If you’ve recently inherited farmland, the prospect of managing the land may seem daunting. Yet, you may rely on that income or simply not be ready to sell the land. Luckily, there’s a third option! A reputable farm management company can help provide comprehensive services to ensure your land operates efficiently and profitably.
The right company can handle all operational aspects, including planting, harvesting, marketing, financial management and finding a reliable tenant who aligns with your vision for the land.
“When we meet with a new client, our first step is figuring out what their goals and objectives are,” said Elizabeth Strom, Vice President at Murray Wise Associates (MWA). “For example, maybe a client is more interested in conservation. We would then manage the farm in a way that honors those goals by exploring different options such as Conservation Reserve Programs, carbon sequestration programs or cover crops. We will work alongside the farmer to implement the practice that makes the most sense on a given farm.”
Starting a new lease — or renewing an existing lease — is a great opportunity to outline exactly how a landowner intends for the farm to be managed, Strom advised.
Formalize the Lease
A common mistake is allowing written leases to lapse into verbal leases, Strom cautioned.
“Under common lease agreements, you may have to renew leases every year in writing,” Strom said. “Failing to do that allows the contract to lapse into a ‘verbal lease.’ Ensuring we have the lease agreement in writing actually protects both the owner and the farmer.”
Making sure every lease fairly compensates both the landowner and farmer is a crucial component of a long-term partnership that works for everyone involved, she explained.
Evaluate Lease Options
Strom said she advises periodic review of the structure of the lease. This sets up a framework for meeting landowner goals and objectives.
Landowners who prioritize a steady source of income with the least risk can consider a cash rent lease, which is a straightforward agreement where the tenant pays a fixed rent for the use of the land. The tenant has complete control over the farming operation, while the landowner receives a fixed cash payment per acre per year. This provides a steady income and is relatively low risk for the landowner.
Increasingly, Strom said she is recommending flexible cash leases that allow for ebbs and flows in the markets. This structure can allow the owner more control in how the land is managed.
“With flex leases, the base rent may not be as high as a cash rent lease,” Strom said. “However, if it’s a good year, the partner and farmer both get the upside.”
More landowners moved from traditional (or fixed) cash rents to flex cash rent leases in 2024, according to a publication on land values and lease trends from the Illinois Society of Professional Farm Managers and Rural Appraisers. Flex cash rental arrangements gained popularity thanks to more profitable agricultural markets starting around 2021. Flex leases consider grain prices and production and can often result in faster rates of returns than a straight cash rent lease.
Flex cash rent leases can be complicated but offer an effective way to accurately distribute the returns between the landowner and the farmer, said Strom, who serves as the 2024 president of the organization.
Get agricultural insight
Farm management companies are not attorneys or accountants. However, these companies play an important role in helping landowners understand the economics of agriculture today. This helps ensure success for new landowners.
“We see hundreds of leases each year, so we have a good understanding of what the top-of-market rent is,” Strom said. “We also have enough experience in the industry to help structure a lease that is at-market with considerations that are important to the client.”
In agriculture, both prices and market situations can vary from year to year. A farm management company can help offer insight into balance sheets and income statements.
“For example, one client needed a more stable income as they aged,” Strom said. “We structured their lease in a way that reduced the major volatility in their income.”
Learn more about MWA’s comprehensive farm management services here or contact us at info@mwallc.com.