Minding Ag's Business
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.
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"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.
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