well what are the alternatives to cash rent?
Speaker 1:What are the advantages or disadvantages to different types of things? Do you get into some of that?
Speaker 3:Yeah, we talk about the different types of land rental agreements And also throughout the workshop, we talk more than just land rent. I go through crop budgets. So I go through expected farmer profits for the next year on various crops. Just to highlight where the farmers coming from. Besides crop budgets, we talk about some of the farm bill payments, right?
Speaker 3:So in the farm bill or farmers are getting payments through the farm bill for 2024 growing season right about now. The government shutdown is throwing some wrenches in that, but they're always a one year leg, but it is highlight these are other not these are other payments farmers are getting that are not in my crop budgets per se. And we also talk about land values. Just if you're going to sell your acre of your parcel of farmland today, what's an expected price? The University of Minnesota collects agricultural land sales data, and that's available on our website as well.
Speaker 3:And we talk about the different types of leases. So a straight cash lease is the most common where a land farmer will pay the landowner x amount per acre, cut and dry. There's no real complications or math involved. We also talk about crop share leases, which used to be a lot more common, not as much today, and also flexible leases where the farmer will pay the landowner a base rent, and it'll potentially trigger a bonus payment post harvest if yield or price is above expected.
Speaker 2:Yeah. And we we talked about this just briefly before we, hit the record button, but I'm I'm really curious if you've seen any shifts in how, even if not in practice, that these agreements have changed, but in at least discussions, people are exploring ways to be more creative about things with the volatility of the economy around farming these days and the unknowns around markets and things like that and inputs going other inputs going up that I just wondered if there was at least people asking about crop shares again or asking about flexible lease payments if not actually signing such things?
Speaker 3:Most farmers that I have discussions with on flexible leases complain that the landowner wants the base rent and the flexible lease to be the same as their current cash lease program, and the landowner will only sign a flexible lease with upside potential and really no downside risk. And the farmers are hesitant to sign that because they're better off simply doing the cash, straight cash lease. The one problem or the the one big proponent of cash leases, they're just so simple, right? You give a the farmer pays the landowner $100 an acre, $200 an acre, whatever the agreement is, and it's said and done. Most often, there's a split between a spring and fall payment.
Speaker 3:The farmer pays 50% in the spring, 50% in the fall, it's all done clean. The landowner knows what their actual revenue is going to be upfront. And with the flexible lease agreement, there's going to be some form of price component. What price did the farmer receive? I get a lot of questions on what price do they determine?
Speaker 3:Do they go by what the farmer sold corn at the elevator for? Do we do an average of the last twelve months of of price? Do we do the crop insurance price? Right? What price to use to a flexible lease agreement is the most complicated component.
Speaker 3:And with the straight cash payment of a cash lease, there's just no question of what is the proper formula. And that's I think that's just easier for everyone and they're just more common.
Speaker 1:Let's talk about trends. We discussed this a little bit before we started Nathan. And then if you had to make a comparison overall and let's just we'll use Southern Minnesota as situation or South Central or whatever it might be or other crop in areas too. From 2024 to 2025 now going into 2026, are we seeing more of a flat line or slight increase? Maybe a little bit of a slight decrease in overall cash rents given where commodity prices and other input costs are.
Speaker 1:What are some trends that you can talk about in generality?
Speaker 3:I would say from 2020 through 2024 land rent was a pretty increased trend line. And then from 2024 into 2025, very flat to maybe a slight decrease. And going into 2026, I would anticipate flat with a slight decrease of one to 5% as we move across the state. There's not a lot of increase in land rental rates moving into 2026 with current commodity prices.
Speaker 1:Does it make a difference? Do you think, you know, of going to Northwestern Minnesota, if there's an influence on sometimes there's crops that come in like sugar beet, say for example, but you know, even there they're affected by sugar prices and in other competing things is that still hold for other parts of the state?
Speaker 3:There are definitely some geographical variances. And I know if you get in certain pockets that are very dairy heavy within like a county or corner of a county, then you can see an increase in land rental rates just because of manure application. They need x amount of acres within their crop rotation. And same thing with some of the other, I'll call them specialty crops of maybe there's potatoes, edible beans, maybe it's the sugar beets, where some of those other crops were again, you need x amount of acres in your rotation as a farmer, you do pay a premium to maintain acres in your rotation. So certain crops or types of farming will lead to an increase in land rental rates.
Speaker 2:So you can basically talk about the baseline county average, and then there's all the various factors that may affect it. You know, soil type and the APH and all the types of things that go in drained or undrained, and tillable acres and parcel size. I mean, there's a million things that could go into all of these factors. And so you can pretty much spell these out for the audience and let them understand that their every acre isn't the representative of the average for the county, right? I assume that's kind of how you lay these things out.
Speaker 3:Correct. There's a lot of factors that I go into that. Tiling, like you mentioned. What about, you know, size of field or obstacles in the field? I know farmers that are are renting ground with, you know, the high line poles growing right through the middle of the field.
Speaker 3:That maybe is a deterrent to rent it because it's an obstacle or there's certain windmill farms where, again, they have to go around these, you know, sectioned out chain link fence sections that makes it less desirable. Or small parcels. If you have a five acre parcel versus a 100 acre parcel, the 100 acre parcel is so much easier to go in with this large equipment, get everything done in a timely manner instead of jumping between 10 different fields to get the same amount of acres planted. So there's a lot of variability. And like you also mentioned, not every acre in this 40 acre parcel is the best acre in the county.
