Cash rent prices dropping slightly

Cash rent prices dropping slightly

Lower commodity prices decrease farmland rental prices.

LOWER commodity prices this year have many farmers keeping a closer watch on their bottom line, and for farmers who rent land, slight relief from paying soaring rent prices may be in sight.

The University of Illinois and Iowa State University both recently reported that cash rent prices for farmland have come down somewhat, reflecting the overall lower farming price conditions.

Iowa State's "2014 Cash Rental Rates Survey" revealed a modest $10 decrease in average rent prices, from $270 per acre in 2013 to $260 for 2014. While the decrease is about 4% lower than last year, the rate is still about 3% higher than 2012 prices.

All crop reporting districts in Iowa reported a decline in rent prices, except for the southeast corner, which was even with last year at $229 per acre. The west central district reported the highest average cash rent at $288 per acre, a decrease from $294 last year.

The University of Illinois reported that cash rent prices for professionally managed farmland also have been decreasing in 2014. For excellent-quality farmland, midpoint cash rent decreased from $396 per acre in 2013 to $375 in 2014, a decrease of $21 per acre (Table).

Other cash rent categories saw similar decreases. Cash rents on good-quality farmland declined from $339 in 2013 to $323 in 2014, a decrease of $16 per acre. Average-quality farmland rents decreased from $285 in 2013 to $277 in 2014, down $8 per acre. Fair-quality farmland decreased from $235 in 2013 to $219 in 2014, down $16 per acre.

Gary Schnitkey, an agricultural economist at the University of Illinois, said differences between professionally managed farmland prices and average prices mean they do not always follow the same trends.

"Cash rents on professionally managed farmland differ from 'average' cash rents in at least two respects," Schnitkey explained. "First, professionally managed cash rents are higher than average cash rents. In 2013, professionally managed cash rents were $73 per acre higher than average cash rents reported by the National Agricultural Statistics Service."

Second, Schnitkey pointed out that cash rents on professionally managed farmland increased faster than average cash rents between 2006 and 2013.

"During this period, agricultural returns were relatively high, thereby supporting higher cash rents," he said. "Professional farm managers likely were more aware of market conditions than typical land owners, leading to higher cash rents on professionally managed farmland."

Schnitkey did note that the decline in 2014 cash rents on professionally managed farmland may also have resulted from the lower commodity prices occurring since the summer of 2013, signaling lower returns in 2014 and the need to adjust cash rents downward.

Schnitkey suggested that these differences mean that a decrease in professionally managed farmland rent in 2014 does not necessarily indicate that average cash rent also will decrease in 2014.

"Because of lagged relationships between agricultural returns and cash rents, average cash rents may not decrease," he said. "In fact, it is possible that there will be modest increases in the average cash rents for 2014 (that will be) released by the National Agricultural Statistics Service in September of this year."

Schnitkey did, however, point out that 2014 decreases in professional cash rents may signal a broader decrease in cash rents moving into 2015.

"Average cash rents may decrease, particularly if commodity prices are low. Corn prices below $4.00/bu. likely will lead to larger decreases in cash rents, while prices nearer $4.50/bu. will lead to more modest decreases," he said.

 

History of cash rents for mid-1/3 of cash rent leases on professionally managed farmland

 

-Land quality-

 

Excellent

Good

Average

Fair

Year

-$/acre-

2007

183

164

144

120

2008

241

207

172

138

2009

267

221

187

155

2010

268

231

189

156

2011

319

271

220

183

2012

379

331

270

218

2013

396

339

285

235

2014

375

323

277

219

*Excellent-quality farmland has expected yields of more than 190 bu./acre; good quality has expected yields between 170 and 190 bu./acre; average has expected yields between 150 and 170 bu./acre, and fair quality has expected yields below 150 bu./acre.

Source: Illinois Society of Professional Farm Managers & Rural Appraisers.

 

Volume:86 Issue:19

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