By David Bau
In Table 1 below I compare the changes in average farmland rental rates to the annual changes in corn and soybean prices. I did to determine how closely farmland rental rates follow the changes in corn and soybean prices.
Column 1 lists the years used for comparison starting in 2000 going through 2016. Column 2 lists the average cash corn price each year in Worthington Minnesota. Column 3 lists the average cash soybean price in Worthington. Column 4 lists the change in the average corn and bean prices from the previous year. Column 5 is the average rents paid by roughly 1200 farmers each year who participate in adult farm management programs across southern Minnesota. Column 6 uses the previous year’s average rent in column 5 multiplied by the following year’s change in corn and soybean prices to compute a projected rent and does that for each year. Column 7 starts with the average rent in 2000 in Column 5 of $98.31 and multiplies this number by next year change in corn and soybean prices of -3.21% to estimate a average rent of $95.16 and then uses Column 7 average rent multiplied by the percent change in corn and soybean prices the next year.
In Column 5 you can see the average rents slowly increased from 2000 through 2013, the last year corn price were above $6.00 and soybeans almost averaged $14.00. Then as prices moved lower so did the average rents. If compared profitability numbers to average rents, it would indicate rents are slow to go up in the good profit years and slow to go down in the poor profit years.
If you compare column 5 with column 6, averaged rents are much more volatile in Column 6 and this corresponds to the dramatic changes in corn and soybean prices each year in Column 3. If you compare the rents in Column 5 to the rent in Column 6 you will find less than $2.00 per acre difference in the average rents from 200-1 through 2016 indicating the strong relationship between rents and cash prices for corn and soybeans.
The last column is even more reactive than column 6 to the price changes and these rental rates were much higher when prices were increasing. There were much higher rents that did follow the higher end rents paid in many southern Minnesota counties.
When examining these figures, you can see a very strong correlation between rental rates and the average cash prices for corn and soybeans.