Each year I put together tables listing actual farmland rental rates by county from Adult Farm Management Records. Unfortunately farmers and landlords are starting to negotiate 2017 farmland rental rates and the last actual numbers available are for 2015 so I am forced to estimate figures for 2016 and 2017. When I did this last year I used an estimate of a 5% decline and the actual figure came in at 5.3% decline statewide. For 2016 I heard many times that rents were down $20 to $25 per acre, although some rents went up and some remained the same. In table 1 below I estimated a 10% decline in 2016 from 2015.
But what direction should 2017 farmland rental rates go? How do I determine an estimate for 2017 farmland rental rates?
Should they stay the same?
Landlord property taxes continue to increase, while schools pass referendums that also increase taxes. If rents stay the same, a landlord’s income will go down if taxes increase and if taxes are not increasing the revenue to the landlord will remain constant, when they have grown accustomed to significant increases since 2007.
Should they go up?
Landlord expenses increase as property taxes increase and they want to pass this cost increase onto the farmer and increase the rental rate. Another example might be where there has been a long term lease in place where the rental rate has not changed for many years and this rate might be considered low today and due for an increase.
Should they go down?
Farmers have experienced decreasing corn and soybean prices since record high prices in 2012 for corn and 2013 for soybeans and current prices offered for 2017 corn and beans are below what farmers sold their grain for in 2007, when rents were $125 per acre. Average production budgets for 2017 indicate losses for farmers if rents are above $100 per acre. With the average rents in Table 1 in 2015 averaging $217 per acre, to go down to $100 per acre would be over 50% reduction in average rents.
So you could make an argument for all three scenarios, but looking at the economics for corn and soybean production in 2017 using 180 bushels per acre, yield and $3.25 price per bushel, for corn and 50 bushel yield and $9.00 price for soybeans, income would be $585 for corn per acre and $450 for soybeans. With average cost projected to be $555 for corn and $290 for soybeans before rent and labor, this would leave $30 per acre for corn and $160 per acre for soybeans to be shared between the landlord as rent and the farmer and income. This would be an average of $90 per acre to be shared.
So I projected a 7% decline in rental rates from 2016 to 2017 for figures listed in Table 1.
But from earlier examples 2017 farmland rates could go down by over 50% or increase from 2016 rates depending on the individual situations. It will be a very challenging year for both the landlord and farmer to determine where the 2017 farmland rental rate should be.
Table 1. Average County Farmland Rental Rates from 2007 to 2017