Coping with rise in rent
We had a large increase in cash rent for 2012. A productive 200 acres we rent in Grundy County went from $200 an acre to $300. We paid it because the farm adjoins our farm, and we knew the owner would rent it to someone else for that amount. I wonder if it is better to give a bonus to the landlord for 2013 if we have a good crop, and try to hold the rent to the same as 2012?
Edwards: Bonus or flexible cash leases have become more popular lately due to volatile commodity markets and unpredictable yields. A landowner is more likely to hold the line on rents if she or he knows that a bonus will be paid when profits are higher than expected. Specify in writing how the bonus will be calculated, and work through some examples so everyone is in agreement. Include both yields and prices in the formula. The ISU Ag Decision Maker () has some examples of flexible leases, and a spreadsheet to test them.
Gassett: Many farmers are using a bonus plan to help maintain good landlord tenant relations. It is probably wise to give a bonus so that the landlord will know that they will participate in good years. It is best if the bonus is transparent and based on both price and yield. In years of favorable prices and yields, the landlord can anticipate a bonus. In years of unfavorable prices and yields, it will be easier to explain the reason for paying only the base rent if the landlord has a complete understanding as to how the bonus is computed.
Stout: We’ve had a few years where rents have increased every year, but that won’t always be the case. As hot and dry as this season is turning out to be, it might be advisable to wait closer to Sept. 1 to negotiate a cash rent for 2013. It is a good plan to try to hold off on any increases and offer a bonus for an above-average crop year.
Set up a combine rental
My brother and I have each bought more land this past year. We share a combine. We’re worried we’ll surpass our harvest capacity with the additional land we farm. We want to keep our existing combine and rent or lease a second one just for harvesttime so we can run two machines at once. How well do combine rental programs work? I assume they vary based on location and availability of unsold used combines. What questions should we be asking dealers?
Edwards: Under a rental program you pay a fixed rate per hour or per acre of use. This works well when you don’t have enough extra acres to justify purchasing a second machine. Get an agreement in writing about who is responsible for maintenance and repairs, insurance and breakdowns, and when and for how long the combine will be available to you. Find out if there is a minimum charge, and what you need to do before you return the machine. You might consider custom hiring some acres harvested instead, as that would add extra labor and maybe hauling capacity, as well. A combine lease commits you to a fixed annual payment for at least three years or more, usually, so that would not fit your needs very well.
Gassett: Combine rental programs vary based on the availability of unsold combines in your area. Combine rental can work very well to fill in for a shortfall in machine capacity. Often the rate is an hourly charge based on the separator hours with a minimum charge. The benefits will be that you operate the machine and control the quality of the job, and you will only pay for the use of the machine for the time that it is used. The disadvantages may be that you will need to provide the labor to operate the machine, probably need to carry liability and property damage insurance, and take care of daily maintenance, and people who rent the machines may not have kept up daily care and maintenance. Dealers would prefer to sell a combine rather than rent one so you may want to get a firm commitment on the rental agreement well in advance of harvest.
Stout: The first place I would start is with your local dealers to see what arrangements you can make with one of them. You would need to ask how repair costs are handled, as well as whether the combine could be sold in-season and you would need to scramble to find a replacement. Rental charges may be for the season up to a certain number of hours, by separator hour or by engine hour. These are all factors to consider. I have also seen advertisements on the Internet by machinerylink.com, but I don’t have any experience with them. It would be another option to investigate.
This article published in the August, 2012 edition of WALLACES FARMER.