Farmers, Landlords Face Rent Decisions

OMAHA (DTN) -- Farmers debating their fall lease negotiations may have to decide whether keeping every rented acre is worth the financial strain this year.

While commodity prices have rallied this month, crop margins remain tight with input costs such as fertilizer expected to stay high going into 2027.

That could mean asking landlords to lower rents, shifting some acres to flexible leases, or making the decision to give up some ground.

Farmers and landlords in states such as Iowa, Nebraska, Ohio and South Dakota have to decide by Sept. 1 whether to terminate their leases or continue with their current rental agreements. Termination doesn't necessarily mean giving up the farm. It can also be a necessary step to negotiating different terms for 2027.

"The vast majority of folks see a termination letter every year. That doesn't mean we're changing tenants," said Chad Hart, who is retiring this week as an agricultural economist at Iowa State University (ISU). "It's sort of standard operating procedure that every year, this is the way you start the renegotiation."

An ISU survey in 2022 found 58% of the state's farmland was rented, a figure that now likely tops 60%. Landlords also tend to stick with their tenants, with farmers renting from the same landlord for an average of nearly 14 years. Still, that competition for rented ground remains strong.

Adam Bierbaum, a farmer near Griswold, Iowa, and a board member for the Iowa Corn Growers Association, said he is lucky enough to have good, long-term relationships with his landlords and uses tools from ISU as a guide to see how leases should change year-to-year.

"Every farmer would love to have cash rents down, but their neighbor can be their worst enemy in that deal," Bierbaum said. "If you say, 'No, I'm not going to pay it,' I'm sure the landlord has a list of people they can go to and somebody else would pay it."

At least some farmers, though, are going to come out of the 2026 crop season facing more difficult conversations with both landlords and lenders.

Joel Lasack, first vice president of agricultural loans for Maquoketa State Bank in eastern Iowa, said he has been encouraging borrowers paying higher-end rents to examine individual tracts and determine whether they can continue to justify the expense.

"The mindset is, once you let it go, you're never going to get it back. So, it's usually a last resort to let it go," Lasack said.

Still, Lasack said year-end 2025 financial statements and projections for 2026 suggest some farmers are going to have to make difficult decisions.

"Based on what we've seen from financials at year-end '25 and looking at '26 projections, there are going to be some guys that need to make some tough decisions here, especially with the Sept. 1 deadline coming up for lease terminations," Lasack said.

Farmers looking for lower input costs may not get much relief. CoBank this week projected fertilizer prices will likely remain "above pre-Iran war levels" through 2028.

"Even the farmers who haven't felt the financial squeeze up to this point, they can see it coming. So, I think a lot of them want to have that discussion," Hart said. "And there are definitely, I would say, a lot of landlords that will work with their tenants."

RENTS REMAIN STUBBORN

Landowners also face higher taxes, insurance and interest expenses.

"The mindset from the landowner standpoint in our area is 'Well, if he doesn't want to rent it for this, I've got two or three guys that I can call and have it rented by the end of the day,'" Lasack said.

Despite multiple years of $100-an-acre losses, rental rates in Iowa have generally held firm. This year, Iowa cash rents statewide declined by just an average of $1 per acre to $270 an acre. While rents declined in some counties, they also increased in others. Rents have largely plateaued after rising $23 an acre in 2023 to $279 an acre statewide.

Arguably, there are good reasons why rental rates have been holding firm. Government support has helped farmers maintain rents. Iowa farmers, for instance, received $866.41 million from Farmer Bridge Assistance (FBA) payments earlier this year, the most of any state in the country.

FLEX LEASES DESERVE A LOOK, BUT THEY AREN'T MAGIC

Cash rent is king, while crop shares continue to decline. Another option getting some consideration is the flex lease.

A flex lease allows farmers to pay a lower base rent while providing bonuses to landowners when farm revenue improves.

Lasack said at least one farmer customer who rents a lot of higher-priced ground is looking to see if they can work with landlords for a flex-lease situation. "They're approaching it as an opportunity to maybe convert to a flex lease type of an arrangement versus a straight cash rent in order to preserve those acres, but also get something more palatable in terms of cash flow," Lasack said.

In Iowa, only about 12% to 14% of cash-rented ground is under a flex lease. As Hart described, "Flex leases are sort of like cover crops. People have tried them in the past and didn't quite understand what they had set up."

Flex leases mean a more detailed discussion between the landlord and tenant over how to create the price or revenue that they agree on. Do you base it on the CME price, or the local price that factors in basis? Do you average the price over an entire year or choose certain months? Do you incorporate yields?

"Every question just adds another layer of complexity to the pot," Hart said. "A well-written and understood flex lease can be highly beneficial to both the landlord and the tenant because what it does then is adjusts based on what's actually happening on the farm as far as the income being derived, and it shares that between the two.

LEASE TERMINATIONS MATTER

Termination letters aren't always the end of the business relationship, but also a starting point for renegotiating the lease. Without a termination letter, leases automatically renew in Iowa under the same terms and conditions.

"So, this is the idea, you terminate to renegotiate," said Patrick Hatting, a farm business specialist at ISU who holds farmland leasing workshops around the state.

In Iowa, terminations must be in writing, separate from the lease agreement. Termination letters have to be provided on or before Sept. 1. That applies to both owners and renters.

Hatting described a situation where a farmer verbally told a landowner he was terminating a lease, but did not send a letter. Several months later, the landowner sued after rent wasn't paid the next March.

"Farmers need to terminate as much as landowners need to terminate," he said.

Nebraska also requires lease terminations no later than Sept. 1. Nebraska allows for verbal terminations, but a written notice is recommended because verbal terminations can be difficult to prove in court. "It is recommended that the farmland be terminated by registered mail," the University of Nebraska Center for Agricultural Profitability noted.

South Dakota also requires a written termination letter delivered by Sept. 1. Ohio also has a Sept. 1 deadline to terminate certain farm leases.

LONG-TERM, LEASE ARRANGEMENTS CAN BALANCE OUT

Michael Langemeier, director and professor at Purdue University's Center for Commercial Agriculture, posted a YouTube video this week on leases. Over the past two decades, Langemeier said, no one lease arrangement outperformed the others.

"But depending on when you were in each lease, returns could differ by more than $100 per acre in a given year," Langemeier said.

Purdue found average long-term returns were surprisingly similar among cash rent, crop-share and flex leases, although the year-to-year results differed significantly. Cash rent provided more stability, while crop-share and flex leases captured more upside in strong markets but fell more sharply during weaker years.

To see the full video, go to https://www.youtube.com/….

GOOD COMMUNICATION HELPS

Landowners and farmers should have more conversations other than when the lease is due. Some farmers provide newsletters or annual reports on the farm. Others send photos to owners during planting and harvest.

Landowners and farmers should establish expectations about what kind of information should be shared as part of the lease, such as production history and soil testing, or a summary of fertilizer and pesticide applications.

Hatting said he sometimes fields calls from landowners who describe their tenants in glowing terms. They mow, they weed, they even clear snow in the winter. Still, the landlord thinks he or she needs to raise the rent.

"If your farmer decides, 'Nope, I'm not going to pay that,' because they have an opportunity to farm something else, I guarantee you the next farmer ain't going to be Mr. Weed-Eater/snow-removal guy the way you had it ... So sometimes keep in mind your tenant and what you have because the next one might not be quite as good."

Iowa State University leasing tools: https://www.extension.iastate.edu/….

Also see, "USDA's Top 10 Cash Rent States in 2026," https://www.dtnpf.com/….

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on social platform X @ChrisClaytonDTN

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