About This Episode
Chris Barron works alone through four things to settle before you sit down with a landowner: run a structured conversation, know your numbers farm by farm, understand the competition in your area, and filter out fake news. He starts with the three forces behind any rent figure. Feasible means the farmer can actually make the payment, sometimes by cost-averaging a high rent against lower ones. Equitable means both parties share risk and reward, often through a share lease. Market value is whatever the neighbor will pay.
On structure, he says treat every meeting as a proposal and write your goals down first. What does the rent number need to be and why, is this a one-, two-, three-, or five-year lease, and does the farm need tile, a waterway fixed, or a cost-shared improvement? On numbers, know cost of production and yield on each individual farm measured against your average on-farm cash selling price, so that when a landowner starts asking questions you have specifics rather than generalities.
Barron tells his own story of a land management company getting in a landowner's ear with inflated area rent figures and then calculating four years of missed opportunity. His counter is relationship work, and he points out that the farms you give the most attention to are usually the ones with the best arrangements. He closes with two questions to ask every landowner, and a warning that coffee shop and social media rent numbers are the Vegas story where everybody claims they broke even.
“As a farmer, we have a right to be profitable.”
— Chris Barron
Key Takeaways
Three forces set every rent: feasible, equitable, and market value. Work out which one your landowner is actually operating on before you propose anything.
Some high rents survive only because the operator cost-averages them against lower rents elsewhere in the portfolio, which distorts what neighbors think is normal.
Write down your goals and the number you need, and why, before the meeting. Every annual conversation is a proposal, including lease length and improvements.
Know cost of production and yield farm by farm, priced off your average on-farm cash selling price, so you can answer a challenge with real figures.
Ask two questions: what do you like best about me farming your land that I can continue to improve upon, and what should I change or improve?
Aesthetics count as much as financials for many landowners: mowing, snow removal, and showing up matter alongside the rent check.
Full Transcript
Narrator: And it all comes down to this. Two on, two out, bottom of the ninth. The Farmers lead by one. Full count. Here comes the play at the plate, and it's the Ag View Pitch!
Chris: Welcome everybody to another episode of the Ag View Pitch, and today you have Chris Barron here. And what I want to do is take just a little bit of time to talk about a season that is approaching all of us in the farming community, and that is land rental negotiation time. And as we wrap up getting the crop in, getting things laid by, spraying, side dressing, all that kind of fun stuff, one thing that's going to be staring us in the face here as we get further into the summer is having this conversation with our various landlords and thinking through what's that conversation look like and, and what can we do to improve that conversation and what things do we need to be aware of. And so What I wanted to talk a little bit about today are kind of 4 key things that we may want to be thinking about as we get ready for that conversation with the landowners.
And it's basically having a structured conversation is number 1, and thinking about what that looks like, and we'll come back to that in some more detail. The next thing is really just knowing your numbers, and that's what we do at Ag View Solutions, obviously, with Profit Manager, and there's lots of other tools out there that I know some of you use. To really dial in your cost of production, to really know where you're at farm by farm so that you can really figure out what that needs to look like. And then the third one for, for me that I think is real important is just competition, understanding what's the competition look like out there, what's, what's the environment like in your area, because it is a little different in each area. And then the fourth thing I have that I want to discuss is just the fake news.
And the fake news basically isn't, you know, basically right now what Trump's talking about as much as just the social media and some of the aspects, information that gets out there that can influence people's decision-making, when in reality there's a big difference between, you know, perception and reality. And so we want to straighten some of those things out and talk a little bit about that. So what I want to do though first is just talk talk a little bit about a slide that I show a lot when I'm doing winter meetings and people ask about, well, what are you seeing for land rental values and what's that look like? And I just like to tell people that I want to start out by just saying that there are really 3 key factors that, that we all deal with, both the landowner and the farmer. And the first one is feasible. And what does feasible mean?
Feasible means that the farmer is able to make that level of payment. So if they're making a cash rent payment, it's a payment that they're able to justify and it actually works. And one way it might work is maybe they've got a rent number that is lower than maybe some others that they have, and they've got a couple that are a little higher. But what makes some of those higher ones feasible is just cost averaging each of those rents. And so sometimes when a farmer will ask me, well, when are these rents going to come down and why are some of them so high still? Well, in some cases there's just producers out there that are cost averaging. So they've got some that are lower and they just have some that are higher. And so that's, that's kind of some of the feasible observations that we see out there. And then The one that I like the best is equitable.
And, you know, that's really when it's just a good deal for both parties. We see that a lot of times with various share rent leases, like a 50/50 type agreement or a 25/75 tied to some of the risk going over to the landowner and some of those kind of things. That can, you know, help both parties kind of share in the risk and the reward. And typically those relationships, there's a high level of trust and there are just arrangements. And typically, if you think about the different landowners you have, you probably have some equitable arrangements with those landowners that maybe trust you the most or that you have the most interaction with, and maybe they're even a friend or a family member or somebody that you've been with for a long period of time. And then the third observation that we see of the three of feasible, equitable, and then the last one, the third one, is market value.
