One year at a time: Controversy on farmland leases
I once sat with a farmer in his pickup on the way to look at his fields. As we drove, he pointed to a field and said, "That one's not mine. A neighbor has it on a one-year lease at a crazy-high rent. And he's cutting corners on weed control." Then the farmer caught himself and said, "But don't print that! The other guy would be mad at me. So would the owner."
That incident is just one example of many I've experienced that demonstrate how controversial one-year leases are in modern agriculture.
To their critics, they encourage aggressive operators to overpay for land and discourage renters from long-term perspective on soil health and conservation.
But to farmers who use them, one-year leases enhance flexibility in uncertain times. To landowners, they can mean higher rental rates and more income.
A little background: Owners of farmland, who don't farm the land themselves, typically rent it out on one-, two- or three-year contracts. Once, three- and even four-year contracts were common; now, one- and two-year leases are widespread, especially in areas where corn and soybeans dominate.
There are many reasons for the growing popularity of shorter leases. But a big factor for farmers is the increasing volatility of crop prices, which makes it difficult to know in advance what a "fair" rental rate will be. Many landlords, in turn, have less personal connection to the land; they're less likely to understand the possible benefits of longer leases and quicker to accept the higher rates that shorter leases sometimes provide.
Let's be very clear on this: There's nothing inherently wrong or bad about one-year leases.
Sometimes they're logical and sensible for the farmer. Two examples of many: A producer who expects to retire in a year isn't interested in a multi-year lease. And a producer renting a piece of ground for the first time may view a one-year lease as a test run to help in deciding whether to rent the land again.
Sometimes one-year leases are a good fit for landowners, too. Two examples of many: An owner who needs money badly — to pay medical bills, for example — naturally will be attracted to a one-year lease if it brings higher rent than a longer one. And a one-year lease can be a test run to help the owner decide whether to do business again with the farmer.
But one-year leases have potential drawbacks, too.
• Aggressive farmers — producers who are very confident in their ability or who are gambling on high crop prices and strong prices — sometimes pay more than the economics warrant. In doing so, they set themselves up for failure and also take away land from farmer-renters who offer a lower, more economically viable rate.
• One-year leases encourage a handful of farmers to overpay for rented lease, with the renter recouping the higher payment through saving money by skimping on pest control. It happens only rarely, but it happens.
• One-year leases can hinder long-term projects to foster conservation and enhance soil health. If you're farming a field for just one year — and the owner won't agree to a longer lease — it's harder to justify utilizing cover crops and other conservation practices.
Talk it out
I believe strongly in property rights; I would never tell landowners to avoid one-year leases. And I'm not nearly smart or arrogant enough to tell farmers what duration they should use.
What I'm saying is this: Farmers and landowners need to talk openly and honestly about leases and durations. They need to explain to each other what's important to them, and need to work to find a duration that best serves their respective needs while considering what's best for the land, too.
I know, I know, it's too late for the 2018 crop season; rental rates are set already.
But now, as the Upper Midwest planting season finally begins in earnest, resolve to hold those open and honest talks in time for the 2019 season.