# Cash Rent Negotiation



## mulberrygrovefamilyfarm (Feb 11, 2009)

With the threads that we are seeing about landlords unexpectedly asking for "crazy" rental rates, and with hay ground renters giving responses that tend toward the inexplicable, I want to ask a few questions to see what others in the hay business are doing when negotiating rental rates: 

Do you discuss and negotiate rental rates every year, why or why not? 
Do you *run the numbers* each year for the ground being cash rented to see what the rental rate could be from the landowner's perspective, and then use those numbers during rental rate negotiations, or what numbers do you use for negotiation?


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## mlappin (Jun 25, 2009)

mulberrygrovefamilyfarm said:


> With the threads that we are seeing about landlords unexpectedly asking for "crazy" rental rates, and with hay ground renters giving responses that tend toward the inexplicable


Simple fact of the matter is in our area we never saw the sky high prices for hay the rest of the country's sellers enjoyed, even at a lower rent, in our area hay is still not as profitable as row crops. I'm not going to pay a row crop rent for ground that has hay on it. It just doesn't pencil out, add in the fact a lot of my hay ground is not suitable for row crops unless irrigation was added. So again I'm not going to pay a row crop rate for droughty soils that will only raise hay as compared to our better soils that rarely burn up from lack of rain. Most importantly, hay is far more time consuming than row crops, takes more man hours to do one cutting of hay than it did for us to plant the last 700 acres of corn last spring.


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## mulberrygrovefamilyfarm (Feb 11, 2009)

As a hay producer I understand the issues regarding profitability, however the questions I'm asking are to determine if hay farmers are negotiating and if so how? As an example, around here the CSR method (see thread above) combined with the online NRCS map tool to calculate CSR for areas of interest, and this is then used for rent base-lining. That way we are accounting for poor soils when calculating rent.


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## mlappin (Jun 25, 2009)

mulberrygrovefamilyfarm said:


> As a hay producer I understand the issues regarding profitability, however the questions I'm asking are to determine if hay farmers are negotiating and if so how? As an example, around here the CSR method (see thread above) combined with the online NRCS map tool to calculate CSR for areas of interest, and this is then used for rent base-lining. That way we are accounting for poor soils when calculating rent.


Well around here soil can and does vary greatly, that field I was talking about earlier in the post goes from a sandy clay, to red clay, to a yellow clay, to a black sand then muck all in a 20 acre field. Depending on how often those maps and graphs are updated, they most likely don't reflect that in the last 4-5 years, 10% of that field never got planted then another 10-15% flooded out before harvest every year. This field is also just a real PITA to farm as well, crooked as a dogs hind leg and a narrow little bridge over a very deep ditch prevents anything but a straight truck from getting into it. Last time we limed it, we had the lime dumped here at the farm, then we rented a tri-axle dump truck, loaded the lime up here and hauled it there and backed in to dump it.

Hard to try to convince somebody that their ground is crap while the neighbors across the road is much better but I see it here all the time. Our farm has mostly a yellow clay to a blue clay subsoil but if you cross the tracks, the neighbors two hundred directly behind us is practically all a gravely subsoil and has much better natural drainage. They can be out at least a week ahead of us with nothing but two wheel drive tractors and duals while our side is still too wet for four wheel drive tractors.


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## steve IN (Jan 13, 2010)

Sounds like Mullberry is trying to justify high rents because of corn prices when the price of corn has nothing to do with anything. I like long term leases at a FAIR price. It takes money and time to take care of a piece of ground. The higher the rent then the less chance the tenant will do the RIGHT thing when it comes to farming a piece of ground. A big rent check means nothing when the farm is left depleted and eroded with compaction.


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## mlappin (Jun 25, 2009)

steve IN said:


> The higher the rent then the less chance the tenant will do the RIGHT thing when it comes to farming a piece of ground. A big rent check means nothing when the farm is left depleted and eroded with compaction.


Agreed, had some BTO's in the area in the past that were much better miners than farmers. Also some guys in the past that were trying to be the next 5000 acre guy in the area, promised to pay ridiculous rents at the time, might have paid them the first year or two, then not at all then just disappeared.

