Source: Farmers National Company news release
Cash rent terms are one of the most popular items of discussion in farm country today. As more farm leases switched from a crop share lease to a cash rent lease, both farmers and landowners paid attention to the rates or the rental amount paid each year.
As farm incomes climbed dramatically earlier in this decade, rents followed the trend up. Now that we are in the sixth year of lower farm income, cash rental rates have declined, but not as much as some would assume given lower commodity prices and farm incomes.
For the 2019 crop season, Farmers National Company saw cash rental rates remain fairly steady with only a minor drift lower overall. Farmer interest in rental land remained strong enough in most areas to support cash rent prices. In those areas that experienced lower yields in the past year or more and in the northern plains states which are experiencing the lowest grain prices, there were additional issues in establishing cash rents.
Despite continued pressure on farm incomes and working capital, Farmers National Company had an excellent experience collecting rental payments on their client’s managed farms. Proper due diligence and management experience help Farmers National Company collect each year’s rent when due.
Land rents are usually a bit slower to go up as land values and farm incomes increase while rents are slower to decline when farm incomes go down as in recent years. This has several reasons. Landowner costs in many states have not changed in recent years and in some states, property taxes saw large increases which have not moderated much over the last couple of years.
With fixed or increasing landowner costs, it is more difficult to see rents or the owner’s income move lower. On the farmer side of the rental equation, most operators want to farm more land to spread out their fixed cost of equipment or they at least do not want to shrink their acreage base. Therefore, most farmers will be willing to maintain current rents or offer only slightly lower rents so that they can still rent the land. Therefore, cash rents remained fairly steady for 2019.
Looking ahead, there are many uncertainties that could cloud the farm rental market for 2020. Resolution of trade issues, lasting effects of trade disruptions, weather during the 2019 growing season, 2019 yields, demand for US crops, and whether there will be additional USDA support payments triggered by the continuing trade losses. As the 2019 season moves along, we will begin to see how these issues play out and affect farm income, producer finances, and the 2020 rental market.