MOORHEAD, Minn. — When vying for farmland, two personalities may emerge from potential buyers: predator versus competitor.
Farmers can use strategies to improve their competitiveness to maintain and grow their acreages.
University of Minnesota Extension educator Bret Oelke discussed how to develop a plan at last week's Northwest Minnesota Ag Lender's Conference in Moorhead.
In order to be competitive, farmer need to know their cost of production, he said. Knowing the impact of changing land cost and volume on cost of production is just as important.
Farmers must "right size" their operations to optimize labor and machinery. Oelke talked about a farm couple in his area who farm a little over 1,000 acres. They don't have plans to grow, and it's a good fit for them.
Pay attention to land owner relations. Have a plan on how to communicate with landlords and prospective landlords, he said. Oelke suggested putting together a quarterly newsletter updating the landlords about the operation. Renters also can call landlords to let them know how the growing season is going.
Keeping a connection is important to the relationship whether it's a retired farmer or an 80-year-old widow.
"Give her a call, or stop by after church," he said. "Tell her about the crop's progress."
It's not just nearby landowners that farmers need to be mindful of, he said.
Few farmers have business cards, but he's collected a few. Under the farm name, one farmer put "stewards of the farm for generations." Another card noted the number of family members who'd returned to the farm and added the line "a growing business."
Be creative, Oelke said. Meet the wants and needs of the landowner and address their fears.
A land purchase is a personal decision, he added. Because of the fear of changing tax laws more land than normal has sold in recent years. Escalating prices have heated up the market.
Oelke said farmers must defend their land base. Most will buy land under the right circumstances, even with high prices. Returns to land have been much better in recent years than other investments. The vast majority of land is selling to farmers .
Land improvement investments have a higher rate of return than land purchased at "top of the market" prices, he said. Those improvements can include drainage and irrigation.
Farmers are at a disadvantage when negotiating land rental contracts, he said.
"In many cases, land owners hear about high prices and assume that farmers sell all of their crop at these levels," he said. "They also don't seem to understand that current prices are not the same as future prices."
The land price will be set by the dominant crop in the area. For many, that crop will be corn, he said. The corn economy is moving north and west into areas where other crops, like wheat, hay and pasture, have been grown. Some are plowing up pasture and removing shelterbelts to plant more land to corn. The rate of change to corn has accelerated as genetics and technology improve and as infrastructure is built.
"Land will ultimately be used for its highest and best use," Oelke said. "If corn is the dominant crop, then corn returns will be used to set rental value. The most efficient, lowest cost grower will have the ability to pay the most for cash rent."
Keep in mind that growth-oriented farmers often move into new areas where they perceive that rents are "too low."
Farmers should be creative when negotiating with landlords.
"They have to start thinking in a sales and negotiations mentality," he said.
Some owners want the highest rent possible while others might have other considerations.
Don't be defensive when negotiation. Sometimes it 's best to part ways with landlords who have unrealistic expectations or if someone else has offered an unreasonable cash rent.
If you do part ways, don't burn any bridges. There may be an opportunity to rent from the landlord in the future.
"You may have to learn to think and act differently about your farming business," he said. "Alliances and partnerships with others may be the only way to maintain competitiveness. Continue to network and learn from others with similar opportunities and challenges."