Larger farms may be more likely to need to adjust.
By Gary Schnitkey, University of Illinois/Courtesy of farmdocdaily
Commodity prices likely will be lower in the next several years than in the past several years, leading to lower crop farm returns. Lower returns may require some cash rents to decline, particularly on farms having larger percentages of acres with high cash rent levels. In this post, proportions or farms that most likely will have to adjust cash rents are presented. These farms are judged as having over 90% of their acres cash rented and having average cash rents that exceed county cash rents by more than $25 per acre. About 4% of grain farms meet the proceeding criteria. A higher proportion of larger farms meet these criteria.
Criteria for Classifying Farms
Herein, grain farms enrolled in Illinois Farm Business Farm Management are classified by:
Percent acres cash rented. A value of 90% means that 90% of tillable acres are cash rented. The remaining 10% of acres either are owned or share rented.
Farm-minus-county cash rent. The average cash rent on a farm is subtracted from the county average rent for the county in which the farm is located. For example, take a farm whose cash rent averages $300 per acre and comes from a county with an average cash rent of $275 per acre. Farm-minus-county cash rent for this farm is $25 per acre, indicating that its average farm rent is $25 higher than the county average.
Data from 2012 are used to classify farms that receive the majority of their gross revenue from grain operations. These grain farms tend to rent more of their farmland than all farms in Illinois.
Particular attention is given to farms meeting two criteria:
- cash rent more than 90% of their acres, and
- have $25 per acre or greater farm-minus-county cash rents.
Results from farm financial simulations suggest that these farms will face more difficulty in generating positive farm incomes than farms with lower cash rent percentages and levels. Not all farms that meet these two criteria will face difficulties. Cost levels, off-farm income sources, and debt-to-asset position also impact the ability to absorb lower returns.
Farms Meeting Criteria