Own farmland? How to set the best rental price and agreement

It’s likely that most, if not all, farmers will rent some amount of land during their farming career. And while the road from A to Z with a farmland rental agreement is never the same, there are still some bedrock principles and considerations all farmers should understand, both when setting the rental price and with agreement details.

Price: Calculate the productive value
Craig Klemmer, Director, Portfolio Risk Management at FCC, explains that productive value is the revenue potential of the land if you were farming it yourself.

To calculate productive value: Look at your past production. When the land worth is known, market rent can be calculated.

For example: If 160 acres of land were valued at $600,000 and the estimated rate of return was 2.5%, multiply $600,000 by 2.5% and divide that by 160 to get $93.75 per acre.

Price: Determine asset value
Asset value is the production potential, as well as local demand and the number of operators looking to rent.

As the landowner, you can determine asset value by considering the willingness in the community to pay for land and factors such as:

• Return on investment (estimated appreciation of the asset over time)
• Efficiency gains from maximizing equipment usage and owning property as part of a larger contiguous block of land
• Other possible revenue sources the land may represent, such as infrastructure rental property
• The incalculable, like sentimental value of multi-generational property