And market value is what the neighbor is willing to pay. In other words, when you show up, there are some landowners out there still that essentially, in all reality, just want to check. They want it simple, they want a check and just please leave me alone type of thing. So it's, you know, it's understanding who are you working with? What's the personality? What do they want? What do they need? And what really works best for them? And we all kind of understand each of our situations, but I think sometimes things can get away from us. I personally had an experience, just a quick little story in our operation. Here in the last few months where a land management company got in the ear of one of our landowners and essentially fed them some misinformation, fed them, in other words, that market value number. Okay, well, what's in the area?
And I guess I would even argue that they pumped out some higher numbers than probably what's realistically out there. And then went back in time and said, okay, well, in the last 4 years, your missed opportunity was X amount of dollars. And to me, that's quite unfair and very disappointing in the industry that there's some out here yet that would do those types of things. So having said that, you know, how do we counteract some of those competitive things, which we'll get to in a minute? But how do we, how do we think through that? What conversations do we need to have and what's that look like? And so let's start with the 4 topics that I started with here in the conversation, which are structured conversations, knowing your numbers, competition, and fake news.
Starting with structured conversation, I think it's real important that before we go and have these conversations with our landowner, ask yourself, how many times have I sat there and written down what the, goals and objectives of this negotiation are. So basically, did you write down, okay, here's what I'm paying for rent, here's the rent structure, it might be a crop share, it might be a cash rent. But what do I need that number to be? And why do I need that number to be that way? And if we don't sit down and do that analysis on our own first, it makes it very difficult for us to have a conversation around the why maybe we need the rent to be a little lower, or why we need some type of thing within this to change, or why maybe we need tile, or why maybe we need to fix a waterway, or why maybe certain types of maintenance needs to occur, and maybe it's a cost share type thing.
So, you know, ask yourself, have I written that down? Have I really thought through this? 'Cause really it's a proposal. Every single time that we sit down and meet with the landowner from one year to the next, it's a proposal. And it's talking through, is this a 1-year lease? Is it a 2-year, 3-year, 5-year? What's this look like? And what's it mean to your operation? And being able to explain that to the landowner, and I understand in some cases they don't care, they don't wanna know, However, I would argue that if you don't give them that information, it doesn't get any better either on the other side. So I think we just need to do a better job of having a structured conversation within, within these negotiations. Number 2, knowing your numbers. Some landowners want all the details and some don't, but think about your own operation, you need to know the numbers, right?
How many of you listening to this can honestly say, I know my numbers on each individual farm, I know what my cost of production is, and I recognize that you're gonna sell all your bushels as all of the farms. I do the same thing, we all do, but we still need to understand what the cost of production is on a given farm based on our average selling price, cash on farm selling price, for all of it, all of it. That's where we would want to plug in that dollar amount of revenue of whatever on-farm cash price we can get. And then what's the yield look like on that individual farm and what's the cost of production on that individual farm so that we can get to a hard number of what is an appropriate level to pay as opposed to, like I just said a little bit ago, what I ran into was all of a sudden you know, a land management company shows up and says, well, you should be getting XYZ.
Well, if I can show my landowner real numbers when they start to question, even if they don't want to look at them for a few years, but all of a sudden they question it, you do need to have those details and access to that information ready to go in the event that you have a question. And also that's so critically important, obviously for us in the marketing side, to be able to pull the trigger on a large enough chunk of bushels when, you know, when that pricing opportunity comes in. So again, I can sit here all day and harp on knowing your numbers. Again, if you haven't watched our Profit Manager tutorial that is on our Ag View Solutions website, I would tell you it's a little bit dated, but at the same time it walks through understanding your cost of production and how you should look at those things.
And again, if you have any questions and would like some tools, we also have a lot of free tools that we can send out just around understanding the numbers and understanding decision-making better as we make some of these decisions on rental. The next thing is competition. Okay. Every time we meet with a client in almost every area, we hear that, well, in our area we have a huge amount of competition. Well, yeah, we, we see that in every area. We see competition that's pretty intense in some areas and even more intense in other areas. And so it depends, you know, is there a large producer in your area that's pretty aggressive that apparently has sufficient working capital to be bidding land values up to the level they are? And in other areas, maybe the productivity, field size, and some other variables might impact things the other way a little bit. So it sort of depends on that.
