Will Farmland Cash Rents Finally Ease Up?
November 27, 2013 — While most farm input costs have increased during the past few years, few inputs have outpaced the surge in the cash rents farmers have experienced. For example, the Minnesota Agricultural Statistic Service reported rents across the state increased by 11.1% from 2011 to 2012 and another 18% from 2012 to 2013. Some states have seen even higher rent increases since 2010.
Declining commodity prices during the past year should result in lower or flat farmland rental rates in 2014 compared to 2013, according to David Bau, Univ. of Minnesota Extension educator.
Rented Acres vs. Owned Acres
According to USDA’s Agricultural Resource Management Survey (ARMS), approximately 56% of U.S. farmland acreage is owner-operated, with most of the remaining acres either rented or share cropped.
ARMS suggests that in 2010 (most recent data) agricultural production accounted for approximately 853 million acres in the U.S., of which approximately 480 million is owned by the farm operating that land. Farms rented an additional 292 million acres through fixed or flexible cash rent agreements, 61 million through share rent agreements, and 19 million acres “for free.”
But these percentages vary dramatically by state and farm type. For example, only 41% of farmland acreage in Illinois is owner-operated. That’s roughly the same percentage of land that’s rented under fixed or flexible cash agreement (40%). In addition, share rental agreements account for a larger portion of Illinois farmland acreage (18%).
Although the majority of agricultural lands in the U.S. are owner-operated, the proportion of land rented varies substantially across types of farms. According to the ARMS data, smaller farms own a larger share of the land they operate. The “rural residence” farms across the U.S. own a very large portion of the acres they operate (75%). Larger farms, on the other hand, rent a majority of their acreage. For example, only 44% of the land operated by “commercial” farms is owned by the farm operator. In Illinois it’s only 26%.
Cash Rents Settling Down
A November 22 report by Jonathan Knutson, Forum News Service, INFORUM, says “After years of big annual increases, farmland rental rates appear to be stabilizing.” (http://www.inforum.com/event/article/id/419188/)
“It looks like they’re staying steady,” says Kent Thiesse, a former Univ. of Minnesota Extension farm educator and now farm management analyst and vice president with MinnStar Bank in Lake Crystal, Minn.
John Botsford, an independent farm management consultant based in Grand Forks, N.D., has the same assessment.
“It’s fairly steady, I’d say,” says Botsford, who leads Bremer Bank’s Farm Management Division. “There’s still plenty of demand for leased land, although the drop in commodity prices is giving pause to some people.”
His group manages farm property from southern Minnesota through North Dakota and South Dakota into northeast Montana.
Other experts also use “steady” or “stable” to describe their outlook for rental rates in 2014. Though some old, out-of-date rates are expected to rise, nobody expects the explosive, widespread increases so common in recent years.
But experts don’t expect rental rates, on balance, to decline, either.
“I don’t see them dropping,” says Andy Swenson, North Dakota State Univ. Extension Service farm management specialist.
Though crop prices have plunged in the past year, they remain relatively high by historical standards.
Five years ago, for instance, soybeans fetched an average of about $7 per bushel at area grain elevators surveyed weekly by Agweek. Now, even after a recent decline, soybeans average about $12 per bushel at the elevators.
Another consideration is the costs of some expenses have dropped in the past year, which strengthens the outlook for potential profits in 2014, says Charles Peterson, Fargo-based vice president for U.S. Bank’s Farm Management Group.
His organization manages about 450,000 acres of farmland, and he personally manages 45,000 acres of farmland in 26 counties in North Dakota and Minnesota.
The Farm Management Group runs crop budgets, which include the cost of expenses, for every farm it manages.
“We know the bottom line (financially) of each farm,” Peterson says. “We want what’s fair for the farmer, fair for the tenant.”