(800) 234-1111

FINPACK News

What’s a fair cropland rental rate?

by | Oct 28, 2020

Farmers agreeing and shaking hands - Fair Rent

“What should I pay for land rent?”  This is a common question received by lenders and other ag professionals this time of year.  The problem is, there’s no easy answer.  Often times farmers get the response of, “it depends”. 

What if there was a solution to help farmers figure out the answer to this age-old question?  That would be genius, right?  Well, one such solution exists – FairRent

What is FairRent?

FairRent (https://fairrent.umn.edu) is a free web application that helps farmers evaluate land rental decisions.  It can be used to evaluate cash, share, and flexible rental arrangements.  The results help the producer set a realistic bidding range for cash rental negotiations.  Flexible parameters can be added to evaluate risk and returns across a range of yields and prices.  This information provides clarity to the land rent decision and gives farmers confidence as they work through negotiations.

FairRent can also be used by landlords to help evaluate alternative land rental arrangements from their perspective.  If needed, information from AgLease101 (https://aglease101.org/) provides useful information for land rent negotiations for both parties.

What information is needed?    

To do the most complete analysis, details like expected crop production and planned expenses for the coming year are needed.  To start, details regarding the number of acres and base cash rent or share rental information is entered.  Then direct crop expenses like seed, fertilizer, chemicals, and so on are entered on a per acre basis.  Overhead expense totals are entered next.  These will be allocated equally on a per acre basis in the analysis.  Crop insurance details are also entered to demonstrate the risk protection available at low yields and prices.  These details allow for the most complete the cash rental analysis and provide the most meaningful analysis.

FairRent Reports

FairRent provides a breakeven rental rate for all acres being analyzed.  This is a weighted average of the calculated amounts remaining for rent across acres.  An example of this is provided below.

Breakeven rental rate analysis in FairRent

Also included in the report is a maximum rent allowable to cover expenses.  This shows the rental rate a farmer can pay at varying levels of expenses and varying yields and prices.  This portion of the report provides the maximum rent that can be paid to cover unpaid labor and management (family living) costs to the rental rate that covers only direct expenses.  In the long run, it is important that rental arrangements cover all expenses and provide adequate returns to contribute to family living needs.  But, at a minimum, this report evaluates the absolute maximum cash rent bid that should be offered, which only covers direct expenses.  At that rate, the operator is getting no return for labor and management and the land operated is not covering overhead expenses.  But this can be used as a short-term evaluation when considering whether to keep rented acres already in the operation or if new acres should be rented.

Maximum rent payment analysis in FairRent

In addition, share rental arrangements and flexible lease rental arrangements can be evaluated in a similar fashion.  This analysis provides similar reports, specific to the land rental arrangement being evaluated.

Summary

Overall, FairRent is a powerful evaluation tool for considering land economics decisions.  FairRent takes the emotion out of the decision, providing the producer or landlord with a detailed financial analysis to make the best management decision for their operation. 

+ posts

Pauline Van Nurden joined the FINPACK Team as an Economist in 2017.

Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINAPCK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.

Latest News
New and Improved: Financial Ratios in FINPACK

New and Improved: Financial Ratios in FINPACK

This post highlights the updated financial ratios in FINPACK. The ratio updates are based on the recent updates to the Farm Financial Standards Council's Financial Guidelines for Agriculture. The 2022 release of the Farm Financial Standards Council's (FFSC) Financial...

FINPACK News – November Digest

FINPACK News – November Digest

The FINPACK Lenders Conference is around the corner, the FINPACK 2022 update is live including new monthly Commercial Cash Flow capabilities, and the FINPACK team at the ABA Ag Bankers conference in Omaha! Register Now for the FINPACK Lenders Conference...

The New Monthly Commercial Cash Flow Capability of FINPACK

The New Monthly Commercial Cash Flow Capability of FINPACK

What's New in the Commercial Cash Flow Tool in FINPACK? The 2022 Fall Release of FINPACK adds the capability to complete annual OR monthly cash flow projections for commercial clients. These projections can be for a few months or multiple years. This replaces the...

What’s New in the 2022 FINPACK Update?

What’s New in the 2022 FINPACK Update?

The 2022 FINPACK update brings changes to Tax Forms, incorporates new Financial Standards Measures, introduces a new Cash Flow Projection into our commercial tools and more! Farm Financial Standards Update The FINAN Financial Analysis and FINFLO Cash Flow Projection...

FINPACK NEWS Digest – October 2022

FINPACK NEWS Digest – October 2022

FINPACK lenders conference registration is open, the updated Farm Financial Scorecard, lender training, and looking forward to the ABA Ag Bankers Conference Register for the FINPACK Lenders Conference The FINPACK Lenders Conference is back in-person! Join us...