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Can You Break Even on Cash Rent in 2015?

Jeff Caldwell Updated: 08/14/2014 @ 8:51am Agricultural content creator and marketer.

What should you be paying for cash rent this year? Crop revenues will be well off the last few years' screaming pace, but what exactly should that mean to what you pay for your land?

Corn Belt cash rent typically makes up a percentage of total crop revenue ranging from 20% to 35% in most years, according to data compiled by Illinois Farm Business Farm Management (IFBFM). But the keyword here is range: It's far from a lockstep relationship between the two variables, according to University of Illinois Extension ag economist Gary Schnitkey.

"Cash rents as percentages of corn revenues averaged higher in the early 2000s than later in the period. Take northern Illinois as an example: Cash rent as a percent of corn revenue averaged 37% for the years from 2000 to 2005. From 2006 to 2013, cash rent as a percent of gross revenue averaged 23%," he says. "Higher commodity prices were higher from 2006 through 2013, leading to higher crop revenues. Cash rents did not increase as fast as the gross revenue increases, leading to lower cash rents as percentages of crop revenues. Cash rents have been increasing in 2012, 2013, and likely will increase in 2014, leading to increases in cash rents as percentages of corn revenues."

In general, history shows cash rent percentages for soybean ground are typically higher in relation to crop revenue when the latter value is lower. In northern Illinois for example, Schnitkey says, "crop revenues as percentages of soybean crop revenues averaged 51% from 2000 to 2005 and 32% to 2006 to 2013."

So what should you expect for the coming year? Schnitkey uses a range in yields from 165 to 199 bushels per acre (the expected yield range in his state of Illinois) and a $4.00-per-bushel corn price. At these levels, total crop revenue would comprise a range from $660 to about $800 an acre. At the low end -- a 165-bushel corn yield and $660-per-acre crop revenue -- cash rent should comprise 24% of total revenue, or $160 an acre, based on historical trends. The bad news is, in that scenario, the breakeven cash rent is $80 an acre, Schnitkey says. At the high end -- 199-per-bushel corn and $796-per-acre crop revenue -- cash rent would be $262 an acre, just over $80 higher than the breakeven rent level.

"For this example, cash rent as a percent of corn revenue is 34%, roughly the same percentage as for the 2000-2005 period. If no decreases in cash rents occur, cash rent percentages are back to the previous level before the commodity price increases occurring in the mid-2000s," Schnitkey says. "These levels, however, result in negative farmer returns, largely because of nonland cost increases that have occurred since 2000. Hence, using percentage averages from 2000-2005 may not be appropriate for setting cash rents in 2015."

Chart courtesy Gary Schnitkey, University of Illinois Extension.

Obviously, grain prices and yields are critical to bridging the gap between expected cash rent levels and the point at which they cash flow for the renting farmer. The former is more important this year, though, as any upturn in the latter could only go further to depress prices, deepening the rift.

"Obviously, corn yields and corn prices for 2014 are not known. A higher corn yield would increase revenue. In northern Illinois, a corn yield above 214 bushels per acre would give a positive farmer return. However, a yield of this level likely would result in large supplies leading to lower corn prices, as is occurring this year," Schnitkey says. "Cash rents as percentages of crop revenues are projected to increase in 2015 to near average levels for 2000-2005. These levels will result in farmer losses due to higher nonland costs from early-2000s levels. The negative returns point to the need for adjustment downward in costs, including cash rents. The size of negative projected returns also suggests that decreases from average cash rents are needed given current projections of 2015 revenues and costs."


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08/20/2014 @ 9:02am Now Mark, keep in mind that row croppers haven't been complaining the last few years, even here in Missouri where in 2012 and 2013 severe drought had corn yields zero'ed out (so don't fuss about "only" 140 bpa). However, they were cashing in with crop insurance and I'm sure you folks were no different. And there has been a stupendous amount of brand new equipment bought, meaning times haven't been too tough for the row cropper. We livestock producers were out on a limb, no pasture, very little hay and what did exist was of very poor quality. And then throw in the $6-$8 corn you guys were reveling in and we were up the proverbial creek without a paddle. My dairy farmer sister was having to truck in hay from Mississippi, 600 miles away. Talk about expensive hay! Yes, we did get some disaster money from FSA this spring, which was quite unexpected and of which I'm thankful for. Too bad I couldn't have gotten that last winter when I needed your high dollar corn. I'm not trying to be combative or deny your plight, just trying to remind you that farming has always been a roller coaster ride of ups and downs whether you're talking weather, yields, commodity prices or inputs. I've experienced it for the last 50 years and I doubt it was any different 50 years before that or will be 50 years from now. As for traders bankrupting you, it's always been that way. They're going to make their percentage regardless and they could care less what happens to you (us) regardless of whether we make out like a bandit or lose our shirts. That's why you make like a squirell and save it back during good times because you know lean times will come. Not if they come, but when they come. If I've learned nothing else in the last half century of farming, it's that good times don't last, but neither do hard times. The secret is not letting the good times go to your head and forgetting that it won't last. Also keep in mind that the two are interrelated, just like day and night. Every day of the year includes night (except in northern Alaska) and even the darkest of night is followed by the light of day (including northern Alaska). In short, farming is and will always be made up of good and bad times and there's no getting around it if you plan on making it long term. The current problem I see is that there are a lot of younger farmers that have never had to face the really tough times and cinching up their belt may be something they are unable (or unwilling) to do until it's too late. If they can't, there's going to be a lot of shiny new, high tech machinery being auctioned off really cheap. Of course old timers like me won't bid on it because we won't have any idea of how to operate it.......

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mark guildenzoph 08/14/2014 @ 9:52am No shit this is why we're screaming about the prices of grain. In central IL we are up to 400$ an acre for rent last year avg, 140 bpa at 4 dollar corn you do the math. Even now the price is well below 4 dollars that's why I have been saying these traders are basically bankrupting us it is joke

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Re: Re: 10/01/2014 @ 11:32am You know it will work out. Farmers all bid each other up on rent now we need a correction. If you are looking for someone to blame find a mirror scream at that guy. That goes for everyone involved in AG. suck it up, be honest with your self and move ahead. Hopefully the poor operators will have a sale and the rest of us will get some cheap machinery and land. Sounds cold huh? well let me ask you something would the plungers that have been paying high cash rent and driving new equipment have shared their wealth with the rest of us? Heck no, so have compassion for them but NO sympathy those guys would have eaten every one of the "prudent" operators alive if they could have. It appears to me the worm has turned in ag. I was a kid in the 70's my dad said then if it continued like it was that it would put him out of business. Then the 80"s came.. they were good to us because we had saved money and limited our debt. by the late 80's we were doing well.

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Re: Re: 08/15/2014 @ 7:37am Do what the rest of the big renters do. Don't put on fertilizer or lime and you too can make a profit. They farm until it's mines and then move on. Heck they even file bankruptcy to keep farming. What gets me is lenders keep loaning them money. After the bank gets in so deep they can't afford to stop loaning. Or at least that's what I think.akes no sense???!!! That's what they do here. Or don't bid 400 stay within your means and profitability.

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