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HADDONFIELD, N.J. (DTN) -- Some sky-high cash rents are coming back to earth. For the first time this century, Corn Belt cash rents are beginning to recede, particularly in areas where 2014 sub-par yields pounded local farm incomes last fall.
In Council Bluffs, Iowa, farm manager David Thien just finished his last lease this week, two months behind his preferred schedule. "In 2014, we had a lot of rents in this area at $275 to $300 per acre. Those leases were relatively easy to negotiate with a 5% to 10% reduction in 2015," Thien said. "It's been the $350 to $400-plus rents that have driven a huge divide between landowners and tenants."
Within the last few weeks, Thien also auctioned a property that had rented for $385 per acre in 2014 after the tenant had asked for a $100 per acre concession this year.
"That's never something a landowner likes to hear," said Thien, who took the rare step of putting the lease up for public auction. Instead of the 15-20 offers he could have expected in recent years, just seven operators submitted sealed bids, for a high of $298. In another instance, high-quality bottom ground that rented for $408 last year brought $305 with flex terms that could trigger a bonus, bringing the maximum rent to $340.
"Getting $300 or more this year is really tricky," Thien said. "I don't know if it's the bankers saying you've got to dial back, or tenants are just digging their heels in since fertilizer and inputs haven't come down. If commodity prices don't improve for 2016, it will be a big shocker for people."
RENTS SLOW TO ADJUST
If history is any guide, cash rents don't decline very much or very often. Since 1981, Corn Belt states tracked by the Chicago Federal Reserve only experienced three years when cash rents dipped more than 10% annually -- all of them in the midst of the Farm Credit Crisis. Average rents in Iowa, Illinois, Indiana and Wisconsin slid 10% in 1985, another 15% in 1986 and 13% in 1987, according to the Fed. The last time the district's average cash rents backtracked at all was a 1% drop in 1999. Since 2006, however, average Illinois cash rent costs have more than doubled to nearly $300 per acre.
In the very northwest corner of Minnesota's Red River Valley -- only 38 miles from the Canadian border -- Bill Harrison auctioned cash leases for 1,640 cropland acres last week. Two dozen sealed offers ranged from $105 to $150 per acre, "not a real big drop for this area," Harrison said. "We have seen a downward adjustment in rents this year, though. Some leases renewed on the condition that owners would review rents for 2016 if markets were still low."
Although corn and soybeans have marched this far north in the past five years, most people live or die based on sugar beet prices, Harrison noted. With sugar prices slumping the past two years, that mainstay income has withered. Because it's a new corn region, growers lack grain storage so must take elevator price hits at harvest. Corn basis may be 60 cents or 70 cents under Chicago at times, he said. All of these setbacks erode equity.