Downsizing Costs for $3 Corn

Cash Renters Get Ready to Diet

Iowa farmer Ben Riensche mailed notices to landowners this week, appealing for rent adjustments. (Courtesy photo by Lisa Riensche)

HADDONFIELD, N.J. (DTN) -- When he steps on his cardiologist's scale at the Mayo Clinic Sept. 1, Iowa farmer Ben Riensche expects to have shed nearly 200 pounds since his last annual checkup. The Iowa farmer doesn't expect to lose as much weight from 2017 cash rents as he did on his near-Paleo diet, but he hopes slimmer lease rates will help his cost of production downsize for $3 corn.

September 1 also is Iowa's legal deadline for terminating farmland rentals for the coming production year, and it's bringing past and projected farm losses to the fore. Either the renter or the owner can terminate the lease now, or terminate with the intention of retaining the operator but postponing a decision on resetting rental rates until after harvest.

"We're seeing quite a few lease terminations this year, not to cancel the lease, but with people asking to extend negotiations on rates into January," said Chris Barron, a Rowley, Iowa, farmer and farm financial adviser. This attitude of "wait-and-see-what-happens to commodity prices" has really gained traction, he added.

Profit margins for most Midwest cash renters have been grim since 2014, topped by average $100-per-acre losses for Illinois growers in 2015 and perhaps cumulative losses double that scale the past three years, some farm lenders estimate. A Rabobank analyst recently reported that three consecutive years of losses will have "evaporated" farm working capital below acceptable credit standards in many cases.

At a recent seed company conference, other lenders said they believe average Iowa rents need to gravitate to around $190 per acre to restore profitability, but that adjustment could take several more years and leave operators accruing losses in the interim. (Iowa's average cash rents peaked at $260 per acre in 2014, but dipped to $235 in 2016, USDA says. Premium land once commanded rents of $350 and up.)

"A lot of cash renters paying market rates made money in 2011 and 2012, but gave back everything they made in 2013, 2014 and 2015," Barron said. "Record 2016 yields lower costs per bushel, but even so, not many of my clients are in the black today. A 50-cent corn rally would get maybe half of them back in the black and in survival mode."

University of Illinois economist Gary Schnitkey agrees most cash renters need closer to $4 corn to break even. But if corn prices average only $3.50 per bushel next season -- with no farm program payments on the horizon -- even many high-yielding 200-bushel Illinois farms could lose $65 an acre on $245 cash rent, Schnitkey estimates. (Soybeans at $9 or $9.50 offer a better prognosis.)


News stories about growing financial hardships have helped sway owner attitudes this season, Riensche said. A year ago, some owners balked at appeals for rent relief and some negotiations continued until planting season.

"Now landlords seem to have the intuition that changes need to be made. In fact, most of them are just waiting for us to pop the question," Riensche added. "Most realize that they were living on borrowed time. Maybe rents should have gone up faster when corn prices were escalating, but they should have also come down faster on the other end."

The other factor in Riensche's favor is that he paid landowners premiums after unusually good years from 2010 to 2014. "We gave a bonus if a landlord was locked mid-stream in a reasonable multi-year lease that was under the trend. We also voluntarily increased year-to-year leases if the land owner was too shy to ask for something more in line with the market," he said. Other landowners received improvements in lieu of cash, such as tiling, waterways or conservation work.

"It's surprised me, but they have not forgotten that we 'bonused' them on the way up [in commodity prices] and they're being magnanimous on the way down," Riensche said.

Landowners in high-property-tax states like Nebraska, Ohio and Indiana may be a little more reticent to adjust. In northeast Ohio, property taxes are running $58 to $75 per acre "which doesn't look so good if rent is $150," a DTN subscriber points out.

Randy Hertz, CEO of Hertz Farm Management in Nevada, Iowa, is sympathetic to operators' needs, but cautioned that average rent reductions might not be as big as some anticipate.

"It all depends on how well informed farmland owners are and what kind of rent adjustments were made the past few years. It's the average and above-average rents that need concessions," he said. "If you've got somebody from the big city who doesn't understand the economics of farming, they may not be quite so interested in working with their farm operators." His firm held a dozen landowner education courses across the Midwest this summer, to prepare owners for the new rental climate.

"Renting farmland isn't like commercial property or leasing an apartment in downtown New York," Hertz said. "Some owners think you can just find anyone to pay the rent, but that's not the case in agriculture."

For other related DTN coverage of cash rent, see

Farmers Confront a Cash Rent Crunch…

Deeper Discounts Needed for Subpar Land…

Will Big Renters Run Out of Gas?…

Land Market Shakes Off Commodity Crash…

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