What is a fair rental rate?

Every year both farmers and non-farming landowners call the Extension Office to inquire about current rental rates for farmland. These rates are dependent on several factors. First, soil type determines the potential productivity of the land. Land that is hilly and has limited top soil due to erosion has lower potential yield than deep, well-drained soils.

Second, what is the current fertility history of the field or farm under consideration? Have previous producers fertilized and maintained the soil or have they “mined” the soil? With fertilizer prices high, producers are reluctant to pay high rental charges for land that has been drained of nutrients.

Third, the topography of the land. Land with steep slopes is not conducive to crop farming and is limited to being used as pasture. Producers are willing to pay more for land that has the potential to generate higher rates of return (crops or hay).

In an era of high input costs, land management practices play a role in determining rental values. Who pays, tenant or landlord, for fertilizing the land, eliminating weeds and maintaining fences? These are important questions to resolve before signing a lease. Producers who fertilize, kill weeds and maintain fence incur major cash outlays on rented land. Charging high rental rates may result in producers cutting back or not performing these land management practices. Producers must generate a profit to stay in business. Landowners must decide how important these land management practices are in the stewardship of their land.

Landowners need to give serious consideration to the value of land management practices in setting rental rates. A conscientious producer who fertilizes, kills weeds and maintains fences is preserving the value of the landlord’s property. Minimal rental rates encourage producers to conduct value land management practices that will increase the value of your land in the long run. Good rental relationships that are in writing can create win-win situations for both the producer and landlord.

One last thought, in the long term, if the rental agreement does not work for the owner, it will not work for the renter. And if the rental agreement does not work for the renter, it will not work for the owner.

(Lance Brower is the community, leadership, and economic development extension agent, Stutsman County office, NDSU Extension Service. Contact him at 252-9030 or email lance.brower@ndsu.edu.)

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