Analysis: Key factors in how much to pay for a land lease in today's market
The land letting market has started with gusto for 2018, as dairy, beef, sheep and tillage farmers eagerly await newspaper adverts from local auctioneers to see what's coming up for letting in their area.
Whether it is new land being let for the first time, or land coming back to the market looking for a new tenant, it all generates lively conversation in rural communities. Why is the land owner getting out? Why is it up for letting again? What price will it make? How long is the lease? All these are questions to be asked and answered.
In today's market, the extra profitability in dairy farming places it in pole position when it comes to leasing a holding new to the market. Of course, those wanting to lease in the land will find all the negatives such as, it needs reseeding, the poor fencing/ water supply and of course the ubiquitous 'wet patch'. In contrast, the owners of the land want the best price per acre and their land well cared for the duration of the lease.
However, these two components don't always go together, as the saying goes "an empty house is better than a bad lodger". I have seen land leased for free where the tenant commits to improving the land and at the other end of the scale, payments in excess of €500 per acre by vegetable farmers looking to rotate crops. So, what should be considered when determining how much one should one pay for a land lease in today's market? The following are the factors to consider:
It is fair to say that there is no point in leasing land if you will not make a profit on that land. However, many lease land thinking that farming more land equals more profit, which in my experience is often not the case. More farmers, blindly lease land out of pride just to keep another farmer out or in anticipation of expansion. It is critical to know your plan and profit levels before leasing additional land.
Quality of land
The tonnes of grass or corn grown per hectare is directly related to the profitability of that land. Quality of land is the key to good productivity. What is often called 'warm land', ie dry, low lying, sheltered, south facing, brown/red soils, deliver the best productivity, and paying a premium is justified.