Crop prices have plunged, but land rents look like they’ll stay high for a while.
“I know that there are guys around here who are renting land for way more than it’s worth,” said Kelly Burkhardt, a Wetaskiwin grain and cattle farmer who rents 450 of his 1,000 acres of cropland.
“At the end of the day, it comes down to, ‘Are you going to pay this? If not, I’ll find someone who will.’
“And there are lots of guys who will right now. I have heard of guys around here who will go around trying to outbid their neighbours.”
The young farmer is quick to add he is paying “the right price for the land I’m renting,” but that may be the exception rather than the rule as rents, which soared from 2007 to 2013, are expected to hold or be close to their peak level in 2014.
But the economics don’t justify that, says a farm business management specialist with Alberta Agriculture and Rural Development.
Last year, Ted Nibourg ran the numbers on a four-year rotation producing “respectable yields” (38 bushels for canola, 77 for barley, and two years of wheat averaging 61 bushels) and estimated it could justify a rent of $90 per acre. Today, a fair rent in that situation would be $53, he calculated.
“I field a lot of calls on cash rents and the big problem that I have is educating absentee landowners — or landowners who are a couple generations removed from the farm — who don’t understand agronomics,” said Nibourg.
“There’s a mistake and an assumption to a certain degree, and a perception that land rental rates are a function of a return on investment on land.”
Those expectations can add up to serious dollars as almost a third of Alberta farmland is rented, with per-acre rents ranging from $25 to $100 depending on the land’s productivity — and what someone is willing to pay.
Robert Semeniuk of RAS Farms near Smoky Lake said he knows his rent bill won’t be smaller this year.
“I’d love the rates to go down because it would make the books look a lot better, but as far as I know, there is nothing going down — there are still guys bidding, but that’s probably the biggest push,” said Semeniuk, who rents 2,700 acres, about a third of what he farms.
“There’s been so much going on that it’s been mainly what the landlords wanted. As the prices were going up, no one has wanted to sign long-term leases.”
Semeniuk said he’s been lucky because he’s been dealing with many of the same landowners for many years, and they haven’t been demanding sky-high rents. He also has a variety of different contracts, including three- to five-year leases, crop-sharing arrangements, and cash rentals.
From the Country Guide website: Sticky land rental rates
He said he would like to rent more land, but what land is available is just too pricey.
“I know that some guys have moved out of their counties into other areas, but we’re just not structured to go that route,” he said. “For us right now, we’re wanting to expand, but we’re not overly crazy.”
Taylor Snyder of Greenbelt Farms near Glendon has been renting land since 2008 and rents all but one quarter section of the 2,200 acres of grain land he crops.
His rents have gone up 10 to 15 per cent since he started, but are still on the lower end of the provincial range. Part of that is because “it’s family land” and owners want to know it’s cared for, he said. Retired farmers will usually lower their expectations when the renter goes through the financial numbers with them, he added.
“Land is tight in our area, but when you do get it, it’s not super expensive,” said Snyder, who predicts rents in his area won’t go down by more than five per cent in the near term.
That’s likely to be the case through 2015, said Burkhardt.
Many renters in his area are younger farmers in their 30s and 40s, who are trying to build up their land base. But there isn’t much land for sale, so any acres up for rent attract a lot of interest.
“If you’re bigger, you could negotiate, but if you’re little, it’s tough to negotiate prices based on the commodities,” he said.
Many landowners have a specific price in mind when they rent, and won’t budge, he said.
Nor are most farmers willing to crop fewer acres this year even when it’s hard to pencil out a profit, said Nibourg, who predicts it will take 18 months before rental rates begin to soften.
In the meantime, the best thing renters can do is to talk with their landlord and let them know what they’re facing, said Nibourg.
“The landowners need to understand the realities of agricultural economics and what it’s all about — it’s certainly not roses out there,” he said.