How Quick is Your Landlord to Raise or Lower Cash Rents?

September 24, 2015 12:00 PM
How Quick is Your Landlord to Raise or Lower Cash Rents?

If you think private landowners are the most likely to give your operation a break on cash rents when crop prices are down, think again.

After analyzing data from the Illinois Society of Professional Farm Managers and Rural Appraisers, agricultural economist Gary Schnitkey found that professionally managed farmland tends to have rents that are quicker to respond to the market. “In recent years, professionally managed averages have reacted faster than the ‘average’ rent to changes in operator and land returns,” he writes in a recent farmdoc Daily article.

That’s important, because of the nature of cash rent and its positive—or negative—impact on a farm’s profitability. “Cash rent changes typically lag changes in operator and land returns. After 2007, several years passed before cash rents increased substantially as a result of higher returns,” Schnitkey writes. “Similarly, cash rent decreases are lagging the decreases in operator and land returns that began in 2013.”

But they are coming down, although slowly. For farmers renting “excellent” Illinois farmland producing more than 190 bu./acre of corn, that means cash rents on professionally managed land are projected to drop by 9% in 2016, from $350 per acre to $318 per acre, according to Schnitkey’s article.  “Cash rents on professional managed farmland are coming down faster than the average cash rent,” he notes.

Does that mean farmers should try to rent professionally managed cropland over privately managed acres? Not necessarily.

Cash rents for professionally managed farmland tend to be higher than the average cash rent ($293 per acre in 2014 for highly productive private cropland vs. $374 per acre for similar, but professionally managed, land in 2014). These professionally managed acres tend to be quicker to respond to a rising market as well. “The difference between professionally-managed and average cash rents increased from $17 per acre in 2007 up to $106 per acre in 2014,” Schnitkey writes.

Regardless of the type of landlord a farmer has, though, the reality is that whatever rent reduction he receives won’t reduce costs as much as he wants, given current crop prices. “Cash rents likely will decrease in 2016,” Schnitkey says. “However, projected reductions won’t be enough to cause farmer returns to become positive. Obviously, it isn’t cash rent alone that needs to decrease. Other non-land costs have to decrease as well.”

Is the farmland you rent professionally managed or privately managed? How do you expect that to affect your cash rent negotiations this year?

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