Questions About County-Level Cash Rent Data

April 7, 2010 07:00 PM
 

Greg Vincent
, AgWeb Editor
 
The release of USDA's county-level cash rent data this week may have raised more questions than it answered. A roundtable discussion at Wednesday's Farm Journal Media Editorial Summit created a mix of opinions about this data and what farmers can take from it.
 
Mike Walsten, editor of Landowner newsletter says the data, which was released for only the second time, showed cash rents dropping in many areas, and that is counter to what is being reported across the country. The fact that statewide data showed increases in cash rents, as expected, raised questions, along with the fact it also showed a drop in responses from last year's first-ever report. 

 
 
Farmer Incentive Lacks. Chrisman, Ill., farmer and host of U.S. Farm Report John Phipps says the data may be flawed because there is no real incentive for farmers to report this data.
 
"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.' My county dropped $20/acre, and this is not what I'm not 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 typically among the most significant contributors, says Bob Utterback, Farm Journal Economist and President of Utterback Marketing. 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.”
 
As an example, Utterback uses a farmer near his home in Lafayette, Ind., who was offered $6,500/acre for his land. The $3.5 million he would receive was not enough at the current 1% return on savings when compared the 6%-7% he would receive by continuing to cash rent his ground.
 
Competition Is Stiff. Areas like east-Central Illinois where Phipps farms are facing unprecedented competition for land and that is supporting cash rents. However, he believes the rent market is reaching a plateau because land is reaching a level where rent to land value ratios are maxed out.
 
Walsten also points to historic cash rent data that shows rents don't drop once a market has been established. "When you look back, you just don't see a time when cash rents go down. Granted, we have a lot more land being cash rented now than we did in the 1970s and 80s. But when we had the downturn in the 80s, I think you only had one year where rents went down.”
 
Variable Rents. A growing segment of the cash rent market is in variable rents. These agreements establish a base price and the landowner could receive more based on certain criteria that often include factors like average market prices or average yields.
While Walsten points out these agreements are growing in popularity, it still only accounts for about 5% of the total market.
 

 
You can e-mail Greg Vincent at gvincent@farmjournal.com.
 

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