Minding Ag's Business

The Cash Rent Squeeze

Expected rent adjustments for 2015 could lead to the first reductions in more than 15 years.




Renters are much more optimistic that cash rents could provide a relief valve for 2015 incomes than professional farm managers led us to believe a few weeks ago. In DTN's latest online survey of 422 readers, slightly more than half (54%) expected no change in their average rents. On the other hand, 26% expected cuts of up to 10%--and another 17% forecast cuts greater than 10%. (Keep in mind this is not a random, scientific sample but it's big enough to indicate a trend. Cash rents haven't reversed in the past 15 years).
Nebraska farmer Bart Ruth doubts his area will see much cash rent moderation next season, not anywhere close to the 33% drop in December futures prices compared to a year ago, or the fact that DTN national average cash prices are running at more than four year lows.
"In fact, a lot of our landlords are asking for the same rents," Ruth says, noting that $200 to $300/acre rents are pretty common for the area. "Some are pointing to a 15% to 20% increase in property taxes the last three or four years in a row. So there's a multi-year lag with those taxation issues."
Fertilizers and other inputs have yet to budge anywhere close to the drop in 2015 price projections either, so Ruth is cutting the only place he can."We're limiting expenses for equipment, since there's not an urgent need to replace anything we own," he says. "Everything we have is less than four years old."
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 back tracked at all was a 1% drop in 1999.

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Comments

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Unknown
10/3/2014 | 12:15 AM CDT
Soys in my area typically yield 35 bus/ acre direct costs are at $292.00/acre this year and will be similar next year NOT including land rent . Corn yields about 165bus/acre direct costs are at $413.00 NOT including land rent ( and also not including drying charges) Right now today's local cash prices are $8.32 for soys and $2.28 for corn. How much are you willing to give for rent ?
Unknown
9/23/2014 | 1:55 PM CDT
Property tax increase lag? I think the past increases have more than covered those expenses. I believe the pinch is going to be felt by the LANDOWNER, FARMER AND MAINSTREET RURAL AMERICA. Many of these landowners have been living high on the hog!
Raymond Simpkins
9/23/2014 | 11:29 AM CDT
What about the guys that bought? nobody is going to change their payments. Like I stated on Katies blog theres going to be alot of auctions next year.