Speaker 3:Right? Every landowner I talk to says that their ground is above average. And I'm not a statistician, but typically that is inaccurate.
Speaker 2:That's Garrison Keeler for you. That's a hangover, hangover from our old Minnesota man.
Speaker 1:So I had a quick question and you referred to it earlier when you talked about crop budgets. I don't know what, just out in generality, what have you seen? I mean, obviously in a production cost basis and again here now for 2025 or going into 2026, have you gone in and quote upped some things here that are more reflective of what is going on in terms of fertilizer or other costs. Typically I know that seed costs typically, you know don't take a big decrease. Stay here go up but you know, other factors in there.
Speaker 1:I think with the hardest thing if I was in your shoes is this whole farm payment situation is really, I mean you could set the base, you know, costs in there, but it's really hard not to know necessarily what the other government situations would be into those.
Speaker 3:Yeah, like you mentioned, there is kind of some uncertainties in the farming industry. I have my South Central Minnesota 2026 corn budget up, and it is a negative of some 80 some dollars. So there is not a lot of expected profits next year. My soybean budget is a negative $27 on a per acre basis. So with that, the farmer, you know, wants to negotiate something.
Speaker 3:And to your point, Dave, farm bill payments or other ad hoc payments are never certain. Right? We I just iterated that the 2024 ARC or PLC payments are potentially a decent number. There's gonna be some large corn ARC County payments that will be issued hopefully shortly. Farmers don't know that going into these land rent negotiations and same thing, you know, we talk about some of the politics in the world.
Speaker 3:There are negotiations to farmer payments. What that's going to look like. I have no idea if that's going to happen. I have no idea. Farmers when they have discussions with landowners for these land rent discussions can't bank on the government bailing them out to have a profitable farming enterprise.
Speaker 2:But again, they you know, back to the psychology of this negotiation, it sounds like you have to work with both sides and say, okay, if if the landowner is really interested in in a consistent income stream over years, then you have to communicate to them that that number has to be at a low enough value that that the farmer can sustain paying that over time, right? So the give and take is if there's, they have to give up a little bit of the top end if they want to take everything, have a consistent value over a number of years. I assume some wording around that is the way you have to communicate to these folks. And the farmer has to do the same thing. The farmer has to pay up in tough years in order to keep those acres, knowing that he or she is going to need to have those acres rented when things turn around and they can make another $80 an acre on those.
Speaker 1:I suppose that we should preface this land cost, just before we leave it now, you cited those figures earlier, that was based with a land charge into those crop budgets of a certain amount. So from farmer to farmer depends upon obviously whether it's quote, you know, owned land, rented land and so forth. It's gonna make a quite a bit of difference on some of those bottom lines, is it not?
Speaker 3:Correct. That budget, that negative $80 on corn that included a land rent charge.
Speaker 1:Right.
Speaker 3:If your land is paid for free and clear, then your land rental charge will more or less only be your real estate taxes. But on the other side, if you are currently paying a bank for the land rent that's that that land that you are have a loan on your land rental charge potentially could be even higher than the current land rental rate. If your payment is $5.06, 700 per acre depending on your interest rate and the purchase price of that parcel of land.
Speaker 1:Correct me if I'm wrong, but I think we also have capability at the University of Minnesota access to some of these other in Excel if a producer wants to quote plug in their own numbers in a crop budget or partial budget. And you can help them with that or steer them to the right area if they feel like okay, know that's a standard one but I wanna customize my own situation. But those types of things are obtainable I know from another land, a number of land grant universities.
Speaker 3:Correct. All the budgets that I have created, a farmer can download into an Excel spreadsheet and update the numbers that they see fit for their own enterprise. And also the University of Minnesota has created other tools. We have the crop cost, which is a cost of production tool. So it's cropcost.umn.edu.
Speaker 3:And also there's a land rent specific program of fair rent. Fairrent.umn.edu will also help farmers calculate what is their specific fields cost of production and what they can afford to spend on land rent.
Speaker 1:Great. There's a lot of opportunities here. And so again, as we close, Nathan, do you wanna repeat one more time where they can find a list of opportunities here whether it's, you know, a distance ed or it's in person and that shortened URL or where else they can go to find the list?
Speaker 3:Yeah, everyone can go to zasinzoo.umn.edu/lr25. That will bring you to the extension website page that has our information and all upcoming land rental workshops.
Speaker 1:And they can also go through the University Extension Farm Business Management web pages to come up with the same thing if they want to navigate through that.
Speaker 3:Correct. If you go to University of Minnesota Extension's web page and click on managing a farm, there's a land economics page that has the all this information and the upcoming workshops and my contact information with more questions.
Speaker 1:Great, great. Any last words, Zach?
Speaker 2:No, this is awesome. Really appreciate it.
Speaker 1:We're gonna let you go Nathan because it sounds like you've done a lot of work but you've got a lot of things to do and so we don't want to take up any more of your day to day but we do appreciate you stopping by and talking a little bit about these opportunities for these educational seminars and also the utilization of some of these other tools that you mentioned. So thanks again. So we've really great to have Nathan Hlinsky, Extension Educator and Agricultural Business Management with us. And thanks Nathan for stopping by and we will see you around the state of Minnesota it sounds like. So thanks again.
Speaker 3:Thank you and we'll talk to you later.
Speaker 1:All right. Yep. Have a good day. Thank you. This has been the University of Minnesota CropCast with University of Minnesota Extension Educator Dave Nicola along with my co host Doctor.
Speaker 1:Seth Nave, University of Minnesota Extension Soybean Specialist.
