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Informed Landowners Make Farm Manager/Farm Operator Relationship Smoother
In any given year, you have to deal with crop and land prices going up and down. Weather is either too hot or too wet. In any given year, input costs fluctuate (mostly up, as most farmers would say). Perhaps, though, an increasingly important factor of agriculture that you are trying to get a handle on is your relationships with your landowners.
This relationship has been dealt many challenges in recent years, as sinking commodities prices have cut net farm incomes by almost half from their peaks, and landowners are increasingly being asked to take part in margin squeezes.
Neal Smith, a former U.S. representative, is currently involved in agriculture as a central Iowa landowner. He started managing farms in 1948, so his perspective spans a time when farmers didn’t have a lot of application choices and decisions. Also, banks served as the farm managers, with the main responsibility being bookkeeping.
Smith, for the past 15 years, has used a farm manager to coordinate numerous responsibilities with his farm operators.
“Widows and absentee owners want farm managers to do more of the work, compared with a retired farmer-owner who will hold onto the management. “There are so many day-to-day decisions when you are putting on herbicides, fertilizers, and such,” Smith says.
Smith notes how important it is to keep up with the timing of applying herbicides and the number of applications, and whether to divide your nitrogen into two or three applications. “Or put none on in the fall,” Smith says. “I like to put it on immediately after planting.”
The farm business decisions are the biggest change in farm management, Smith says.
“It used to be that a farm manager and the operator would just put the owner’s corn in the crib and then sell it as desired,” Smith says.
Today, the relationship between the three parties (landowner, farm manager, operator) involves clearly defined terms.
“The relationship should be reflected by the lease contract. For example, if you sign a cash-rent contract, I, as an owner, would want to be paid in March for the entire year. Then you don’t get into an argument later on. So settle things in the contract,” Smith says.
As a landowner, Smith prefers a custom farming rental agreement.
“No question about it, it’s custom farming. I know what’s happening on the farm, the policies that are followed, and the farm manager gets the custom farmer to plant when he should be planting and doing it the way he should be doing it. The farm manager carries out these responsibilities for me,” Smith says.
Being A Farm Manager
Don Russell has been serving as an Iowa farm manager for 52 years. He currently serves as one of multiple farm managers for Smith. Russell says it’s important for farm operators to know that farm managers have a bigger responsibility to landowners.
“The financial aspect of farming has changed substantially. The huge cash requirement to plant an acre of corn or soybeans compared with 40 or 50 years ago is tremendously high. If you are farming 5,000 acres today, think of what the cash-flow needs are to plant and to take care of that crop. It’s tremendous. So, staying on top of all of this technology and the economic impacts, farm managers have a bigger responsibility to landowners,” Russell says.
Has the fact that the industry is now more of a business increased the need for more farm managers?
“I get calls from older farm owners who don’t reside in the state where their farms are located. Maybe they live in Arizona or someplace where it’s warm. They don’t want to divest of the farm. They would rather keep it and receive the benefits. We have had tremendous increases in the equity of farmland, even though we’re off a little right now. The last 20 years have been phenomenal. So, the need for a farm manager to get out and take control of what the owner’s objectives are is key. That is my job. It’s not about what I want done, but what each and every one of my owners wants done. I have to understand that, because it varies from owner to owner,” Russell says.
For instance, some owners want net profit; some owners want net profit with a conservation focus. Other owners don’t want the worry of filling out papers at the Farm Service Agency office, figuring out crop rotations, and deciding where to buy farm inputs, Russell says.
“One job of a farm manager is to solve ownership problems. If owners don’t have problems with their farms, they don’t need professional farm managers,” Russell says. “If there are problems, however, and I can make their lives as landowners easier. That’s what my job is about.”
The Farmer’s View
Vercel Barnes is one of the custom farm operators who works with Russell and Smith. The central Iowa farmer works with several landlords under crop share, cash rent, and custom farming agreements. “I favor crop-share agreements because everybody has a little skin in the game. A lot of landlords like to go with a cash-rent agreement, but that’s not always best for both parties. The flex agreement is becoming more popular. I suppose that if it can be worked out fairly to benefit all parties, it may be appropriate,” Barnes says.
Barnes says the key to working successfully with farm managers and landowners is communication. “I communicate heavily with the farm manager,” he says. “In this case, Neal has a pretty good idea as to what he wants to do. In other tenant/owner relationships that I’m involved in, I have a little more control regarding the overall farm management.”
Barnes adds, “Like anything, you have to have an open mind going into the rental agreements. Every situation is different, with a lot depending upon how productive the land is. If you’re agreeing to a cash rent, this is more of a delicate situation. For instance, landowners may see dollar signs and not what the arrangement looks like from farmers’ perspectives.”
Skills For Farm Operators
Randy Hertz, Hertz Farm Management president, says the best farm operators are those who make the job look real easy.
“For instance, farmers are well organized; they plan ahead; everything is ready to go way before it’s needed. Also, those farm operators who can talk about long-term plans and can help make the farm as productive as possible are well received by landowners,” says Hertz.
Another good example is when the farm operator can help decide whether to tile a farm. The farm manager needs to work with the farm operator. It’s the farm operator who generates the yield map, runs the harvester, and can see the tire tracks being left in wet parts of a field that could use tile.
Regarding the cash rental rate discussion, it’s imperative to run the numbers to decide at what level the payments should be set, Hertz says.
“Landlords need to pencil out what their farms are worth, what livelihood they will provide their farm operator, and what is a fair return to them as owners. They have to divide that sacrificial child so everybody is happy,” Hertz says.
Russell encourages landowners to do their part in these tough times of rent negotiations.
“I’m here to solve problems for the farm owner, pure and simple. But I want my tenant to make money, too. In the past few years, rents were reduced before the tenant came and asked for it. When I rent land to tenants, I want them to make money. I can’t expect them to go out there, spin their wheels, and go broke,” he says.
“I have to convey that same message to the landlord. Cash rents are necessary when you have good renters and you want to keep them forever. They have to make money to stay in business. So, share some of the risk with those renters,” Russell says.
David Englund, senior vice president of Farmers National Company, says a lot of this has to do with knowing your cost of production.
“Every farmer has a different level of cost of production. If the farm operator can talk in a business-like manner, achieving a fair lease becomes much more likely,” Englund says.