Trends In Farmland Rental Rates

By David Bau

Recently I attended a meeting discussing the results of Southwest Minnesota Adult Farm Management in 2015. The numbers indicated the declining profits even with excellent yields in 2015. The group of farmers average rents declined by 6.7% from 2014 to 2015. Rents declined from an average of $239 in 2014 to an average of $223 in 2015. The compares to USDA rent figures published in September 2015 by the Minnesota Agricultural Statistic Service stating Minnesota statewide average rent declined by 2.7 percent from $185 in 2014 to $180 in 2015.

So what will happen with rents in 2016? The trend should again be down with both corn and soybean prices continuing to be lower than the previous year as indicated on chart below. Average prices for corn and soybean in Worthington, Minnesota for 2006 through 2015 are listed along with the first three months for 2016. This compared to the average rents for 14 counties in SW Minnesota including Brown, Cottonwood, Jackson, Lincoln, Lyon, Martin, Murray, Nicollet, Nobles, Pipestone, Redwood, Rock, Sibley and Watonwan.

The table shows the dramatic increase in corn and soybean prices from 2006 through 2013 and then declines every year since. Starting at left of table column two lists average cash price for corn, column three lists the percent of the price compared to 2007, column 4 is the yearly average soybean price, column 5 is price as percent of 2007 price. Column 6 is the average rent in 14 SW Minnesota counties, column 7 is the percent compared to 2007 rents, and column 8 listed the average of the corn and soybean price percentages.

Examining columns 7 and 8, average cash prices for corn and soybeans as a percent of 2007 peaked in 2012 and has been declining since while rents have followed the price trends with a two year lag before they started declining in 2015. Column 9 indicates what average rents would be using 2007 corn and soybean prices as a benchmark and applying the percent change to 2007 to determine an average rental rate.  As you can see, rents would be much lower than current projected rents for 2016 and rents since 2007 with only 2011 rents estimated higher than actual average rents in column 6.

There are several factors that determine rental rates beyond corn and soybean prices such as contract length, property taxes, market place competition, and previous year’s profitability. With corn and soybeans as the major crops grown in Minnesota, as these commodity prices change has a direct and dramatic effect on profits, rate of return to land and rents.

Source:umn.edu