While I was writing my last blog entry on wheat marketing, I started thinking back to how I marketed my other major asset—my wind rights. Are there similarities in the way I approach the marketing of my wheat and the way I marketed my wind rights? Before I try to answer this question, I’ll provide a little history.
In the early 2000’s, several wind agents began roaming Sherman County. Their purpose was to convince us to sign over our wind rights, so the developer they worked for would have the right to construct wind turbines on our land. Signing a wind lease potentially involves huge benefits and costs and ties up the land for up to 50y ears. What surprised me then was how little advice and help landowners seemed to be seeking as they marketed their wind rights. Wind leases were almost never a topic of conversation when we gathered for lunch at the local café. Since I had no experience with wind leases, I paid $1,500 to a consultant to help prepare me for the negotiations and over $7,000 to have the lease reviewed by a Portland law firm. I (and the company I was negotiating with) learned a lot from these experts about the meaning of the different clauses in the lease.
Wind leases have two features that discourage discussion. First, before negotiations start, the wind agent insists the landowner sign a “confidentiality agreement” that allows the details in the agreement to be discussed only with attorneys and immediate family. I’ve always worried that these “confidentiality agreements” put farmers at an unfair disadvantage. The land agent has a team of lawyers and wind-savvy colleagues with whom he can consult. The farmer often has difficulty finding experts to advise him during the negotiations and can quickly run up a big bill—years before seeing any significant income from the lease. The developers are able to cut farmers off from their best source of help—discussion with neighbors who have faced similar decisions. Second, the land agent must offer the same basic terms to everyone. He will quickly get irate calls if word leaks out that a neighbor has been allowed a higher royalty rate. Hence, unless a group of near-by farmers go together and negotiate as a block, an individual farmer has very limited bargaining power to change the basic terms of the lease. The farmer’s decision boils down to whether or not to sign the wind lease offered by the developer.
I believe many of my neighbors signed wind leases without spending much money on experts or much time discussing their new opportunities with other landowners and, as I said above, this surprised me at the time. However, on reflection their actions make sense since they were unlikely to be able to get changes in the basic terms of the lease. I argued in the last post that spending time studying the supply and demand for wheat is unlikely to increase your ability to identify market highs. Similarly, spending time collecting information on wind leases is unlikely to get you better terms.
I spent over $8,500 on wind experts. Did I gain anything? Again, there are some parallels to wheat marketing. My initial hiring of a consultant gave me a knowledgeable person with whom to discuss whether I wanted to proceed with the negotiations. It helped me feel more confident psychologically about acting. Hiring a lawyer to review the lease gave me a lot more knowledge about what I was signing. Did either of these experts improve my bottom line in the long run? That’s a question I can’t answer.