Leasing land when profits are scarce
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EmailFarmland rental strategies when margins are thin.
Many Michigan farms are preparing for a challenging harvest season with lower commodity prices and higher production costs. Market outlooks currently project thinning profit margins that may carry well into 2026. As a result, farmers seeking to renew existing land leases or establish new ones may have upcoming conversations that are more challenging than usual. Negotiating farmland rental rates can be challenging even in the best of years. But when profit margins are scarce, every acre becomes crucial to the farm’s ability to cover costs, meet its goals, or simply survive to the next season.
In times of scarce profits, the importance of preparation and review of negotiation fundamentals cannot be overstated. Spending some time reviewing the basics is often your best strategy to successfully secure farmland. Fundamentals are especially important for initial rental meetings but also provide value for lease renewals.
To outline negotiation fundamentals, this article includes excerpts from MSU Extension’s Bulletin: E-3427 Introduction to Renting Farmland. The bulletin offers guidance on how to navigate the farmland rental process.
Start by identifying current rent trends in your area
A good starting place for preparing to talk with a landowner is to identify current rent trends. USDA recently released county-by-county survey results on farmland rent values. Those values have been collected in Michigan State University Extension’s USDA Farmland Cash Rental Rates report. The report provides rental values reported for the past 10 years to illustrate trends and recent changes.
USDA data indicates a mixture of rent changes across Michigan. For non-irrigated acres, approximately 27 counties saw rental values increase (Figure 1, left side). In comparison, 21 counties saw rent values decrease. Another 19 counties had values reported for the first time since at least 2023. The state-wide average on non-irrigated acres was the same as 2024, so no change overall. For irrigated acres, approximately seven counties saw rental value increases (Figure 1, right side). Yet another three counties had values reported for the first time since 2023. No individual counties reported a decrease in rental values. However, the overall state-wide average for irrigated acres was down 2% compared to 2024.
Communication can make or break a lease agreement
Establishing communication and building trust are essential to maintaining a successful lease agreement between a tenant and a landowner. Building trust begins with effective and honest communication about expectations. Landowners want to know what to expect if you are farming their property, so provide background about your farm business and its goals. Describe how renting farmland will help you advance those goals. This shows how you will value and take care of the property. Landowners need to feel confident that their property will be well-treated.
Encourage an active conversation about your farm and its goals
Invite landowners to ask questions about your crop plans and any concerns they might have. They have a right to know who will be on their property and what will be happening on it. They may have concerns or requests about production activities. By inviting questions, you demonstrate your willingness to communicate and share information.
Prepare to talk about challenges and risks to your farm operation
Many factors outside of your control can affect your farm, such as market conditions and unexpected weather. Be prepared to talk about the current market situation. Discussing trends and concerns in commodity prices or input costs are important pieces of information. Landowners need to understand that production and profits are not guaranteed, so you should share your plans for managing risk. This information can help establish why rent payments need to remain reasonable, given your operation’s circumstances.
Determine if you and the property owner are compatible
Shared values, goals and expectations on property management are crucial to a long-term leasing relationship. Avoid entering into an agreement with someone that you don’t feel is compatible with your values. If strong disagreements are not resolved during an initial negotiation, they will likely persist. That persistence may cause problems during a lease agreement and even make renewals more difficult to achieve.
Confirm the property meets your farm’s intended production needs
Not all property is created equally. Requesting a soil test can provide up-to-date information and reduce costs associated with fertilizer management. If landowners have prior yield or other management data, ask if they would be willing to share it. These steps help to ensure intended crops are suitable to the available ground and soil conditions. Remember, just because property is available doesn't mean it's right for your farm business.
Review factors that influence property value, especially if they limit productivity
The productivity potential of a property is important for both you and the landowner. You need to evaluate what a reasonable value is to offer when renting. Landowners need to understand if their asking price matches their farm’s production potential, especially if they are seeking an increase in rent income.
Know your cost of production and break-even points
Negotiating a rental agreement requires an understanding of your farm’s potential profits. Knowing your production costs can tell you if the proposed rent is more than you can afford. More importantly, you can effectively convey to a landowner why that rent is too much for your operation, especially if you combine expected costs with potential risks.
Resources that can assist in evaluating the impact of proposed rents on farm profits include:
- Land Rent Calculator (MSU Extension)
- Multi-Year Land Rent Value Calculator (MSU Extension)
- Flex Lease Computations Spreadsheet Tool (Purdue University)
Be flexible and consider alternative leasing options
The most common type of rental agreement is a cash lease. A landowner is paid a set amount each year regardless of your farm’s production or profit achievements. However, different types of rental agreements should be considered during negotiations. Especially if an alternative type of agreement offers a better opportunity for each party to reach their desired rental goals. When preparing to discuss alternative lease agreements, be sure to understand risks, rewards, advantages and disadvantages of each option.
Example written leases are available from the North Central Farm Management Extension Committee at www.aglease101.org.
Ask for a written lease
A written lease provides both parties with protection and a reference for each other’s responsibilities. This reference should be more than just rent values or methods of establishing them. Written agreements should contain all negotiated points that have been agreed upon and the people responsible to carry them out. Agreements can also include guidance on how to resolve any disputes that arise.
Elements of a written farmland lease are further explored in MSU Extension’s Bulletin: E-3427 Introduction to Renting Farmland.
Keep communication open throughout the lease period
Just as in negotiations, questions from a landowner should be encouraged during a leasing period. Remember, property owners may not understand a lot about farming or activities they’ll see on their land. Encouraging questions helps to build education on practices or significant changes that may be seen, especially if practices are different from what was discussed during negotiations.
Following these fundamental strategies of negotiation can help establish a positive relationship with your landowner. Maintaining that relationship is crucial to keeping a landowner’s acres as part of your operation. Landowners value farmers they can trust to be good stewards of their land. That value becomes important in times of thin profit margins, especially if rent values may need to be adjusted.
Experienced barriers or challenges to accessing farmland? Tell us about it!
If you’ve observed or experienced challenges in accessing farmland through leasing, buying or land transfer, MIFarmLink and Michigan State University want to hear from you! Take the survey at: https://msu.co1.qualtrics.com/jfe/form/SV_0cQtPm4vPD6V2TQ
For more information on farmland leasing fundamentals and additional resources from MSU Extension, visit MSU’s Farmland Leasing website (www.canr.msu.edu/tag/farmland-leasing). Additional resources are also available from Purdue University at their leasing arrangements website at: https://ag.purdue.edu/commercialag/home/leasing-arrangements.
