Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 07/23/14

Why Rents May Be Slow to Tumble

On yesterday's blog I made the case that something had to give on cash rents for 2015. Farmers know that futures prices have tumbled 20% on Dec 2014 corn contracts since May, and prospects for 2015 prices don’t look much better. On the other hand, DTN's Elizabeth Williams interviewed farm managers, lenders and consultants at several Midwest farm meetings last week and many of them expect only modest adjustments for the year ahead. Here's why:

"Rents in our area (central and southern Colorado) won't be going down next year. We're finally getting some rain and cattlemen are making money," said Edward Lumpee, farm appraiser with NeWEST Real Estate & Agriculture in Pueblo West, Colo.

The farm economy isn't as rosy in southern Minnesota, so "we'll have to see how the rest of the season fares," before predicting next year's cash rents, said Faribault, Minnesota real estate broker Farryl Kluis.

"It will take two years of losses to reduce cash rents," said Doug Stark, president of Farm Credit Services of America, which covers a four-state region based in Omaha. "The conversation will go like this: The tenant tells the landowner, 'At $3.50 corn, I can't make money.' The landowner will say, 'You've had it good, we'll just leave the rent where it's at.' Next year, the farmer will come back, 'I've had two years of losses and my banker said I can't do it again.' The landowner will say, 'OK, I'll take $50 an acre less.' The farmer will say, 'I was thinking $100 to $150 an acre less.' And if he can't get that, he'll walk away," Stark explained. "That's when you will see cash rents go lower."

Cash rents lag on the way up and they lag on the way down, said Moe Russell, a farm business consultant in Panora, Iowa. "I don't see rents or inputs costs coming down in the next year," said Russell. He thinks lenders will be the ones to carry the farmer through cash flow losses in the next year.

A central Iowa farmer said lower rents will depend on your relationship with your landowner. However, while he said his relationship with the landowner who charges his highest rent is good, he's not sure the landowner is willing to take a lower rent at this time.

The only chink in the cash rent armor we've seen so far: A north-central farm manager said he would recommend one of his clients slightly reduce cash rent on a farm with lower-quality ground. However, the client's higher producing farms will continue to be crop-shared or custom-farmed.

Sounds like renters in many areas will need to refine their cash rent pitches. It's never too early to practice.

Follow me on Twitter@MarciaZTaylor

Posted at 10:59AM CDT 07/23/14 by Marcia Zarley Taylor
Comments (7)
If I remember correctly, the last major correction ended with about 80% ,give or take, of the farm land in Iowa being in receivership.
Posted by Bonnie Dukowitz at 6:45PM CDT 07/22/14
Your right Bonnie and I don't think lenders are going to be to eager to carry someone losing money every year.Why would you feed a dead horse? I feel this is just the first of many low or no profit years to come.I am glad we have no debt at this time and can farm at these prices.
Posted by Raymond Simpkins at 8:01PM CDT 07/22/14
I had an interesting visit with a neighbor yesterday who farms about 5,000 acres. He has "pushed the pencil" and found that reducing his average rent of $360/acre to $320/acre would have similar consequences as adding 18 cents a bushel to his average corn price. The question then arrises - do you risk upsetting your landlord for 18 cents a bushel which might be obtained with good marketing. He's hoping that fertilizer prices will come back down from stratosphere levels as a result of reduced demand. Like my neighbor, I don't see how revenue insurance will keep us out of the red for 2015's crop. When will the ag press do a story on that, considering how gleefully they reported insurance "profits" in 2012!!
Posted by Curt Zingula at 7:51AM CDT 07/24/14
Curt, crop insurance might not keep you out of the red next year, but do you think farmers are factoring in potential ARC payments yet? Given current price scenarios, Univ of Illinois economist Gary Schnitkey pencilled in $45-$75/acre 2015 corn payments on Ill. farms last week, which might alleve some stress. If that's the case, time might be best spent persuading landlords to sign up for the right farm program rather than arguing over a few dimes per bu., as your neighbor says.
Posted by Marcia Taylor at 10:35AM CDT 07/25/14
C'mon Marcia, How does one factor potential?
Posted by Bonnie Dukowitz at 4:21PM CDT 07/25/14
Curt is on point with what farmers can do! Less fertilizer demand!
Posted by Roger Cooper at 10:00AM CDT 07/27/14
We have been fortunate to get decent crops where we are when everyone else couldn't get a rain to save their lives, no basis is killing us with cash corn around two bucks, still county average yields are under sixty bushels per acre, it will take a miracle to save us this year!
Posted by JAMIE KOUBA at 11:27PM CDT 08/11/14
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