By David Bau
Extension Educator
The answer to the question depends upon who is answering. Landlord property taxes continue to increase while farmer’s profit margins have turned negative. The agribusiness management team just completed a state tour completing 47 workshops on what is a fair farmland rental agreement. It seems this year determining what is fair, is a very challenging process.
There were a lot of frustrated people in the workshop audiences, with a composition of two-thirds landlords and one-third farmers. Neither party is happy with the current situation and with the economics in farming. What the farmer can afford to pay for rent and what landlords want to receive for rent.
Good times occurring in the recent past are still on many landlord’s minds, while the current low prices offered for 2016 are on the farmer’s mind. Through the first nine months of 2015 the average cash price in Worthington for corn was $3.52 and soybeans $9.32 continuing the change to lower prices as is indicated on Table 1 below.
Table 1. Cash Prices for Corn and Soybeans, Worthington Minnesota by calendar year.
The fourth column is the average rent paid by farmers in southern Minnesota in adult farm management Programs as part of the FINBIN data base.
The last column is the average property tax paid on owned land in Minnesota in FINBIN data base each year.
As the table indicates, the high prices for corn, when above $6.00 cash, occurred in 2011, 2012 and 2013. While for soybeans high prices, above $12.00, occurred in 2011, 2012, 2013 and 2014. Prices did start going lower in 2014 from 2013 and rents started falling slightly. Now in 2015 prices continue lower, dropping by about one-third as compared to the higher prices. The 2015 average prices are comparable to 2010 when farmland rents averaged $168.25.
The last column shows the average real estate tax paid per acre on owned land again in the FINBIN data base for Minnesota. You can see that property taxes have more than doubled from 2006 through 2014. This is one reason landlords continue to seek an increase in rental rates. Another variable in rent negotiations is the farmer’s profit. This increased from 2006 to 2008, then declined from 2008 to 2009 and then grew to each year to a record for income in 2012 and has been falling since.
There is some delayed reaction to increasing and decreasing prices which account for the challenge in determining what is a fair rental rate, as rents and land values adjust to current grain prices. I stated at the workshops, rents could be staying the same, increasing or decreasing depending on the individual circumstances. They could have had a long term lease that has yet to benefit from the recent high prices. The fall in price and the basic economics of the 2016 crop outlook would encourage lower rental rates; if rents are lowered maybe a flexible component could be added to account for potential increased prices. Many landlords will want them to stay the same, but at current prices this will cause many farmers to lose money.
If 2016 grain prices were to improve, the frustrations for both landlord and farmers would decline.
Source:umn.edu