Rents Resist Price Relief

Big Yields Stall Cash Rent Negotiations

Elizabeth Williams
By  Elizabeth Williams , DTN Special Correspondent
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)

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.

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.

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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."

Going from $8 to $3.50 per bushel corn is cause for concern, admitted Aupperle. But farmers, landowners and investors he's talked with think the long-range prospect for agriculture is still very positive.

Good yields also are having a stabilizing effect in Indiana, according to Howard Halderman with Halderman Real Estate and Farm Management Services in Wabash, Ind. "Typical cash rents in the $250-to-$350 range will likely remain static," said Halderman. "Cash rents that climbed above $350 per acre and are up for renewal this year may see pressure."

Halderman uses flex rents with many of his clients. In areas with better soil that got rain, producing corn yields in the 200-to-225-bushel-per-acre range, "we could see some bonuses paid out this year on flex leases, even with the price drop in the second half of the year," he said. Soybeans yields, however, are not at bumper crop levels, so soybean ground using Halderman's flex formulas may not pay a bonus on 40-to-50-bushel yields with current prices.

"There are enough farmers in good financial shape and the market is still highly competitive for rental ground, so I think most rents will remain flat," predicted Halderman. "On ground with more variable soils showing stress, those rents may decline. But on premium ground, rents will stay static."

Rents are also reflective of the farmland market. And while some areas may see some easing in land values, a central Iowa auction on Thursday, Aug. 21, sold one parcel for $14,100 an acre and another for $12,500 an acre in Tama County (CSR rating of 92) to a neighboring farmer and the local veterinarian who own other land in the area. Halderman sold a 94-acre Tipton County, Ind., farm last Thursday for $12,000 an acre.

"That shows land is still highly sought after," said Randy Hertz with Hertz Farm Management in Nevada, Iowa. "People are getting scared of the stock market. I've had more interest in buying land in the past two weeks than usual," said Hertz. With the demand for land strong (both to purchase and rent), "I don't see rents adjusting as much as some farmers would like."

Elizabeth Williams can be reached at elizabeth.williams@dtn.com

(MZT/AG/SK)

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Elizabeth Williams