If you want to talk agriculture, just head south to a resort in Mexico this time of year. Interspersed in the Canadian crowd of sun seekers are many farmers, often older producers, who can’t help but reflect on their farming business back home and what the future holds.
The key question for many: why don’t we just rent it out?
It’s often tough to know exactly what land rental rates are in various communities. Unlike land prices, there are no publicly available statistics, and a number of considerations besides money are often part of rental arrangements.
However, the scattered reports of high-priced cash rents solicit considerable coffee shop tongue wagging. Whether the cash rent number is $80, $100 or $120 an acre, it gets many producers wondering why they toil so hard and take so much risk when renters appear to be willing to guarantee a bigger profit than what farming typically provides.
Of course, the high cash rents people chatter about may not be indicative of typical cash rents in an area, so you have to know your area and your land rental market to make an informed calculation. Still, for many reasons, renting can be a tempting option.
Considerations of age, family situation and labour availability come into play. Producers in their 60s and 70s without a family successor may be struggling to get all the work done in a timely fashion and will eventually sell the farm or rent it out.
Sometimes they rent or sell a portion and keep farming the remainder to reduce the workload. This is a way to transition into retirement without quitting cold turkey. Health concerns often play into the equation as well.
Many consider land a good investment. It’s tangible and something they understand, so they’d rather rent than sell. Sometimes the renting decision gives a potential next generation time to decide whether farming is something they want to eventually pursue. Often, there are sentimental reasons for hanging onto the land.
Rolling the dice each crop year can be exhilarating or extremely stressful. Sometimes producers in good health who haven’t yet reached their 60s become risk adverse. You invest a lot of money each year into trying to grow a crop. The lure of a predictable rental income with no corresponding input expenses can be hard to resist.
Equipment replacement is another consideration. It’s costly to upgrade and it’s also risky. The worn out equipment you have is the devil you know. Used equipment you buy, although it should theoretically be an improvement, is the devil you don’t know.
If a lot of your equipment is nearing the end of its useful lifespan, it can take a major investment to continue farming. At that point, renting out the land becomes increasingly attractive.
Are the renters paying the high rates making any money or are they overly optimistic about crop yields and prices? Are they renting in the hope of getting a crack at eventually buying the land? Do they think they are lowering fixed costs by spreading their equipment investment over more acres?
At the holiday resorts in Mexico, various inducements are offered to entice people to listen to sales pitches about time share condominiums. No inducement at all is needed to get farmers on holiday to talk agriculture and land rental rates often become part of the conversation.