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Keep Your Foot in the Door

Finance First

What do you do when the landlord asks for higher cash rent?

Published on: November 4, 2013

As we look at potentially lower grain prices in the coming year, high cash rent arrangements are top of mind for farmers. You want to keep your foot in the door with landlords, but not to the point where you could lose your leg. And there's a balance to keeping the door open without getting hurt.

One of our ag finance specialists was recently talking about this with a client. The farmer asked what he could do to be proactive about keeping his foot in the door with his landlords. The finance specialist has seen what other farmers have done and had some suggestions.

Understanding what your landlord values is a good place to start. Does your landlord place a high value on money? Getting to be personally involved with operations on the farm? The level of care you give their land? A good working relationship with you? You need to be speaking their language. You're wasting your time if you're focusing on something they don't place a high value on.

What do you do when the landlord asks for higher cash rent?
What do you do when the landlord asks for higher cash rent?

Have you talked with your landlords about the potential for lower commodity prices in the future? Do they understand what that could mean for them in connection with their rental ground?

Sometimes your cash rent may be "too high" (more than you think you can afford) but it still might be worth keeping versus losing those acres. We've seen operations where the farmer needed to keep acres on which he was paying a higher level of cash rent because that helped him spread his total costs out. Basically, he couldn't afford not to have them.

Then there are other situations where a high cash rent lease just needs to be let go. Ultimately, all of your arrangements need to be helping your operation in some way. How can you know for sure whether your leases are helping or hurting you?

Run the numbers, figure out the situation and then have a discussion with your landlord if you need to. Feasibility studies on your higher cash rent ground can help you make decisions based on the financial impact on your operation.

When grain prices and yields don't pencil out at high cash rent levels, you have to make a decision. Do you have a conversation with your landlord – or do you risk losing your leg? Unless your landlord hears your side of the story, it's not likely that they'll understand what you're facing and lower your rent. Show them and explain what the numbers look like on your end. That's your chance to make your case – and keep your foot squarely in the door.