Cash Rents Stall01/27/2017
It’s true falling farm incomes are pressuring cash rents. But rates typically move slowly.
Why? There are two reasons: contract duration and contract terms, says David Widmar, a Purdue agricultural economist.
“It’s rare to renegotiate every contract on every acre every year,” he says. “Therefore, it will probably take several years to get them all lower.”
There are a lot of agreement types beyond flat cash rents, Widmar adds. Bonuses or other incentives might make it advantageous to delay renegotiation.
Geography is also a factor. “Local conditions can really impact rates,” Widmar says.
There’s also a correlation between farmland value and cash rent rates, he says. For example, land values have really “popped” in the past decade in areas such as North Dakota, South Dakota, Iowa and Minnesota. Widmar expects those areas to adjust back more quickly than other areas.
On the other hand, in areas of the South and Southeast that didn’t see a big boom in farmland and cash rent prices, he doesn’t expect a large downward swing, either.
Widmar’s best advice for farmers looking to renegotiate cash rents is to be open and transparent during the process. Understand how the landowner is using the income from rented ground—do they depend on it as stable income or are they treating it as an investment opportunity? That will help identify the optimal type of contract to pursue.
Source: Ben Potter, Top Producer