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Extension > Agricultural Business Management News > Farmland Rental Rates for 2015 that Work for Both Parties

Wednesday, October 1, 2014

Farmland Rental Rates for 2015 that Work for Both Parties

By David Bau, Extension Educator

I have completed two of 44 farmland rental workshops with most scheduled for November and December. The budgets for 2015 are ugly using current 2015 forward contract prices offered with both corn and soybean budgets in the red. Corn is negative by more than the average rent paid in 2014 and the farmer receiving no labor and management payment. The 2013 average rents in Southern Minnesota were $243 in the FINBIN database and the data provided by the Minnesota Agricultural Statistic Service in September listed the average rents as $227 per acre in 2013 and $237 in 2014.

Today's 2015 forward contract corn price is $3.27 and soybean price is $8.84. The record corn and soybean prices of recent years have significantly impacted land rents. Crop production expenses, farm profits and cropland rental rates all increased during the recent golden era of farming. Projected average input costs for 2015 based on adult farm management numbers for Southern Minnesota in the FINBIN database project to $639 for corn and $306 for soybeans before paying rent and paying no income for farmer labor and management. The numbers are in the red, using 180 bushels of corn per acre at $3.27 per bushel provides a gross income of $588.60 compared to $639 expense leave a loss of over $50 per acres before paying any rent. Using 50 bushels for soybeans at $8.84 generates $442 gross income, leaves $136 after $306 of expenses, to share between the farmer for labor and landlord for rent.

Last month I examined the last time average corn and bean prices fell compared to the previous year 2009 compared to 2008 prices to determine if land rents moved lower as commodity prices fell. The data indicated no decline in farmland rental rates, although commodity prices rebounded the next year to higher levels. Using $250 for an average rental rate, a farmer would receive no income for labor and management and have a loss of $300 per acre for corn and a loss of $114 per acre for soybeans. In a 50-50 crop rotation, the loss would average $207 per acre for the farmer.

Examining the numbers in another way, if a farmer wanted to farm for free and have no income, they could afford to pay $43 per acre rent, in a 50-50 corn soybean crop rotation. Anything over this amount would come out of the farmer's pocket. Budgets should also be impacted by new farm bill with payments if prices remain at low levels. In order for to cover rents and $60 labor charge per acre, the corn price would have to reach $5.27 and soybeans $12.32 per bushel using the projected average input costs for 2015.

So what is a fair rental agreement? Usually it is an agreement where the landlord receives a fair rental payment and the farmers receives a fair profit. In the above scenario neither the farmer nor the landlord think the numbers are fair using $43 for rent and no income for farmer. Farmland sales in Minnesota increased by over 22% from 2012 to 2013, this has caused property taxes to increase as well for landlord.

So how do you approach this troubling situation? Start by agreeing to a lower base rent up front and then add flexible components. If yield are better than average both parties should benefit. If prices improve from these harvest lows, both parties should benefit. If a farmer can maintain yields with lower input costs, both parties should benefit. These can all be components of flexible lease agreement.

The last time prices declined significantly from previous year was 2009. If prices remain at these current lower levels, how long before rents begin to decline and approach the 2009 average of $168 or the 2010 average of $169 per acre?

Make plans to attend a farmland rental workshop this fall for current numbers. Check out the Agricultural Business Management calendar for schedule of the rental workshops at: http://www.extension.umn.edu/agriculture/business/ for specific times and locations.


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