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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.
Everybody gets a chance
On the other hand,rental auctions give any qualified farmer a shot at leasing available land – a rare opportunity in today’s tightly held farmland markets, says Allen Hughes, an auctioneer from Glenwood, Iowa. He has called five rent auctions in the last three years. In February, he handled a rent auction of 3,336 acres in central and north-central Iowa, owned by the Charles Lakin family of Omaha, Neb.
Open auctions “give everybody a fair chance,” current tenants included, Hughes says. The Lakin auction at Mason City, Iowa, attracted 75 registered bidders. Nearly half of the pre-auction tenants were the top bidders and will continue to farm the land, Hughes says.
Competitive bidding leads to top prices
Cash rent auctions “set the stage for top rents,” says University of Nebraska Agricultural Economist Bruce Johnson, who tracks Nebraska land markets. Winning bids on the Lakin farms in north-central Iowa, for instance, averaged $486/acre/year for two-year leases. Top-quality land in the region is renting for an average of $331/acre this season, according to Iowa State University’s 2012 rent survey. But there’s a wide range of values, the survey found, with lows around $200/acre and highs topping $450/acre.
In southeast Minnesota last fall, “There were several rental auctions that resulted in rental rates on average land of over $400/acre,” says appraiser Gerald Dee, AgStar Financial Services, Rochester, Minn. Typical fixed cash rent for 200-bu. corn ground in the area is around $300/acre this year, he estimates.
Likewise, in western Kansas, a January, 2011 cash rent auction in Sheridan and Thomas counties attracted over 90 registered bidders, and garnered rents “that were considerably higher than what most farmers were expecting,” says appraiser Mike McKenna, Jennings, Kan. Winning bids ranged from $90 to $140/acre/year on five-year contracts. These rates appear to be “quite a bit higher than current rents” this season, too, McKenna adds.
However, crop-share leases are still the rule in this region, so “it’s difficult to know what the going rate should be for fixed cash rent,” he notes. The cash rent auction got a lot of attention, and he suspects that both farmers and landlords “kept it in mind when renegotiating existing leases.”