Normally I like to pay my rents a few weeks before they are due. One time after picking up some ground that a former BTO had, due to conflicting schedules I just couldn't catch up to the landowner until the rent was a few days past due, I felt horrible about it but they were just tickled to even get a rent check.


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## mulberrygrovefamilyfarm (Feb 11, 2009)

steve IN said:


> Sounds like Mullberry is trying to justify high rents because of corn prices when the price of corn has nothing to do with anything. I like long term leases at a FAIR price. It takes money and time to take care of a piece of ground. The higher the rent then the less chance the tenant will do the RIGHT thing when it comes to farming a piece of ground. A big rent check means nothing when the farm is left depleted and eroded with compaction.


Not trying to justify a high rent. High rent is now the new average, and the plowed up hay ground around these parts shows that. As long as row crop prices keep land prices up, rent will stay up with it - so corn prices mean everything around here (and I'm sure in IN too). And since row croppers are having no trouble paying the new current "crazy" average rents, no one is having to mine the soil, cut corners, or do the wrong things to turn a profit. That's why it's in both parties interest to use tools that create a baseline for negotiation. Specifically tools that match the soil types that are being negotiated to a current average rent, so that rental rates rise and fall with current average rates and are pinned to the specific CSR etc for the specific ground. Sloped, sandy, light ground with low CSR may never go to row crop (like some of my ground that I'll always keep in hay) and the tools will even help you show a landowner that what they think should bring x should really only bring Y. But just because hay profits may not be able to pay for the current rental rate, it doesn't mean that the rents the landlord is asking are crazy or that the landlord is trying to gouge the renter. It may be that they just ran the numbers and the new average leaves the hay renter's offer on the bottom of the list. Or maybe not, but if you don't use the tools and run the numbers to negotiate from, you won't know and can only complain about needing a FAIR price.


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## mlappin (Jun 25, 2009)

You can plug all the tools you want, but when we have people in the area who are only farming because a VERY rich grandparent is bankrolling it, or they have their own private label for their vegetables, or they have a very lucrative main business and the farming is mainly a tax write off, no matter what you're tools might say, they'll still pay more because it isn't any skin off their noses. As long as the government programs keep paying strictly on acres farmed basis and not on a merit based system, some will continue to pay more than is ever justified just so they can be the next BTO. Yes I know their is limits, and with any government program, people will figure a way around it to still collect.

I'd like to see one of those programs not only take the soil type and potential corn yield as part of the formula, but also take into account what a royal PITA that field might be to farm into account and how much the land owner might rate on a pain in the ass scale.

A local BTO has been chisel plowing since February around here. Had problems with slippage, so they tripled all their 4 wheel drives on the chisel plows so they could drag the plow right thru the standing water, once they turn the entire field into concrete they like to not renew the lease and move on so the next guy can deal with their dumb a** attacks and deal with a landowner who was getting way too much in rent previously. This guys been heard to say he prefers help " that has no previous farm experience so they don't know any better when I tell them to do something". Sooner or later this guys investors will drop out without warning and he'll disappear like so many before, but if we decide to try to rent it, we'll have to try to explain to the current landowner why the ground isn't worth as much as the previous guy was paying or what the experts might say as it has been abused and won't be nearly as productive as it should be.

Most of the "experts" who come up with these charts sit behind a desk all day and don't even get their hands dirty as they have a private gardener at home.

Far as forage goes, what some of the "experts" at Purdue claim to be the best way to make hay could be further from the truth in a real world perspective in_ our_ part of the state and our part of even the county.


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## swmnhay (Jun 13, 2008)

Marty,You forgot th 1031 People.Selling land near cities at 80,000 per acre they got $ to burn and want to get rd of it before paying taxes on it.Then they hire a few select farms to farm it,only if they have the latest and greatest NEW machinery.So basicaly pushing more smaller guuys out of the picture.

These certain 1031 People do not bid against each other tho!


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## mulberrygrovefamilyfarm (Feb 11, 2009)

Around here it's the "chicken-man". He owns chicken houses and has so much litter to get rid of he buys up ground all over NW Iowa and SW MN. Use to be that he was the highest bidder at every auction. Right now he's just one of the bidders. He buying up by you swmnhay?


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