The Cash Rent Conundrum: Can You Afford It?

September 16, 2016 10:53 AM
 
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Most Corn Belt producers at least have handshake deals on cash-rented acres for 2017. Will corn prices support cash-rented land? For an Illinois farmer, corn has to be $4.50 per bushel and soybeans $9 per bushel to make cash-rented land pay, says Gary Schnitkey, ag economist at the University of Illinois.

“We’re a long way from those levels,” Schnitkey says. “Break-even cash rent would be $200 per acre for 200-bu. corn, $185 per acre for 185 bu. per acre and $100 per acre for 163 bu.” 

Cash rents have come down over the past year, according to USDA. The market is likely to see a ongoing decline in rental values because it doesn’t pencil out with $3.50 corn, he says. Farmland ranging from excellent to poor saw a decrease of $20 or more per acre in a recent survey by farmdoc Daily. Beyond the national level, statelevel farmland management groups say they expect rental-rate declines.

“We’ll continue to have historically low interest rates, and we’ll likely see land-price declines, but those low interest rates will keep land from not decreasing as quickly as we might anticipate,” he says.

Farmers have two options: switch to soybeans or consider a variable cash-rent agreement, Schnitkey says.

“Think about planting more soybeans because it’s more profitable than corn at this time,” he says. Farmers can also negotiate a lower base rent, then add a variable cash rent on top of the base price. Variable cash rents can be structured by price, weather or water availability.

For example, a farmer with high-producing land might structure cash rent with a base price of $150 per acre—an additional $50 per acre if the price of grain sold by the renting farmer is within 50¢ of the average sales price—or an additional $100 per acre if the price of grain sold is more than $1 above average. The adage that cash rent should be equal to 4% of land value probably won’t work next year, according to Schnitkey.

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Larry Danielson
Montevideo,, MN
9/18/2016 09:38 PM
 

  Golly Gee, maybe seed should go down in price, also. Rent down,, fertilizer down, but seed still a rape job. Maybe every farmer should plant 5 units of "bin run", and let the seed companies clog the courts. Or they could lower seed in relationship to other inputs. Am I saying what nobody else dares say?

 
 
delta88
Memphis, TN
9/19/2016 10:41 AM
 

  Inputs have to drop; no doubt. Most economists here in the mid south are stating the same. Even some of the larger landlords are now pointing the finger at the suppliers. Ag lenders will hold the key going into winter and the ones I know are saying what cash was available on the balance sheet was used up this year.

 
 
Cactus West
Winslow, AZ
9/19/2016 06:17 PM
 

  Agree with Larry and delta88. All input costs need to be addressed, but it goes further than that. A producer should also look at retooling as a long term option. Like it or not, the Ag industry represents a flawed business model. The major auto manufactures stop building cars that do not sale. They downsize, have reductions in force, close plants, merge, consolidate, sale non-performing assets in order to maintain profitability consistent with stock holder expectations. It is time to get off of off the myopic mindset of consistently kicking the (low hanging fruit) cash rent can down the street. There is a larger picture.

 
 

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