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Money-Saving Tip: Evaluate Financial Returns on Cash Rents

05:00AM Mar 08, 2014
7 26 12 PA crops

Editor's note: We’ve gathered several experts to offer suggestions on trimming expenses in light of tighter margins in 2014. This is one of 10 money-saving tips.

With the price of corn and soybeans projected to be much lower than previous years, margins will be tight and farmers might have to get creative to match break-even costs. As price expectations change, returns will change as well. This then leads to a need to re-evaluate cash rents, notes Gary Schnitkey, Department of Agricultural and Consumer Economics University of Illinois.

Additionally, Schnitkey encourages farmers to initiate conversations with landlords about cash rents. "I’m not expecting a decrease in cash rent in 2014, however," he adds. "The rubber will meet the road on cash rents in 2015."

According to Farmers National Company in Omaha, Nebraska, cash rents are seen as mostly steady in 2014. David Englund with AFM says, "Demand for high quality property is keeping both land values and rental rates strong."

Because of both high-priced rent and farmland values, be cautious about expanding, warns Mike Duffy, ag economist at Iowa State University. Economies of scale don’t improve much once an operation hits 1,000 acres, Duffy says, and it might be better to invest in improving land to boost yields rather than acquiring more land.

Bottom Line

It’s prudent to evaluate financial returns with and without high cash rent acres. Financial results could improve if high rent acres are not farmed and the farm lessens in size.

It also can work the other way. Dale Nordquist, University of Minnesota ag economist, says to calculate total farm impact before letting high-priced farmland go. Minnesota data shows that not renewing leases on high cash rent parcels in some cases can actually increase break-even levels. That’s because fewer acres farmed drives up machinery costs per acre.

Visit AgWeb’s Farmland Value Guide to find the average cash rent rates in your state and use the margins calculators.

The AgWeb corn and soybean margin calculator can help you determine your cost of production per acre and expected per bushel yields to determine your breakeven selling price. The improvement calculator can help determine how doing just a little better in cost control, yield or selling-price improvement to improve your bottom line.


Keep Your Production Costs in Check for 2014

With grain prices dropping, it’s time to get creative. There is no one-size-fits-all-farmers answer, but there are numerous ways to more closely align costs with returns. Here are the money-saving tips we've gathered.