INDIANOLA, Iowa (DTN) -- As with politics, all cash rents are local. However, the general consensus around the Midwest is farm profit margins are still tight and pressure is on cash rents.
The determining factor of how much to adjust cash rent for next year depends on what adjustments you made in 2017, according to Extension ag economists around the Corn Belt. If you made larger adjustments last year, then cash rents for 2018 will likely be stable. However, if last year you kept rental payments relatively steady, farm operators will push for lower cash rents in 2018 just to break even.
"Margins are still tight -- there is no doubt about that, and producers are focused on reducing costs," said Craig Dobbins, Purdue professor of agricultural economics.
HIGHEST RENTS COMING DOWN
"I don't hear above $300-per-acre rents anymore," reported Gary Schnitkey, professor and farm management specialist with the University of Illinois. "Even on the very best ground, it's hard to make that work."
USDA released its county-by-county cash rent survey results in mid-September. In highly productive central Illinois, the average cash rent was $254 per acre in 2017 compared to $240 in 2016, up 0.6%. The highest 2017 cash rents in USDA's survey, from $280-$289 per acre, were reported in three counties: Macon, Sagamon and Logan.
"Last year, central Illinois had exceptional yields and large ARC (Agricultural Risk Coverage) payments from USDA," explained Schnitkey. That was happening at the same time farmers were negotiating rents for 2017.
This year, the outlook is not as rosy. "We had drought in the central and southern parts of the state, and we were too wet in northern Illinois. Corn yields are down 20 to 30 bushels per acre in central Illinois compared to last year, and farmers will receive less in government program payments," said Schnitkey.
"Farm operators need to reduce expenses by another $20 to $30 per acre to break even for 2018," Schnitkey said. Some of that (about $10 per acre in central Illinois) will come from lower fertilizer prices, but another large portion will have to come in lower land costs.
DOWNWARD PRESSURE IN INDIANA
"In Indiana, cash rents are looking at downward adjustments for 2018," says Dobbins. "Two years ago, we had fairly major downward adjustments. Then last year, going from 2016 into 2017, rents were mostly stable. At the time of negotiations last year, farmers were harvesting big yields, which gave them some confidence of higher profits. But commodity prices have not recovered."
In 2017, USDA reported cash rents for irrigated land in west-central Indiana averaged $258 per acre and dryland rented for an average $219 per acre.
Dobbins doesn't think Indiana rents will drop as much as 9% as they did going into 2016, but he said he wouldn't be surprised if cash rents eased off 3% to 5% for 2018.
EVERY SITUATION IS DIFFERENT
"It's hard to generalize," said Ann Johanns, Iowa State University Extension program specialist in farm management. "I don't think we'll see much change across the state of Iowa, but I've been pushing people to look at individual arrangements. If you rode the cash rents to their peak, you likely need to reduce them more now.
"You cannot continue to lose money on rented ground," said Johanns.
In USDA's survey, only nine Iowa counties averaged over $250 per acre rent for non-irrigated cropland in 2017. Benton, Bremer and Grundy counties topped the state near $270 an acre, according to the survey. Cherokee, Plymouth and Sioux reported an average cash rent around $260 per acre in 2017. Cedar, Ida and Franklin were just above $250 per acre cash rent for a county average on non-irrigated cropland.
"We're hearing more interest in implementing conservation practices from both tenants and landowners, but they don't know how to start the conversation," Johanns said. "If rents can't come down, some operators are negotiating to have the landowner pay for cover crops or other conservation practices," she added.
Nebraska reported seven counties with average cash rents more than $275. Cedar County topped the state with an average of $311 per acre for irrigated cropland, according to the 2017 USDA survey. That was the only Nebraska county above $300 an acre. Cuming and Wayne county averages were around $290 per acre for irrigated land. Platte County reported irrigated cash rents averaging $285 per acre in 2017. The only other Nebraska counties with irrigated rents averaging above $275 per acre in 2017 were Stanton ($277/ac) and Seward ($278/ac).
In Missouri, cash rent rates dropped overall, with the largest decline in the northwest. DeKalb County's average dropped $27 per acre in 2017 while Worth County fell $23 an acre. Statewide, the average cash rent for cropland slid less than 1%. Atchison County in northwestern Missouri topped the state's cropland rent rate at $188 per acre in 2017. University of Missouri Extension agriculture business specialist Joe Koenen expects pressure on cropland rental rates will continue in the next year.
For USDA's cash rent survey, visit: https://quickstats.nass.usda.gov. Click on Survey, Economics, Expenses, Ag Services & Rent. Then enter the county, state and year you want.
Elizabeth Williams can be reached at email@example.com
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