What's a fair price for land rent?

One of the toughest jobs in farming could be even trickier than usual this winter.

Many farmland rental agreements expire at year's end, and the region's farmers and landlords are working to reach new deals. The task is complicated by two conflicting trends:

n Crop prices are high, and many farmers will enjoy strong profits this year. Given that, many landlords want higher rents for their property.

n Drought grips the region and 2013 crop yields threaten to be very poor unless substantial precipitation falls by spring. Also, experts generally agree that crop prices likely will be lower next year. Given that, many farmers are reluctant to pay higher rents.

Reconciling the two trends and arriving at a mutually agreeable price won't be easy, area agriculture officials say.

"It's making a lot of people scratch their heads right now," says Paul Craigmile, market president of agriculture and business banking for American Federal Bank in Hallock.

Nonetheless, some area farmers are paying more -- a lot more -- to rent land.

The average farmland rental rate has risen 40 percent in roughly 30 two-year North Dakota farmland agreements renegotiated this fall by US Bank's Farm Management Group, says Charles Peterson, a Fargo, N.D.-based vice president for the organization.

As an example, farmland that rented for $50 per acre in 2011 and 2012 will rent for $70 per acre in 2013 and 2014.

The rates in some of the new leases are 20 to 30 percent higher than two years ago, while rates in other new leases have risen by as much as 70 percent, with the overall increase averaging 40 percent.

"The demand is out there," says Peterson, who is active in the North Dakota Chapter of the American Society of Farm Managers and Rural Appraisers.

Farmland in the 30 leases stretches from southeast to southwest North Dakota, he says. US Bank's Farm Management Group manages about 1 million acres of farmland, including roughly 200,000 acres in North Dakota and Minnesota.

Typically, rental rates in farmland agreements handled by farm management companies tend to be higher than rates in agreements negotiated directly by farmers and landlords, says Andrew Swenson, North Dakota State University Extension Service farm management specialist.

He says he's heard anecdotal reports that rental rates are rising across the state, but has no reliable statistics.

Burton Pflueger, a South Dakota State University Extension specialist who tracks land prices and rental rates, says he doesn't have any hard data on 2013 rental rates.

But like other extension specialists, he recommends that farmers and landlords look carefully at flexible rates.

"Flex rates are something you should consider," he says.

So-called flexible rates allow farmers and landlords to share the gain in good years and the pain in bad years.

The farmland rental rates paid by some farmers don't make economic sense, says Brad Thykeson, a Portland, N.D., farmer and president of the North Dakota Grain Growers Association.

Historically, some famers have overpaid for land. Those who do invariably "get their ears trimmed down the road," he says.

Landlords, in trying to reach a fair rental agreement, need to keep in mind that crop prices could fall sharply and that drought threatens next year's crop, Thykeson says.

Kurt Krueger, a Rothsay farmer and immediate past president of the Minnesota Soybean Growers Association, says crop prices have declined already.

"There was a lot of talk about these high crop prices, but they've settled back down in the past month," he says.

The failure by Congress to pass a new farm bill also needs to be considered in rental rate negotiations, he says.

Most farmers rely on federal crop insurance, so the lack of a new farm bill is troubling.

Landlords also need to realize that the cost of expenses such as fuel and fertilizer continue to rise, farmers say.

Typically, rising land values indicate that rental rates will rise, too. So it's worth noting that a recent survey by The Iowa Farm and Land Chapter #2 Realtors Land Institute found that land values continued to rise this summer in Iowa, even though the state was hammered by drought.

Statewide in Iowa, the average price of farmland rose 7.7 percent from March to September, the survey found. The upturn was attributed to a few factors, including strong commodity prices and unattractive returns in competing investments.

The increase would have been greater without drought, although it's difficult to say how much, according to Kyle Hansen, president of the Iowa Chapter of the Realtors Land Institute and a real estate professional at Hertz Farm Management in Nevada, Iowa.

Early signs suggest farmland rental rates in Iowa will rise, too, he says.

Farmland rental rates have been rising for years.

In August, the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture, released these numbers:

n In North Dakota, the average rental rate for nonirrigated cropland in 2012 was $57 per acre, up from $51 in 2011.

n In Minnesota, the average rental rate for nonirrigated cropland in 2012 rose to $150 per acre, up from $135 a year earlier.

n In South Dakota, the average nonirrigated cash rental rate rose in 2012 to $93 per acre, up from $78 per acre in 2011.

n In Montana, the average rental rate for nonirrigated farmland in 2012 was $23 per acre, down from $23.50 in 2011. The average rental rate for nonirrigated farmland in the state, however, has risen from $20.50 per acre in 2008.

One of the biggest factors pushing up land values and rental rates in the Upper Midwest is the rising popularity of corn. The crop, which can be more profitable than crops such as wheat, is relatively uncommon in Montana.

