Let's talk about land Because the future of your farmland matters most
The following information is provided by Nationwide®, the #1 farm and ranch insurer in the U.S.*
The farmland market is red–hot. Though such a bullishmarketplaceis a boon for landowners, it also changes the game for tenants who depend on rented land for a large share of their crop revenue.High prices make it even more important to make sure everyone involved has the right insurance coverage in place.
Complicating the equation for lessees is therecentrise in absentee farmland ownership. According toa USDA report**, around 40% of the land farmed in the U.S. is rented. Ofthat share, around 31% is owned by an absentee or non–operator, a number that continues torise, especially as active farmers retire and sell land.
The combination of these trendscreates year–over–year operational and managerial challenges for leasing farmers and their landowners. One of those is ensuring both parties are adequately managingthe risk of a land lease for which the two parties may be thousands of miles apart.
Sharing insurance responsibilities In most cases when a farmer rents land from an absentee landowner, risk management responsibilities are split between the two parties.Each lease should spell out who is responsible for different operational and management responsibilities. And what is fair is not always equal. For example, if adding improvements like tile drainage can boost the long–term productivity of a field, installation costs should be shared based on the equity it creates. If a lessee anticipates only renting the land for one year, he or she should not bear as much cost as the landowner, who will likely see greater value in the form of higher rents over time as aresult of the improvement.
But if such improvements are part of a multiyear leasingstrategy in which the lessee will remain in the picture, he or she will likely pay a larger share of the cost. In general, the duration of a lease often is a major contributor to how land improvement costs are spread between the landowner and renter. Think about how land is used There are several factors that influence how farmland is insured. First, it’s important to consider the basics of the property and its intended purpose. Some land is obviously for cropping. But grassland or pasture land may have multiple uses. All of a pieceof land’s intended uses should be accounted for in both the written lease as well as the chosen insurance coverage.
Coverage options also vary widely based on lease land’s use. A basic homeowners policy rarely covers all of the operational risk of leasedfarmland. Sometimes endorsements cover those specific risks, but in other cases, altogether different policies specifically designed for farmland are the best solutions. Especially with an absentee leases, it’s always a good idea to have regular meetings during which the lessee can update the landowner on all activities on the leased land and how they impact things like lease price andoptimalinsurance coverageoptions.
Talk with your insurance agent No matter how you’re involved with farming–whether you’re currently farming or new to owning or renting farmland–it’s important to talk with yourlocalNationwide Farm Certified agent. Nationwide istheonly farm insurance company that trains and certifiesitsagents. When you see that an agent is Nationwide On Your Side Farm Certified, you can be confident you’ve found a trusted, knowledgeable advisor.
Visit AgInsightCenter.com/farmlandownership to download our free Farmland Ownership Protection Guide and to learn what we know about farmland.