Stable Cash Rent Prices Expected for 2014
It’s a sign of agriculture’s changing fortunes: So far this season, auctioneer Al Hughes of Glenwood, Iowa, hasn’t had a single request for a cash rent auction.
Back in February 2012, Hughes made news auctioning cash leases at more than $500 an acre in north-central Iowa and other parts of the state. Hundreds of farmers and onlookers crammed into motel meeting rooms to watch as bids soared $100 or $200 an acre above the county’s average prices. Young farmers said they appreciated a chance to get in on the bonanza, even if it meant paying top dollar for a minimum of two years.
In the glory years between 2009 and 2013, Iowa’s average cash rent soared from $183 an acre to $270 an acre, up 47%, according to Iowa State University surveys. That included not just arms-length rentals, but sweetheart leases between friends and relatives.
This month farmers are in the thick of negotiating cropland rents, but grain bids for next season’s corn prices have tumbled 40% below 2012-crop levels. Many land grant university budgets forecast negative returns for 2014, especially for those who rent the bulk of their land or pay above-average rental rates. What’s more, they believe cash prices of $4.60 corn and $10.60 soybeans are closer to the long-term average than 2010-2012’s heyday.
Despite evidence that Corn Belt land values are slipping, few expect cash rents to decline much. And any leverage with land owners may depend on how well they were compensated during the up cycle.
“Flex rents are already down, but we have not seen much downward movement on cash rents,” said Jon Hjelm, president of the Acre Company in Spencer, Iowa. “Since they’ve made a lot of money in the past couple years, farmers may be reluctant to be the first in the neighborhood to ask for a lower rent and risk the landowner finding another tenant.”
“It all depends on your rent starting point,” agreed Kevin Dhuyvetter, ag economist with Kansas State University. If you’ve not been paying top rent the past two years, you’re not likely to ask for a lower rent, Dhuyvetter noted. “You may not want to antagonize your landowner and jeopardize your land base,” he added. Some operators may have priced grain a year or more ahead and still have the resources to outbid more conservative operators, he added.
In Illinois, which has some of the highest row-crop cash rents in the nation, a recent survey of professional farm managers and rural appraisers concluded that rents are expected to fall about 4%-5% in 2014 from a 2013 high of $388 per acre for excellent quality farmland. Good-quality Illinois land rented for an average $332 per acre in 2013, according to the statewide survey.
In northwest Kansas last August, retired Kansas State ag economist Terry Kastens noticed “overbidding on cash rent by young people who weren’t doing their homework. That was happening precisely at the time they should be holding the line.”
Now Kastens, who farms with his brother and son, sees mixed results on 2014 rents. “If you were paying peak cash rent last year, I’d say cash rents will back down about 10% for 2014. But many farmers did not get up to peak cash rent levels; either they were farming for family members or for other landowners who didn’t pressure them to push up rents. In some of those cases, cash rents may even go up in 2014.”
LAND VALUES MODERATE
In theory, cash rents and land values should move in tandem. In reality, rents always lag a year or two behind current sales prices.
The effect of falling crop prices is just starting to be reflected in land values, but prices are still higher than a year ago. Two of the three Federal Reserve Banks reporting quarterly banker surveys last week showed farmland values declining.
Bucking the trend was the Kansas City Federal Reserve district covering Missouri, Nebraska, Kansas, Oklahoma and mountain states. It reported slight increases in land values for the third quarter in 2013, and 15% to 22% increases in ranchland, dryland and irrigated cropland compared to a year earlier.
“I consider [a slowdown in land value increases] a good thing,” said Kansas State’s Dhuyvetter. “Land values were growing at unsustainable rates. I don’t want, nor expect, them to crash, but stable to lower land values could be good for agriculture. “It’s just that it may take time for rents to readjust accordingly.”
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