One of the toughest jobs in farming could be even trickier than usual this winter.

Many farmland rental agreements expire at year's end, and the region's farmers and landlords are working to reach new deals. The task is complicated by two conflicting trends:

- Crop prices are high, and many farmers will enjoy strong profits this year. Given that, many landlords want higher rents for their property.

- Drought grips the region and 2013 crop yields threaten to be very poor unless substantial precipitation falls by spring. Also, experts generally agree that crop prices likely will be lower next year. Given that, many farmers are reluctant to pay higher rents.

Reconciling the two trends and arriving at a mutually agreeable price won't be easy, area agriculture officials say.

"It's making a lot of people scratch their heads right now," says Paul Craigmile, market president of agriculture and business banking for American Federal Bank in Hallock.

Nonetheless, some area farmers are paying more -- a lot more -- to rent land.

The average farmland rental rate has risen 40 percent in roughly 30 two-year North Dakota farmland agreements renegotiated this fall by US Bank's Farm Management Group, says Charles Peterson, a Fargo, N.D.-based vice president for the organization.

As an example, farmland that rented for $50 per acre in 2011 and 2012 will rent for $70 per acre in 2013 and 2014.

The rates in some of the new leases are 20 to 30 percent higher than two years ago, while rates in other new leases have risen by as much as 70 percent, with the overall increase averaging 40 percent.

"The demand is out there," says Peterson, who is active in the North Dakota Chapter of the American Society of Farm Managers and Rural Appraisers.

Farmland in the 30 leases stretches from southeast to southwest North Dakota, he says. US Bank's Farm Management Group manages about 1 million acres of farmland, including roughly 200,000 acres in North Dakota and Minnesota.

Typically, rental rates in farmland agreements handled by farm management companies tend to be higher than rates in agreements negotiated directly by farmers and landlords, says Andrew Swenson, North Dakota State University Extension Service farm management specialist.

He says he's heard anecdotal reports that rental rates are rising across the state, but has no reliable statistics.

Burton Pflueger, a South Dakota State University Extension specialist who tracks land prices and rental rates, says he doesn't have any hard data on 2013 rental rates.

But like other extension specialists, he recommends that farmers and landlords look carefully at flexible rates.

"Flex rates are something you should consider," he says.

So-called flexible rates allow farmers and landlords to share the gain in good years and the pain in bad years.

The farmland rental rates paid by some farmers don't make economic sense, says Brad Thykeson, a Portland, N.D., farmer and president of the North Dakota Grain Growers Association.

Historically, some famers have overpaid for land. Those who do invariably "get their ears trimmed down the road," he says.

Landlords, in trying to reach a fair rental agreement, need to keep in mind that crop prices could fall sharply and that drought threatens next year's crop, Thykeson says.

Kurt Krueger, a Rothsay farmer and immediate past president of the Minnesota Soybean Growers Association, says crop prices have declined already.

"There was a lot of talk about these high crop prices, but they've settled back down in the past month," he says.

The failure by Congress to pass a new farm bill also needs to be considered in rental rate negotiations, he says.

Most farmers rely on federal crop insurance, so the lack of a new farm bill is troubling.

Landlords also need to realize that the cost of expenses such as fuel and fertilizer continue to rise, farmers say.

Typically, rising land values indicate that rental rates will rise, too. So it's worth noting that a recent survey by The Iowa Farm and Land Chapter #2 Realtors Land Institute found that land values continued to rise this summer in Iowa, even though the state was hammered by drought.

Statewide in Iowa, the average price of farmland rose 7.7 percent from March to September, the survey found. The upturn was attributed to a few factors, including strong commodity prices and unattractive returns in competing investments.

The increase would have been greater without drought, although it's difficult to say how much, according to Kyle Hansen, president of the Iowa Chapter of the Realtors Land Institute and a real estate professional at Hertz Farm Management in Nevada, Iowa.

Early signs suggest farmland rental rates in Iowa will rise, too, he says.

Farmland rental rates have been rising for years.

In August, the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture, released these numbers:

- In North Dakota, the average rental rate for nonirrigated cropland in 2012 was $57 per acre, up from $51 in 2011.

- In Minnesota, the average rental rate for nonirrigated cropland in 2012 rose to $150 per acre, up from $135 a year earlier.

- In South Dakota, the average nonirrigated cash rental rate rose in 2012 to $93 per acre, up from $78 per acre in 2011.

- In Montana, the average rental rate for nonirrigated farmland in 2012 was $23 per acre, down from $23.50 in 2011. The average rental rate for nonirrigated farmland in the state, however, has risen from $20.50 per acre in 2008.

One of the biggest factors pushing up land values and rental rates in the Upper Midwest is the rising popularity of corn. The crop, which can be more profitable than crops such as wheat, is relatively uncommon in Montana.