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Think different: When is private lease negotiation a better fit?
Are you offering sensitive or erodible ground for rent? Does your farm have buildings or fences that need to be taken care of? Do you want the land farmed in a certain way? Do you want to avoid tenants who mine soil fertility or ignore weed resistance?
If so, you’ll probably be better off negotiating an agreement with a tenant, one-to-one, rather than renting your farm to the highest bidder at a public auction, says William Edwards, Iowa State University agricultural economist.
Cash rent went on the auction block in several areas around the Midwest last fall and winter. In Iowa, 3,300 acres of cropland brought rent bids ranging from $325/acre to $520/acre, stunning some market watchers. In southern Minnesota, several cash rent auctions last fall brought over $400/acre. In eastern South Dakota, bids at rent auctions in September and October reached $300/acre or more.
Both tenants and landowners are famously tight-lipped about farmland lease rates. Cash rent auctions focus a public spotlight on these traditionally secretive agreements. In a market that’s notoriously opaque, public rent auctions are an effective way to test demand and prices, says Iowa State University agricultural economist William Edwards. And even though these deals are rare, they get so much publicity that they may create ripples in the larger rental markets by fueling landowner expectations, he says.
“We tend to see them when there’s uncertainty about markets,” like now. In Iowa, for example, average cash rents for corn and bean land have vaulted more than 30% since fall 2010, according to Edwards’ annual survey of Iowa cash rents. Recent public rent auctions furnish transparent examples of this trend.
“Whether that transparency is a good thing is a personal question,” Edwards says. The exposure makes a lot of farmers queasy. And “there’s no question that it weakens the traditional tenant-landlord relationship,” he says.
Still, “I think we’ll be seeing more of them,” says Bob Hansen, an auctioneer from Salem, SD. Open, competitive bidding at “a well-advertised public auction is the best way to discover what somebody is willing to pay for a particular piece of ground.”
Hansen called two cash rent auctions last fall: The winning bid to lease a farm near White, SD, (productivity index rating 82) was $355/acre/year for a two-year contract. A farm near Manchester, SD, (productivity index rating 72-77), brought a top bid of $300/acre/year for a three-year agreement. Both farms rented for more than most people expected, Hansen says. The pre-auction cash rent on the two farms was less than $100/acre.
“Landowners like these deals,” he adds, but “tenants and their neighbors are not real fond of them because everybody knows what you’re paying. It’s all public knowledge.”