It’s not at all out of the ordinary for producers who farm thousands of acres to rent way over half their land, and while this provides some flexibility, it also comes with some uncertainty.
Aimee Ferre Stang, her husband and her in-laws farm a combined 8,800 acres of rented and owned land in Saskatchewan.
“Between our two farming operations, we rent about 65 per cent of our total acres,” says Stang.
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Their long-term goal is a 50-50 split of owned and rented land, but she recognizes the challenge in accomplishing that.
“With farmland offering an interesting return on investment, many families are holding on to their land,” says Stang.
Brady Deaton, a University of Guelph professor in the department of food, ag and resource economics, adds that non-farmer landlords are also holding onto land and renting it out, as it offers them a way of diversifying their portfolios.
Like any farmer, Humphrey Banack of central Alberta would like to own more land. Three families — his own, his son’s and his brother’s — farm about 8,000 acres, renting about 6,000 acres of that. He says the high cost of land limits just how much he can buy at any one time.
“It’s a challenge to keep up with land escalation,” agrees Banack. It’s a sentiment that farmers all across Canada understand.
Why rent?
By renting land, a farm can generate the income necessary to purchase acres.
Deaton notes farmers are effectively scaling up their operations by renting land.
“They don’t have to have all of their assets in owned land,” says Deaton. “Say you’re growing corn and soybeans and working in the thousands of acres, you don’t have to own all of those acres to get to the scale that you want.”
That’s what’s motivating larger farmers, and it’s not really new.
“Farmers, historically, have found it useful — as they’ve tried to expand production to get to scale — to rent land, which allows them to not have all of their assets in land, and allows them flexibility,” Deaton says. “It allows them flexibility in their holdings that allow them to get to scale, which is important.”
What’s it worth?
Stang notes her farming family won’t commit to rental rates that are above their expected revenues for a particular piece of land.
Farmers are typically tight-lipped when it comes to what they pay to rent land, but Banack allows that his rule of thumb to where prices should be is about three per cent of the land’s value. So, for example, land worth $4,000 an acre should pencil out to a rental rate of about $120 an acre.
The challenge, he says, is that some land is less productive, but landlords aren’t so willing to accept that. They’re apt to make the argument their land is just as good — and therefore valuable — as the other farmer’s across the road.
The dotted line
According to Deaton, handshake agreements are still common in Ontario. Formal legal contracts aren’t typical.
Stang’s family, however, prefers written agreements to ensure everything is clear for both parties.
Banack’s rental agreements are also written down, but with caveats: even if he has a five-year deal, he notes they include a clause that a landlord can take back their acres, providing they give notification before an agreed upon date.
“None of it is locked legally to long terms.”
And changes do occur, Banack says, explaining having received notice that a 400- to 500-acre piece of land he’d been farming was being put up for sale.
It wasn’t unexpected in this case, but sometimes it comes out of the blue.
“There’s always the risk that next year, two-thirds of our landlords could pull the pin on us,” Banack says. That would leave him over-equipped, unless he was able to source more land. Yet if those acres had to be purchased, that would burden him with payments he hadn’t been banking on making.
“You have to understand the risk you’re taking renting land, and what the risks are, and have some plan to mitigate it if it comes around,” Banack says.
When rental land he farms comes up for sale, Banack says he’ll look at purchasing it if it’s an adjoining acreage. In the past, he’s purchased some long-term rentals.
Obviously, he prefers a situation where a landlord gives him a heads-up about an impending sale. At that point, Banack will suggest an independent appraisal of the land, and he’ll try to come to an agreement before the land goes to market.
Maintaining relationships
Beyond paying the rent on time, cultivating and maintaining a good relationship with landlords is key to ensuring ongoing rentals.
“We respect our rented land as if it were our own,” says Stang. “We treat our landlords’ neighbours as if they were our own; in many cases they are.”
She and her family also recognize the emotional attachment their landlords have with their property.
“In many cases, this land has been in their family for some time,” says Stang. “Last Christmas, we sent our landlords photos of harvest on their land, so they were connected to harvest in a small way.”
Banack also emphasizes the importance of relationship building. He believes in presenting a sound image of his operation, which includes supporting the community and going as far as mowing the ditches of the land he rents.
Agronomic practices
Stang adds her family also commits to proper agronomic practices on the acres they rent, including planting crop rotations for the long-term viability of the land.
In Ontario, too, Deaton has found that no till is just as prevalent on land farmers own as on what they rent. That’s largely a product of them using the same equipment on both.
But it goes beyond that too, Deaton says. “When farmers have longer expectations about renting land, then you’ll see them just as likely to plant cover crops as they would on their own land.”
