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Extension > Agricultural Business Management News > To Rent or Not to Rent??

Monday, February 19, 2018

To Rent or Not to Rent??

By David Bau, Extension Educator

Farmland rental rates have remained high even though grain prices have gone down significantly.  As grain prices rose farmland rental rates were slow to increase. When grain prices started to fall in 2013, farmland rental rates started to decline, but at a much slower pace than grain prices.

The average cash prices for corn and soybeans in 2012 in Worthington were $6.82 for corn and $12.64 for soybeans.  The average price of corn declined each year since while soybean prices peaked with an average price of $13.99 in 2013. From 2012 through 2016, corn prices declined by 54.5% and soybean prices by 27% , while average rents paid by southern Minnesota in adult farm management programs declined from a peak of $243.47 in 2013 to $226.85 in 2016 or 7%.  Corn and soybean prices declined by an average of 41% and if this was applied to 2013 average rental rates the average rate in 2016 would calculate to $143.65.

Many rents are still above $200, $250 and higher.  If I use $250 rental rate and total cost of production estimate for 2018 of $760 per acre for corn and $530 for soybeans.  Using expected yields of 200 bushels per acre for corn and 55 bushels per acre for soybeans the cost per bushel calculates break evens of $3.80 for corn and $9.64 for soybeans.  Current 2018 cash bids are $3.25 for corn and $9.30 for soybeans, both below the breakeven prices necessary above.

Why would a farm rent land for $250 per acre or higher next year?  The farmer has to ask the question to rent or not to rent?  What are some reasons to rent with a potential loss forecast?  Farmers are optimists and they are always hoping for better prices, and prices could increase to cover their costs.  Farmers need to maintain their size to generate sufficient income to cover their living expenses and equate their equipment with the farm size.  Once a rental parcel is lost, it is hard to ever get back into the operation and if the farm size shrinks, it might fall to a level where the farmer will have to look for ways other than farming to provide for their living expenses.  Other job opportunities are limited in rural communities.

With the projected prices producing negative income from renting why should the farm say no?  If the farmer has good records, they know every parcel of land and which has great potential each year to produce an exceptional crop and which parcels are subject to drought with lighter soils and which will drowned out due to water holes with poor drainage.  These poorer parcels should be the first to go.  If this reduces your farmed acres too much, examine ways to utilize your equipment differently, through custom work, or sharing equipment with a similar sized farmer.

For farmers who decide not to rent, they may determine farming can no longer provide for them a living wage and they will need to find a new occupation.

Many landlords have been slow to lower rents due to good yields the past three years.  Many look at their high property taxes and land values and think rents should reflect this.  Rents account for 1/3 of the costs on corn and 2/5 of costs for soybeans and if a farmer is unable to negotiate a lower rent that will be a major factor in having to say no.

Over 1200 farmers in southern Minnesota in the Adult Farm Management programs have lost money on cash rented corn ground since 2014 and looks like this will hold true for 2017 and 2018 and as farmers have been unable to pay back operating loans with these losses, many will be getting a no from their banker if the profitability numbers don’t improve and that will be a decision not to rent they did not want to make.

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