Cash Rents Not Falling Fast Enough For Farmers
With cash rents not lowering as fast as commodity prices, farmers are still gritting their teeth at high prices per acre at the end of 2015. BUT cash rents are falling, just at a slower pace.
“Cash rents really need to come down,” said Doug Martin, an Illinois corn and soybean farmer. “Rents are coming down, but just not probably quite as fast they should.”
Cash rents tend to lag behind the pace market prices fall at due to farmers still having cash to spend from years past, according to Iowa State University crop markets specialist Chad Hart. High-profit producers are able to snatch up land that others can’t afford, which puts those operators at a competitive advantage and keeps rates higher for a period of time.
A number of factors influence cash rents including commodity prices, land values, and gross farm income. Hart expects to see a drop in cash rent/land value within 1–2 years of the gross farm income dropping 2%.
“The USDA is forecasting around a 40–50% drop in income level, which points to a 20–25% drop in cash rents and land values,” said Hart. “We’ve already seen 14% of that land value drop in Iowa.”
“We think cash rents will continue to decline in the upcoming year,” said Michael Langemeier, a Purdue agricultural economist.
In northern Iowa, cash rents of $300 per acre are being reported, but southern Iowa counties are seeing rents drop below $200 in some areas.
In Indiana, cash rents hadn’t seen any kind of cut in 15 years until 2015. According to a June cash rents survey conducted by Purdue University, Indiana’s cash rent rates averaged $229 per acre on land with average productivity. In west central Indiana, rents as high as $281 were reported while southeastern parts of the state saw a low of $152 per acre.
“We think cash rents will continue to decline in the upcoming year,” said Michael Langemeier, a Purdue agricultural economist. “Something like 5% would be an anticipated price decline.”
With cash rents still a little steep, Langemeier is seeing more interest than ever in flex rent. In Indiana, less that 10% of farmers using that option, but it is something to bring up with a landlord. Just remember that flex rent is variable and very appealing to landlords, he said.