Factors Affecting Farm Rental Rates and Agreements
One of the more common requests from landowners is the request for assistance in determining appropriate farmland rental rates. Regrettably, there is no single answer since the value of property is based upon many factors. The USDA has recently published average rental rates for farmland by county on the web. This information summarizes results of voluntary grower surveys and includes all crops. As such, it does establish initial discussion of the value for rental rates. However, other considerations and comments should also be considered as listed below.
- Soil Type and Realistic Yield Expectations (R.Y.E.) – Eastern NC has a variety of soil types ranging from poorly drained organic soils to excessively drained, deep, coarse sands. Consideration of rental rate should include the realistic crop production for a specific crop. This data is provided by county crop and soil type at http://nutrients.soil.ncsu.edu/yields/.
- Soil Management Limitations – All soils are not equal and thus cannot be managed the same. Soil limitation in management such as slope, water drainage class, depth to clay, texture or other properties influence historic yields and other agricultural management factors. Soil management considerations and class information can be found in the publication Soil Survey of Craven County, North Carolina (click HERE for a pdf copy) or the Web Soil Survey at http://websoilsurvey.nrcs.usda.gov/app/HomePage.htm
- Size of Farmland and Fields – Modern agriculture relies upon large machinery. As such, larger farms and fields are often preferred. Farms with fields 10 acres or less often lease for rates lower than ones with larger field size.
- Irrigation Capabilities – Most of farmland in this area relies upon rainfall. As such, the ability to irrigate during peak water demand for crops, especially high value crops or those with short flowering periods adds value to land rental rates.
- Fertility of Land – Farmland with low fertility or high lime requirements generate lower rental rates. Conversely, farmland that has been under production of managers following North Carolina Department of Agriculture & Consumer Science and NC Cooperative Extension recommendations for fertility normally do not require excessive lime or fertility for production and thus may justify higher rental rates. (To visit the NCDA & CS Agronomic Division’s web page, click HERE)
- Contract Length – Many producers welcome written, long-term contracts since investments in equipment, fertilizer, labor or other production inputs may require long-term planning. Long-term contracts add value by affording agricultural producers to more easily plan financial obligations.
- Gates or Fencing – Strongly defined boundaries and ability to secure equipment by fencing and/or gates provides security against potential theft or trespassing and adds value to farmland rental rates.
- Participation in Conservation Programs – The USDA Natural Resources Conservation Services in North Carolina (http://www.nc.nrcs.usda.gov/) and local Soil & Water Conservation Districts (http://www.ncaswcd.org/) provides cost-share programs that promote soil quality improvement, wildlife habitat or water conservation. Ideally, landowners should apply for and make payments for these permanent improvements since most of these programs are funded with the intent of landowner participation. Agreements for additional financial support or cost-share should be negotiated with the producer.
- Enrollment in Farmland Preservation Programs – Many counties offer Voluntary Agricultural District programs that identify existing farmlands and establish a conservation agreement to protect the farmland rather than develop these lands. The agreement is voluntary so withdrawal from the program can be accomplished at any time. Farmlands enrolled in these programs provide public notification that farming activities occur on this land. As such, this provides legal protection for the landowner and agricultural producers against nuisance lawsuits. For more information about Craven County’s programs, visit http://craven.ces.ncsu.edu/content/VAD.
- Hunting/Fishing Access or Agreements – Most of the farmland in this area has wooded areas or ponds so landowners usually have separate hunting/fishing lease agreements for individuals or hunting clubs. Considerations should include the ramifications to the producer and hunter/fisherman should harvest of crops be delayed. Additionally, agreements should outline the protection of natural resources. This can be especially troublesome if permanent land improvements are made (such as installment of tile drainage, water control structures, grassed waterways, field buffers, wildlife habitat areas, etc.). An often over-looked example of potential damage is travel across fields. Hunters/fisherman that travel across fields rather than using farm paths may create ruts or severe compaction problems in soil. This can be even more critical for producers practicing no-till production or that have farmland enrolled in certain USDA or local Soil & Water Conservation District conservation programs. If so, any damage to the farmland, permanent structures or other improvements may have financial consequences or fines. (For information concerning NC wildlife and hunting regulations, conservation or education, visit http://www.ncwildlife.org/Home.aspx)
- Commodity Prices – Generally one associates higher commodity prices with higher profit for producers. However, in today’s digital age, agricultural production inputs rise as sharply as prices. Thus, potential profits generally remain relatively steady for most producers. However, in terms of comparison of individual commodities, pricing may influence land rental rates. As example, land well suited for corn production may be valued higher if the price of corn is significantly higher than other commodities. (To visit NCSU Agricultural Economist, Dr. Michael Roberts’ web page for commodity outlooks and marketing information click HERE)
- Payment Schedule – The timing and method of payment for land varies by agricultural producer and landowner. As always, this should be negotiated prior to leasing/rental.
- Competition – Just as in any business, competition from other agricultural producers desiring to lease a particular farm may drive up the price of lease/rental rates.
- Strength of Economy – More than ever, global economies effects the demand, and subsequently price, of commodities. Variance in price for soybeans in 2010 ranged from $5.43 to $15.61 between January and August. Such variability favors lease/rental agreements with negotiable rates, annual review or a share of risks between the producer and landowner.
- Location and Accessibility of Farmland – Just as with any other property, the location of the farmland in relation to the agricultural producer’s main office, other farms, housing developments, roads, etc., is a consideration.
Other considerations that should be discussed or outlined include:
- The type of crops acceptable to be grown
- Tenant rights to natural resources (sand, gravel,clay, stone, water, etc.)
- The tenant’s right to change the natural course of any waterways
- The landlord’s right to attend and inspect the property
- The tenant and landlord’s right to utilize existing building or structures
- Process required to make permanent improvements to the farmland
- Expected repair/maintenance of buildings, fences, and improvements
- Insurance coverage and liability for crop, workers or visitors
- Whether subletting is allowed
- Long-term pesticide storage and liabilities
- Renewal and/or termination terms
- Acceptable agricultural management practices
- The development or review of a Nutrient Management Plan as required by Neuse Rules or other law (http://www.soil.ncsu.edu/programs/nmp/)
- Acceptable use and regulatory compliance of manure or waste products applied to the land (http://nutrients.soil.ncsu.edu/index.htm)
- Pesticide usage, records and notification of applications as it pertains to worker, or visitor safety and legal requirements (http://www.ncagr.gov/SPCAP/pesticides/sitemap.htm)
- Fall cultivation or crop residue management
Farmland rental rates vary widely due to many of these factors. The exact rental rate will depend upon discussion and agreements between the landowner and producer. However, as mentioned earlier, the USDA web site does provide a general average rental rate by county. It should be noted that the value reported does not account for the type of field crop produced nor any of the potential added values already mentioned. To leave this website and visit the USDA database, click HERE.
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