Rents Resist Price Relief
Elizabeth Williams DTN Special Correspondent
Tue Sep 2, 2014 07:13 AM CDT
(Page 1 of 2)

INDIANOLA, Iowa (DTN) -- Steady as she goes seems to be the general consensus concerning 2015 cash rents across the Midwest. "In the farm visits I've made the past two weeks, I'm finding farmers were a little more relaxed than I thought they would be," reported Randy Luze, land manager with People's Company in Cedar Falls, Iowa.

Bumper 2014 yields are negating arguments for cash rent relief next year. Only cash rents that climbed above $350 per acre and are up for renewal this year may see pressure, said Indiana professional farm manager and realtor Howard Halderman. (DTN photo by Elizabeth Williams)

Preliminary 2015 crop budgets released by the University of Illinois earlier this summer forecast statewide operator losses of $44 per acre next season if corn growers paid average cash rents of $295 per acre, fertilizer costs dropped $50 per acre and yields stayed at trend levels. So far, however, early rent negotiations in Iowa, Illinois and Indiana seemed to be resisting adjustments.

"This seems like a transition year," Luze added. "Some people are thinking they can pay the same as last year for one more year. Many farmers have pre-sold 30% to 40% of their crop [before the price collapse]. When you average that in, and a possible revenue claim on their crop insurance for drowned-out areas, then they might be OK. But next year, it could be a different story."

Luze added that he had not seen a lot of pressure to lower rents. "We don't have many leases over $325 per acre," said Luze whose clients are along the I-35 corridor in central Iowa. "However, some landowners are more willing to bend than others. If rents go down at all, you could see about a $25-per-acre decrease."

In Iowa, good corn ground that produces 160-170 bushels per acre generally rents for around $250 to $275 per acre. Statewide, Iowa average cash rents in 2014 dropped $10 per acre, according to an Iowa State University survey. Grundy County had the highest reported average cash rent at $330 per acre.

"I think cash rents in 2015 will be slow to move lower, because there is a huge demand to rent land," said Steve Johnson, farm management specialist with Iowa State Extension.

Over in central Illinois, eye-popping rents may be matched by eye-popping yields this year. "Two weeks ago, we checked 20 farms we manage in central Illinois and in our corn yield check, the average yield was 250 bushels per acre," noted Dale Aupperle with Heartland Ag Group in Forsyth, Ill. "That's a 20% increase over last year, which was a bumper year. These are the best yields we've ever seen."

"With these yields and having sold ahead 60% of the corn crop, even if we sold the rest at $3.40 per bushel, we'll still make a profit," Aupperle explained.

"Low commodity prices may drop farm income only 5% to 10% in our area, because we're going to make our money in bushels per acre this year," said Aupperle. A slight drop in income is not enough to pester a landowner for a lower rent, he added. "If a farmer in his combine sees 292-bushel yield flashing on his monitor, he's not thinking about asking for a lower rent." Cash rents in Aupperle's region run $350 to $400 per acre for prime farmland that raises continuous corn.

In central Illinois, there are aggressive farmers looking for opportunities to expand, he said. "You have to remember, we have been in an agriculture 'super cycle' for a number of years with increasing demand for agricultural products worldwide and rising commodity and land values. I don't think the super cycle is ending. I think it's just taking a breather."

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