What should I be looking at and considering this winter when I am working on bidding or renewing cash rent contracts?
Chad McCollough, Vice President, Commercial Lending, Maryville
Preparing to bid on or renew cash rent contracts requires separating emotion from business decisions. To maintain profitability, you must ground your negotiations in hard data rather than the simple desire to hold land.
1. Know Your Cost of Production
You must understand all expenses, not just major inputs. Dig into the “little things” like fuel, repairs, labor, and family living costs. Calculate your Operating Expense Ratio (OER)—gross expenses divided by gross income—to determine the exact cost to produce and market a bushel. This provides a factual baseline for your bids.
2. Assess Business Strengths
Identify where you excel and areas where you need help with the decisions of management:
• Marketing: Do you have a firm strategy using options and crop insurance?
• Operations: Is your equipment and labor efficient enough for timely execution?
• Relationships: Are you proactively communicating with landlords and lenders?
3. Strategic Approaches
• When Renewing: Determine if the landlord prioritizes top rent or relationships, Propose “sweat equity” land improvements (like drainage or cleanup) to add value without heavy capital outlay.
• When Bidding: Evaluate proximity. Can you add acres without neglecting your core operation? Is your machinery line and labor force able to handle the expansion without becoming overstretched or delaying execution?
By basing decisions on financial reality and operational capacity, you can confidently defend your proposals and protect your bottom line.
