Will Cash Rents Follow Land Prices Down?

09:50PM Nov 13, 2014
farm land
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Like land prices, cash rents are in the middle of adjusting to this cycle’s lower grain prices.

Unfortunately for farmers who pay cash rents, these adjustments aren’t going to come as fast and furious as the swings in land prices, according to a roundtable discussion on U.S. Farm Report.

“One thing that’s very clear from history is that the adjustments in cash rental rates tend to be very slow and they tend to lag, so we’re going to see some adjustment take place this winter,” said Jim Mintert, director of Purdue University’s Center for Commercial Agriculture. “But we won’t see average cash rental rates adjust enough to fully accommodate the reduction in commodities that we’ve seen.”

With corn prices below the cost of production, though, many producers would like a break,  according to Mike Walsten, the editor of LandOwner newsletter. “Not surprisingly, two-thirds of [Pro Farmer members] are looking for lower cash rent, but it’s very restrained,” Walsten says. “Forty percent of them are looking for a 10 percent or less adjustment in their cash rent going forward. A fourth of them are hoping for something greater than that, but another one-third of them are looking for steady cash rents going forward.”

Listen to the discussion here:

Some growers are seeing their cash rents cut more dramatically—but they were probably paying higher rents to start with. “The aggressive farm managers—they are adjusting their rents by about 15 percent,” Walsten said. “But they were more aggressive on the way up, so they’re going to be more aggressive on the way down.”

How can farmers manage this variable cost? Talk to your landowner. Said Mintert: “If you are the kind of farmer who communicated with that landowner on the way up and made some adjustments to accommodate the dramatic increases in commodity prices, you’re going to be in a lot stronger position to communicate with that landowner and argue for a reduction in rates here the next couple of years.”