Pro Farmer Survey Shows Farmers May Walk Away from High Rents11/23/2016
For Indiana corn-and-soybean producer Jason Wykoff, determining how to handle landlords who aren’t interested in long-term relationships has become easier over 22 years of farming. Just this past year, he says, he walked away from 1,200 acres because a landlord had asked too much for rent when it came time for renewal. That’s a growing trend among farmers, according to Pro Farmer’s annual LandOwner Survey.
“We find 44% of our members and subscribers are willing to walk away from a cash lease if that lease is not lowered going into 2017,” says Mike Walsten, editor of LandOwner, part of the Farm Journal Media family. The percentage of producers who “absolutely will” walk away if there’s not a significant cut in cash rents is up 2 points from a year ago.
Producers say they will opt out of high rents if needed
Absolutely Will, 14%
Probably Will, 30%
Probably Will Not, 47%
Absolutely Will Not, 9%
Fully 44% of producers are willing to walk away from high rents up for renewal, based on an unofficial survey of nearly 500 farmers
There isn’t a widespread move-ment to break contracts and walk away from cash rents, points out James Mintert, director of Purdue University’s Center for Commercial Agriculture and a professor of agricultural economics. Yet it’s very common for farmers to not renew a lease because a landlord won’t budge.
“Based on the returns, from my perspective, that’s entirely reasonable,” Mintert says.
Reasons For Leaving
Wykoff decided to not renew the 1,200-acre lease when his landlord ended their share-farming arrangement and requested cash instead. Wykoff says the price was too much for him to be profitable and his relationship with the landlord was not strong.
“This situation started us on a path of deciding we had to put landlords in two categories: one that was those that value relationships and want to work parallel with us into the future, and those [who], for whatever reason, just need to chase the highest rent,” Wykoff says.
Mintert advises farmers to talk to landlords about lowering rates before washing their hands of a piece of rented ground. “You’ve got to have conversations with your landlords and explain how the row-crop business has changed,” he says.
Cash-rent rates are declining, which is good news for farmers. In Wykoff’s home state of Indiana, rates have been on a steady decline since peaking in 2014, according to a Purdue survey conducted in July.
“I don’t think that’s reflective of people walking away from leases,” Mintert says, “but more reflective of farmers having conversations with their landlords that prices from years past aren’t the world we live in now.”
Trend Picks Up
USDA data support a nationwide cash-rent rate decline. This year, rates fell 6% nationwide year over year, the first time that’s happened since 2007. And 74% of farmers included in the LandOwner survey expect cash rents to decline next year.
“This suggests that the issue of decreasing the cash-rental rate for 2017 will likely come up in three out of four rental rate discussions this fall and winter,” Walsten says.
“The decrease anticipated is relatively restrained, however. Some 46% say they expect rents to decline by less than 10%. That’s up from 42% who looked for a decline of less than 10% in 2016 cash rents.”
Cash rents likely to edge lower in new year
Rise by 10% or more, 0%
Rise by less than 10%, 2%
Remain unchanged, 24%
Decline by less than 10%, 46%
Decline by 10% to 19%, 24%
Decline by 20% or more, 4%
Nearly 75% of farmers surveyed expect cash rents to decline in 2017. One in four farmers expects rents to remain unchanged.
Whether farmers stick with a loyal landlord or walk away from a pricey cash rent, they will face a number of difficult decisions over the next year.
“Rent decisions can be emotional,” Wykoff says. “Once we try to take the emotion out of it, they actually then become very easy.”