Production Journal

May 4, 2010 09:13 AM
 

Questions About County-Level Cash Rent Data

The release of USDA's county-level cash rent data in early April may have raised more questions than it answered. The data showed cash rents dropping in many regions, which is contradictory to USDA's statewide data and what is generally being reported across the country. It's also interesting to note that there was a drop in responses from 2009's first-ever county-level report.

Illinois farmer John Phipps, who is a Farm Journal columnist and host of "U.S. Farm Report,” says the data may be flawed because there is no incentive for farmers to report.

"There are ways you can look at the question and say, ‘All right, I can report a cash rent I'm paying, rather than an average for all of my ground, or my highest,'” he says. "My county dropped $20 per acre, and this is not what I'm seeing. I didn't participate myself and I'm not sure whether adding transparency to this market is in the best interest of individual producers.”

Managing costs. Costs are rising across the board for farmers, and cash rents are among the most significant contributors, says Bob Utterback, Farm Journal Economist. Regardless of the validity of the USDA data, the impact of cash rents on a farmer's bottom line won't change.

"I take the position that cash rents won't come down until farmers stop competing, and land values will continue to go higher as long as we have cheap interest rates,” he says.

To illustrate, Utterback tells of a farmer near Lafayette, Ind., who was offered $6,500 per acre. The $3.5 million sale was not enough at the 1% return on savings when compared to the 6% to 7% he would receive by continuing to cash-rent his ground.

Numerous regions are facing unprecedented competition for land, which is supporting higher cash rents. However, Utterback believes the rent market is reaching a plateau because land is reaching a level where rent-to-land-value ratios are maxed out.

Mike Walsten, editor of LandOwner newsletter, points to historic cash rent data that shows rents don't drop once a market has been established. "When you look back, you don't see a time when cash rents went down. Granted, we have a lot more land being cash-rented now than we did in the '70s and '80s. But when we had the downturn in the '80s, I think rents went down only one year.”
 

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