Much has been written recently about how far grain prices have dropped in the past 18 months. One major grain elevator in Central Illinois is offering $3.50 per bushel for corn this fall, and $3.75 for next year’s crop. Not exactly the prices many farmers and landlords have come to expect the past few years. In theory, this should lead to lower cash rents for 2015, and one noted agricultural economist has already published an article about how farmers need to renegotiate lease rates for next year in order to compensate for the reduced income. Yes, in theory that may seem logical, however…
A recent article by Elizabeth Williams published on the dtnprogressivefarmer.com website (Rents Resist Price Relief) seems to indicate that these lower rents may not actually materialize… at least not in 2015. I see this resistance to change driven by three factors…
1. Anticipated bin-busting yields that will provide farmers with a lot more bushels to sell than normal;
2. Many farmers have at least part of their grain sold well above the current $3.50 level; and,
3. Most farmers don’t want to risk losing a tract simply because the profit margins for this year (and next) are lower than what they may have become accustomed to.
Of the three factors listed above, I feel that #3 may be the most important. The majority of farmers that I work with have A. the financial capacity; B. enough extra equipment; and C. the drive (or ego) to expand their operations. And yet, the resource they covet the most (the land) is limited. Right or wrong, many farmers know that if they don’t pay what the landlord is asking, then it’s quite likely that a neighbor will. And once they give a farm up, there’s a very good chance that they won’t ever have the opportunity to get it back.
Yes, the reality of the cash rent market may seem a bit harsh… and many landlords will undoubtedly provide rent relief to their tenants next year. But all farmers need to remember that they have a lot of competitors that want to add acres to their operations. These are the people that will really determine what rents are going to do in 2015, not necessarily the landlords.