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Variables could slow farmland rent climb

"This is getting nuts."

That's the simple assessment one farmer recently gave for a central Iowa farmland auction that netted more than $8,000 per acre for an 80-acre field with a corn suitability rating in the low 80s.

"All bidders appeared to be neighboring farmers. Bidding was very fast and over in about 15 minutes," says one Agriculture Online Farm Business Talk member of another recent land auction, this one in Winnebago County in north-central Iowa. The sale saw a 110-acre field with a mid-70s CSR sell for $5,600 per acre, "a new high for our immediate area," he says.

Stories like these are common in these days of constant price record-shattering in the Midwest farmland market. What's been a sharp increase in the last few years sharpened even more in the last year, at least in terms of land rental rates, according to the results of an Iowa State University (ISU) Extension survey.

The latest edition of the annual ISU farmland rental rates survey shows the sharpest increase in cash rents in the survey's 14-year history. The average cash rent paid this year is $177, said survey respondents, a group comprising more than 1,000 land tenants, landowners, farm managers, lenders and others involved in the industry. That's compared to $150 per acre in 2007. That number swelled past $200 per acre in some counties for the first time ever, according to ISU Extension economist William Edwards.

In the last half-decade, each year's reporting on farmland values indicates both the value drivers and potential detractors. The potentially bearish "what ifs" are typically overshadowed by the reasons for upward price momentum. As bullish as the market's been, any hesitation in pegging anything but an across-the-board value climb is usually proven wrong.

That trend has changed a bit this year. Though high commodity prices and "consistently good yields in recent years" continue to feed the land price climb, there are more reasons for a potential leveling-off of values in '08, Edwards says. It may not lead to a sea change to falling land rental rates, but it could definitely ebb away at the trend of sharp value gains.

"On the negative side, escalating costs for fuel, fertilizer, seed, pesticides, and machinery have offset some of the higher revenues," he says. "Wet, cool weather and flooding in Iowa may dampen competition for rented land for 2009.

"Opinions [among survey respondents] about rental rates varied widely, even within counties, indicating a great deal of uncertainty this year."

Profit margins are already tight, especially for corn and soybeans. With recent slides in CBOT prices, this could make it difficult to justify planting more, or simply maintaining current crop production levels in the next year or two. Farmer and Agriculture Online Farm Business Talk member northcorn says the land market could be the first place where a smaller corn crop might be foreshadowed.

"I find this interesting that everybody...says corn has to go back to $7.00 [per bushel] to get any planted for '09, yet land prices go higher everyday," he says. "My bet is that the first margin to go when cash flows don't work is land cost. Yet, we (farmers) bid it higher every time!"


"This is getting nuts."

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