I just found out that my elderly mom inherited about 40 acres near Vicksburg three years ago that is currently being leased to a soy bean farmer. He's paying $35 per acre for the annual lease and she's paying property taxes. That seems awfully cheap to me but I have no clue whether it is. Any advice on how to ensure that she's getting a good deal and receiving about what others in that area get? Should we negotiate to receive a percentage of the crop? How do I investigate this? I'm putting this here because the Pack has provided good advice on a host of other issues and I'm clueless regarding this issue.
OT: Farm lease near Vicksburg, advice needed
- Thread starter harrybollocks
- Start date
too many variables to consider going the % route, to me.... stick with a fixed rate/acre would be my suggestion... I have no clue what the going rate for farm land is in that area of the state, sorry.
Rough calculatiions ...
Using rough numbers:
Beans are roughly $14 per bushel. In Mississippi, the average yield for beans is about 35 bushels per acre. Your relative's tenant, therefore, grosses roughly $20,000 off the 40 acre piece (assuming he uses the entire 40 and hits the averages).
Dude's paying $1400 for the lease, or about 7% of his gross revenue. If you were to go up to $50 an acre, he's paying 10% of his gross revenue to cover the lease.
Using rough numbers:
Beans are roughly $14 per bushel. In Mississippi, the average yield for beans is about 35 bushels per acre. Your relative's tenant, therefore, grosses roughly $20,000 off the 40 acre piece (assuming he uses the entire 40 and hits the averages).
Dude's paying $1400 for the lease, or about 7% of his gross revenue. If you were to go up to $50 an acre, he's paying 10% of his gross revenue to cover the lease.
I don't know about farming leases. I lease out a parcel of land (100 acres) for hunting rights and I make sure I get enough to pay the yearly taxes and treat myself and my date to a good steak dinner. Otherwise it just doesn't seem worth the effort.
$35/acre is very low considering land prices and commodity prices right now. I would ask for the yield history on the ground from the farmer. It could be very bad ground. Sept/Nov 2013 soybeans are around $13/ac on the market right now. That would be 2.7bu/ac to pay rent. You will need to find out what is a good/fair return for your mom and for the farmer depending on his and the ground's yielding capability. It is not cut and dry, but you will also need to look at leasing the land vs. the opportunity of some other venture with the land (selling for farming, development etc.).
I would NOT share crop it (percentage of crop for rent). It is not something you or your mom will want to handle with the limited knowledge yall have.
I would NOT share crop it (percentage of crop for rent). It is not something you or your mom will want to handle with the limited knowledge yall have.
You shouldnt factor in commodity prices in a rent unless you are talking about share cropping. That really burns me up when commodity prices are factored in because you know damn well they aren't going to go down on the rent when prices fall.
Yes, farmers may hate it, but for a landlord looking for a way to value their ground,(especially someone with almost no knowledge of valuation) it is a good starting point. Commodity prices affect land values which affect rent prices. Land prices have historically fallen in the past and rent is rarely renegotiated downwards, that's the nature of the business.
All depends on what prices are in her area. $35/acre is not out of line even with her paying taxes. Land use and area determines property taxes that can run from $1.50 acre to over $6.00 per acres depending on what structures are on it (a livable house can run the taxes up pretty good). If all he plants is one crop then he's not making as much as if he rotates with winter wheat. Just remember he has all the risk (prices/weather/production costs) and she is paid for the land use which should be enough to at least cover the taxes. You might want to check and see what she pays in taxes. But $35 doesn't sound bad. A lot of land for hay and peanuts around here runs from $10-$20 per acre.
???
Out of curiosity, how would you value the land without using commodity prices? Rent should typically reflect the value of the land, and the value of the land is heavily impacted by how much money can be made off of it. is there a better valuation method that doesn't use commodity prices?
And how would it be greedy for a landlord to factor in commodity prices? Isn't it just as greedy to want the lease without factoring it in?
It should be based more on the yield potential or fertility. I still stand by that are land lords going to go down on the rent if prices go down? No.
If they don't go down, and you can't make money on that dirt . . .
He doesn't rent it. Then the land lord has to drop his price if he wants to get it rented.
I don't get mailbox money by renting land, but the future rents of a commercial property determine what that property is worth both from a buying or renting perspective. Commodity prices affect what the farmer can make off this dirt, so I think it is applicable as A factor in determining what the rent price or sale price is.
He doesn't rent it. Then the land lord has to drop his price if he wants to get it rented.
I don't get mailbox money by renting land, but the future rents of a commercial property determine what that property is worth both from a buying or renting perspective. Commodity prices affect what the farmer can make off this dirt, so I think it is applicable as A factor in determining what the rent price or sale price is.
To get an approximate yield try using the following website:
http://websoilsurvey.nrcs.usda.gov/app/WebSoilSurvey.aspx
Define your AOI (area of interest) which would be your property.
