Will land follow the grains lower?
Will cash farmland rental rates follow a projected slide in grain prices in the next few months?
University of Illinois Extension ag economist Gary Schnitkey says it's likely that bountiful corn and soybean crops this fall will hit farmers in their pocketbooks; some expect corn prices in the $4 range and soybeans in the $10 range if a large crop rolls into the bins this fall. That calls for a reexamination of cash rental rates if farmers' income is expected to remain anywhere near today's levels.
"If prices are in the high $4.00 range for corn and $10 range for soybeans, returns will be lower than in recent years. As a result, cash rent levels may need to be reevaluated, particularly for situations in which the current cash rent is above average," Schnitkey says. "Price realizations greatly influence operator and land returns. Take a 40-cent increase in corn price from $4.80 to $5.20 and an 80-cent-per-bushel increase in soybean price from $10.75 to $11.55. This results in a $67-per-acre increase in operator and land return from $333 per acre to $400 per acre."
Read more: Returns and land rents given lower grain prices
Farm Business Talk: Rolling back rents?
Also: The latest on flexible cash land leases
More analysis: The cases for high and low land
With such a grain price and farm income projection, it signals lower cash rents. But is it happening? Many farmers say price projections like these are just part of the equation. Another big element -- one that's also very much in flux right now -- is farm policy and what kind of revenue guarantees farmers can glean from utilizing federal crop revenue insurance products.
"Farmers with good [annual production histories] (APHs) will bid revenue guarantees into rents (assuming you get a farm bill)," says Agriculture.com Farm Business Talk adviser hardnox604008. "Looking forward from that perspective and assuming that we are on the backside of the cycle, then rents will only bleed lower slowly as revenue guarantees slowly decline."
"The decline in revenue guarantees and grain prices would likely hit farmers first and harder than those from whom they're renting farmland," adds Farm Business Talk senior contributor rswfarms.
"If all Iowa farmers lost their $68/acre in farm subsidies, then at first it will be the cash-renting farmer who will take the hit, not the landowner," he says. "Maybe in three years the cash rent per acre will drop the $14/acre value of the farm subsidies. But at first it will be the cash-renting farmer that will feel the pain."
A downturn in grain prices will cause more than a likely trimming of land rent rates. A lot of that depends on farm size, how larger farms structure land deals, and what that means to local prices, adds Farm Business Talk senior contributor bruce MN.
"Entities with large planting and harvesting fleets are looking at severely different margin scenarios. Rolling in and out of a quarter section two or three times a year (plant, spray, harvest) with the sound prospect of breaking just above even is an advantage that someone needing to partially live off of that quarter doesn't have," he says. "Livestock integrators are very interested in renting good corn ground and having it custom farmed. Neighbors of mine have been offered rent and then custom farming their own acres by integrators. The recent round of prices have kept that from happening, but this could change with lower pricing. I can foresee the possibility of more 'subrenting' with that also."