September 10, 2018
One big question comes up this time of year for both farmers and
farmland owners. It is an issue that impacts the cost of production for the
operator and dictates the income received from the farm for the landowner. Both
parties are asking: What will my rent be for next year? Since the cash rent type of lease is predominant in some farm
areas and is increasing in use overall, the question of next year's cash rental
rates is important to agriculture.
With the current lower
commodity prices and on-going trade uncertainties, it would seem there could be
downward pressure on Midwestern cash rental rates for 2019. According to
Farmers National Company Farm Managers across many states, the view is that
cash rental rates for next year will mostly be steady if they were previously
at the market. But, there will be the areas of
the country that will see some potential softening of rents due to below
average yields in 2018 from drought or excess rain in the spring. Also, there
will be a small minority of farmers in financial stress that will be directed
by their lender to lower the rents they pay.
There are multiple reasons for 2019 cash rental terms to stay the same. One is
that despite today's low grain prices, many farmers had the opportunity to
forward price corn and soybeans at similar or better prices than last year.
Also, the soybean tariff payment will help offset some of the price decline.
Good yields in many regions will help stabilize gross revenue for farmers.
Finally, most farmers do not like to give up acres that they are farming, which
leads them to maintain rents in order to keep the lease another year.
On the landowner side of the equation, there is a feeling that cash rental
rates should not go down. Incomes for landowners have come down since the peak
several years ago and now they are looking for stability or an increase in the
coming seasons. Landowners' farm incomes have been squeezed in some states by
increasing property tax rates that puts pressure on maintaining rental rates.
In the end, the return on investment (ROI) for farmland owners hopefully has
bottomed out as interest rates have started to climb. All in all, landowners
have their reasons for cash rental rates remaining steady into 2019.
President - Real Estate Operations