Click on Soil Reports tab.
Click on Vegative Productivity. Then Soybeans.
This may give you a general idea of yield for the soils on the property.
Use commodity prices to get an idea of total gross that the farmer would recieve.
Perhaps someone can else can give you approximate farmer cost to calculate what the farmer nets.
Hope this helps.
http://websoilsurvey.nrcs.usda.gov/app/WebSoilSurvey.aspx
Define your AOI (area of interest) which would be your property.
Click on Soil Reports tab.
Click on Vegative Productivity. Then Soybeans.
This may give you a general idea of yield for the soils on the property.
Use commodity prices to get an idea of total gross that the farmer would recieve.
Perhaps someone can else can give you approximate farmer cost to calculate what the farmer nets.
Hope this helps.
Also if you are going up on the rent, give the guy farming it the first shot at renting it before looking for someone else.
If they don't and you keep renting the land either (a) you were getting a great deal before, (b) you are renting something you shouldn't, or (c) one of the many other factors affecting profitability have changed to allow you to keep paying the same rent but make a profit despite the commodity prices going down.
Thanks for all the replies. Good stuff. This is what's cool about graduates of land-grant universities.
Here in north MS, good cropland rents for $40 and up. Is your Mom getting the subsidy payments or is the renter? That's something to factor in.
I'd take the farm and tract number to your local Farm Service Agency office and talk to them. They can give you all the information you need such as yield data and what other land in the county is renting for.
http://offices.sc.egov.usda.gov/locator/app?service=page/ServiceCenterSummary&stateCode=28&cnty=149
EDIT TO ADD: Also, since the 2008 Farm Bill has expired, FSA isn't taking new applications on CRP (planting cropland to trees/grass and getting an annual rental payment) until a new Farm Bill is passed.
I'd take the farm and tract number to your local Farm Service Agency office and talk to them. They can give you all the information you need such as yield data and what other land in the county is renting for.
http://offices.sc.egov.usda.gov/locator/app?service=page/ServiceCenterSummary&stateCode=28&cnty=149
EDIT TO ADD: Also, since the 2008 Farm Bill has expired, FSA isn't taking new applications on CRP (planting cropland to trees/grass and getting an annual rental payment) until a new Farm Bill is passed.
Last edited:
FWIW
I deal with customers on both sides (leasosr and producers) on a daily basis. It sounds like your mother would benefit more from an upfront, fixed amount of money (cash rent). Like others have said, do your homework. County FSA office can provide you with yield history. Ask, as many knowledgeable people in the area as possible, rent prices on cropland. It sounds a little low for the area, but again there are many factors affecting this (ie: delta or hill land, land leveled, irrigation, commodity prices, yield history). Like buying or selling any type of real estate, find comparable leases/rents before you negotiate. If your price truly is fair and the current producer does not want to pay, then I guarantee someone else will.
As several have stated, you need to remember the producer in this situation also, especially if he has been a good tenant. Just because soybean prices have gone up 50% in the last yr, does not mean your rent should.
Also make sure you know who is getting the government payments on the proeprty. Although they are probably very minimal now, you still need to check.
If you ever inherit the property and are looking for a good ROI, you may want to think about share rent. Obviously there are cons to this, such as growing conditions and weather. On t he other side of the coin, taking on some of the risk allows for better returns. Also, to offset some of that risk, you can purchase crop insurance yourself (buy up additional coverage over the producer's policy) that will protect from a total loss in adverse years.
I deal with customers on both sides (leasosr and producers) on a daily basis. It sounds like your mother would benefit more from an upfront, fixed amount of money (cash rent). Like others have said, do your homework. County FSA office can provide you with yield history. Ask, as many knowledgeable people in the area as possible, rent prices on cropland. It sounds a little low for the area, but again there are many factors affecting this (ie: delta or hill land, land leveled, irrigation, commodity prices, yield history). Like buying or selling any type of real estate, find comparable leases/rents before you negotiate. If your price truly is fair and the current producer does not want to pay, then I guarantee someone else will.
As several have stated, you need to remember the producer in this situation also, especially if he has been a good tenant. Just because soybean prices have gone up 50% in the last yr, does not mean your rent should.
Also make sure you know who is getting the government payments on the proeprty. Although they are probably very minimal now, you still need to check.
If you ever inherit the property and are looking for a good ROI, you may want to think about share rent. Obviously there are cons to this, such as growing conditions and weather. On t he other side of the coin, taking on some of the risk allows for better returns. Also, to offset some of that risk, you can purchase crop insurance yourself (buy up additional coverage over the producer's policy) that will protect from a total loss in adverse years.
.
If you want to get the yield history send me a pm with the renter's name and/or Farm Serial number and Tract number of the land in question. I'm assuming this is in Warren County?
If you want to get the yield history send me a pm with the renter's name and/or Farm Serial number and Tract number of the land in question. I'm assuming this is in Warren County?