Minding Ag's Business
Cash Rent Needs a Relief Valve
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.
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(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/…
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