There's a big gap between what average cash renters need in 2016 rent relief and what professional farm managers and some independent landowners are willing to give, as Elizabeth Williams and I reported in our recent series, "Cash Rent Reset."
Obviously, projected budgets with $100 to $150/acre losses on corn don't seem to be making the case with owners. I can only compare this attitudinal difference to the book, "Men are from Mars and Women are from Venus." The two camps view the problem with far different lenses on reality. It could be that some owners feel underappreciated, after the Peak Corn profits of 2006-2013, or the perception that crop insurance proceeds and government transfer payments ought to come into the picture, even though they can be difficult to predict and can come a year after harvest.
Most farm operators I know profess to pay landowners the going rental rates in their counties, add big bonuses in bumper years like 2012, manicure fields like a golf course, and open their books to share breakevens, yields and soil tests. They want to prove they use best conservation practices and don't mine soil fertility.
Unfortunately, I hear from landowners who complain they don't know yields on the land they own, never see a bonus or haven't had a rate adjustment for years. Some who rent to siblings say their on-farm partners feel entitled to make decisions, such as always charging under the going rate just because they're family. Over the weekend, one Michigan farmland owner--a Wall Street banker who bought a farm in his hometown recently--complained the cash rent hadn't been adjusted in more than a decade by the previous owner, so he's more inclined to turn it back to a hunting preserve than farm it at these rates.
Jim from Indiana emailed to ask where were the bonuses when renters were clearing $1,200 to $1,600/acre?
"I have two very good tenants with set lease terms based on Purdue's Land Value and
Rents bulletin, which was gathered in June and is probably out of date now," Jim says. "We have not discussed 2016 rent, but both tenants receive FSA payments and insurance. I never see the amounts, therefore I am at a loss as to the gross amount received per acre. I am sure we will come to an agreement, if not I am prepared to either hire it done or let it sit idle. I still wonder where were you when bonuses could have been paid? We wouldn't mind taking a big cut now."
Both professionally managed farms and independent cash rents will likely fall on average in 2016, but neither will tumble enough to help tenants reach breakeven at $3.85 corn and $9 soybeans, University of Illinois economist Gary Schnitkey concluded in a Sept. 22 post on farmdoc daily. http://farmdocdaily.illinois.edu/…
Schnitkey reports a survey of Illinois farm managers shows they expect excellent quality farmland (yields over 190 bpa corn) to bring $318 next year, down from $374 in 2014, or about 15% from their peak. Lower quality land will absorb similar cuts. The problem is, that's more than $100/acre above potential returns for operators before cash rent. If projections pan out, it will be the third year in a row that operators will shoulder net losses on rented property, Schnitkey says.
Farmers like my friend Mark from Ohio seem to be able to speak landlord language. He opens his books to his land partners, so they know his yields and prices. He's converted almost all of his leases to flex arrangements, so they highly rewarded owners during the Peak Corn years. Owners seem willing to share the risks of 2016, given his track record. If prices and/or yields rise more than expected, they will share the wealth with a bonus.
"I even had one landowner who returned my bonus check in 2013," Mark said. "You don't hear about that in the media." We should all be so lucky.
For a recap of what's at stake in 2016, or to share DTN's recent "Cash Rent Reset" series with your landowners, go to at http://www.dtn.com/…
For a DTN Reporter's Notebook video on 2016 cash rents, go to http://bit.ly/…
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