Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Monday 07/21/14

Cash Rent Needs a Relief Valve

DTN readers described 2014 rents as mostly stable, a potential mismatch with crashing corn prices.

Dan, an Iowa farmer, summarized the problem in a 16-word Twitter post last month: "$4 cash corn. Same as when I started in 2010, but cash rents are $100 higher." He could have added: Something's gotta give.

DTN's national average cash price index--a collection of cash bid data from almost 3,000 locations across the U.S.--slid to $3.52 last Friday. This is the lowest weekly close since the week of July 12, 2010, notes DTN Senior Analyst Darin Newsom and down from nearly $5 in mid-May.

It's early in the game, but the price crash means momentum is building for 2015 cash rent relief. Without it, those who own just small fractions of their land base--including beginning farmers and mega renters--will likely project negative returns for the second year in a row. Illinois farmers rent half of their farmland on average, but growers with over 5,000 acres rely on cash rents for 77% of their base, Illinois Farm Business Farm Management records shows, so some will be hit harder than others.

(Iowa cash renters need about $4.60/bu. to breakeven on the 2014 crop, while those who own a large portion of their ground can scrape by at least $1/bu. less, some farm lenders calculate.)

"The one item left is a reduction in cash rent," said University of Illinois economist Gary Schnitkey last week during a podcast. "That's going to be the item for the 2015 cash rent negotiating season."

Renters who paid "average" cash rent of $293/acre on high-yield Illinois farm ground this season already are likely to show net losses of $40/acre or more, now that cash prices have crashed, Schnitkey wrote.

A DTN online survey of 365 readers last month confirmed that cash rents had made little adjustments this season. A full 65% 2014 cash rents were stable in their areas, with another 22% reporting rates jumped as much as 10%.

Schnitkey's draft of 2015 corn expenses built in a $50/acre reduction in fertilizer expenses, and he notes growers have already put the skids on machinery and other capital items. Now rents are the only relief valve left, he said. How should farmers like Dan make their case?

For more on Schnitkey's analysis, go to http://www.farmdoc.illinois.edu/…

Follow me on Twitter@MarciaZTaylor

Posted at 4:40PM CDT 07/21/14 by Marcia Zarley Taylor
Comments (4)
Don't drive in the yard driving a loaded up $50,000 pickup. Practice saying the word no - many times over. You may lose some ground, but if you're losing money, I guess I don't see why losing ground isn't the lesser of two evils. Get real good at telling your favorite seed guy no. There are many, many good choices out there. Figure out who wants to be Monte Hall. Also, show your land partner (a term I picked up on DTN) the money trail. Explain what a good sustainable fertilizer program costs. Explain what a good resistant weed avoiding chemical program costs. No land partner in their right mind wants their farm mined for nutrients or get resistant weeds started because their land partner (tenant) needed to skimp somewhere to make ends meet. Explain what your crop insurance costs, what it covers, and what it doesn't cover. Explain what the 2014 Farm Bill covers. Say the farm had $40/acre in Direct Payments under the old Farm Bill, and you're looking at less than that now; that should come off the rental value of the farm. Show what your take home pay is. Be prepared to be embarrassed or called out if it's too high. If you get to the end of a discussion like this and still can't see eye to eye, you're probably better off without that farm. - Jason Bode
Posted by Unknown at 9:10PM CDT 07/21/14
An acquaintance once quipped: When everyone else is running-You Walk! When everyone else is walking-You Run! Now if you were running when you should have been walking, Pay the price of the shifting load when the brakes lock up.
Posted by Bonnie Dukowitz at 5:23AM CDT 07/22/14
Don't worry. The large mega-farmers will be floated by the ag lenders, equipment manufacturers, seed, chemical and fertilizer dealers. If one or two of these guys go bad in a community it will have a ripple effect throughout. Not what the input providers want happening. They may be upside down on paper but they will be out there farming your land. SO GET YOUR RENT, CASH UPFRONT!
Posted by Mike Estadt at 9:05AM CDT 07/22/14
Mike I don't think that will happen.We have some large farms close to us that are struggling and I have seen they have changed who they do business with this spring.New seed company, fertilizer and some equipment.So that kinda tells me they have run the gament with the others.But yes, you are right when they go out they're going to take others with them.Like elderly landlords that won't get paid.
Posted by Raymond Simpkins at 11:07AM CDT 07/22/14
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