It also depends a little bit on what the basis is like in your area and that kind of thing. But back to the competition, your competition is going to be as good as the environment in that area will provide long term. So you may have some short-term hurdles, you know, but what I would say is, is be the competition. You know, what, what are other farmers in the area doing? I mean, farming, the one thing that we've learned with working with clients over the years and talking to landowners in land rental negotiations is that the aesthetics for many of these landowners is just as important as the financials. Or for some it's the financial information and transparency. For others, it might be mowing the lawn,, you know, doing snow removal or taking, you know, grandpa to the doctor or whatever it is.
And so, you know, asking yourself, you know, of all of the farms I rent, which ones are going the best and which ones am I giving the most to? Which ones am I getting the most back from? And it's, it's a lot of times the rule of you, you get what you give, you know? So those, I would argue that you're, spending the most time with, you probably have the best deal with. And those you're spending the least amount of time with, you may have some issues with or some problems. And that's probably what I ran into a little bit with one of our landowners that, you know, that was bumped up by the— by a land management company. And it kind of opened the door for them. And not that there isn't a place for those land management companies, but as a farmer, we have a right to be profitable.
And a lot of times when we see these third-party people coming in into our farm operations to try to guide or help others, sometimes they create an adversarial relationship as opposed to a synergistic one. And so my whole thing with the competition side of it is make sure that we do everything as farmers that we can do to make sure we've got a synergistic relationship with that landowner. Okay, so that was number 3. Now the 4th one, the last one, is what I call fake news. Okay, this one's very frustrating to me. Fake news, obviously the coffee shop. Well, I'm giving this podcast during the middle of COVID-19. Supposedly the impact is lower now. Maybe there's some resurgence currently. I mean, we're sitting here on on in June, middle, middle part of June. And, you know, maybe, maybe it's going away, maybe it's not. But the coffee shop isn't, isn't the main thing.
It is social media has really picked up. There's a ton of fake news. There's some good stuff on Twitter. On the other hand, there's some real junk too. And so you really got to be careful of not only what you're looking at But with this fake news, it's what is your landowner seeing? You know, so I've had some landowners tell me, well, I talked to other farmers and they say this and they say that. Well, if you go to Vegas and you come home, do you tell everybody about the money you lost? Well, no. Well, I broke even. It's amazing how many people go to Vegas and come back and they break even. I've been to Vegas lots of times and it's pretty rare that I've ever broke even. And it just is fake news when the numbers are not real.
And it just gets really frustrating for me as a person who dials in numbers all of the time to see social media blasting things or to see Predatorial Management Companies or universities and not to throw universities or land management companies under the bus, but I'm just saying that they'll throw some numbers out there that are pretty general. And generalities versus specifics are very dangerous. They, they can misinterpret, they can mislead, and they can misguide landowners to where decisions can be made that are not accurate. And it's just a caution that I would say that you make sure and have that conversation with your landowner. And in fact, you know, I think there's two key questions. I'm going to read these because I write them down is, that you ask your landowner, you know, what do you like best about me farming your land that I can continue to improve upon?
Very important thing to ask because there's probably some things that your landowner really likes that you do, you know. But conversely, maybe ask this question: what areas should I change or improve to be a better farmer on your land? And so think about that. What's that look like? Maybe there's something that's really torquing them off that you're doing that if you don't ask, you don't know, and they may not tell you, and you're not a mind reader. And so it's real important to think about, you know, what things, um, can we be doing differently during these land rental negotiations as we start to get into that season. And so I really don't want to ramble on here. You know, this is the one of the first times I've sat here and just talked to you as Chris individually. Usually I've got Shay on here or Dwayne or somebody, and we're having a conversation, and that's easier for me.
But I know based on having conversations with some landowners and also some farmers here in the last week or so that this is a topic that's top of mind. People are starting to gear up for it, and with COVID-19, historically low prices questionable demand, supply changes, supply chain disruptions, all kinds of, of current issues that are impacting margins, maybe more so than ever. And so maybe this year is the year that we have that conversation with our landowner that's more meaningful, more powerful, and more factual than what we've ever had before. If anybody wants any help, or wants to talk about their individual specific situation, please call. I'd love to talk to you about what we can do to make that conversation better, how we can just do a better job on that.
So again, the last, last point I want to make, again, those 4 key things: a structured conversation, know your numbers, understand the competition, and beware of fake news. So again, thank you all very much for listening, and we will look forward to hopefully a 2021 without all these darts being thrown at us as producers. And maybe as land being the largest line item expense of our cost of production, we get some of these land rental numbers in line with what fits the farming operation, and hopefully we can get most all of you in, in a profitable position, which all of you as farmers deserve. Thanks again for listening. We will look forward to talking to you next time, and we'll see you on again on the Ag View Pitch.
Narrator: Thanks for joining us on today's episode of the Ag View Pitch. As always, you can reach out to us at cbarron@agviewsolutions.com. Or duanel@netins.net. We'll catch you next time on the EggView Pitch.