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January 27, 2020
The season for renewing spring planted crop farm leases normally stretches from before fall harvest up to planting time, with the bulk of renewals taking place post-harvest into early winter. In the wheat-fallow regions, lease renewals are generally around the summer harvest season. Renewing leases in the Midwest got off to a slower than normal start with a delayed harvest along with trade, grain market, and MFP payment uncertainties causing both farmers and landowners to put a pause to rent negotiations.
With the growing prevalence of cash rent leases, setting the rental payment terms becomes of prime importance to the tenant and the landowner as it sets the owner's income for the crop year and the farmer's land cost. More risk is transferred to the tenant in a cash rent lease when compared to crop share terms, in which yield and grain price risks are divided in various manners between landowner and tenant.
During the 2020 leasing season, Farmers National Company farm managers are renewing cash rent terms at the same rental rate as last year for most of the farms managed under a cash rent lease. Despite the challenging year in 2019, yields in most areas were better than expected and the support of crop insurance for prevent plant and crop losses helped with 2019-2020 cash flows.
The biggest boost to farm income came from the multiple MFP payments spanning 2018 and 2019 stretching into 2020. These payments definitely gave a boost to net farm income and helped improve cash flow for farm operators. The result of these financial factors along with the hope for a rebound in grain prices from a smaller crop and the potential for increased Chinese trade has improved farmer optimism for 2020, which translated into a willingness to renew rental rates the same as last year.
There are the occasional situations happening where the tenant is walking away from renting a farm in 2020 due to their financial condition. As the operating loan season for farmers and lenders gets closer to spring planting, there will be a few additional tenants who can't get financing and have to give up a farm or farms to rent for 2020. But overall, the lease renewal season has moved along with mostly steady cash rental rates and steady tenants in place.
Senior Vice President - Real Estate Operations
|Category: Farm Management News|