By David Bau
Each year I put together tables listing actual farmland rental rates by county from Adult Farm Management Records. Unfortunately farmers and landlords are starting to negotiate 2019 farmland rental rates and the last actual numbers available are for 2017 so I am forced to estimate figures for 2018 and 2019. When I did this last year I used an estimate of a 2.5% decline and the actual figure came in at 3.9% decline statewide. For 2017 I heard many times that rents were down, although some rents went up and some remained the same, in table 1 below I estimated a 4% decline in 2018 from 2017.
But what direction should 2019 farmland rental rates go? How do I determine an estimate for 2018 farmland rental rates?
Should they stay the same?
Landlord property taxes continue to increase. While the state legislature help with some of the school referendum costs, they still increase taxes. If rents stay the same, a landlord’s income will go down if taxes increase. If taxes are not increasing, the revenue to the landlord will remain constant, when they have grown accustomed to significant increases since 2007.
Should they go up?
Landlord expenses increase as property taxes increase and they want to pass this cost increase onto the farmer and increase the rental rate. Another example might be where there has been a long term lease in place where the rental rate has not changed for many years and this rate might be considered low today and due for an increase.
Should they go down?
Farmers have experienced decreasing corn and soybean prices since record high prices in 2012 for corn and 2013 for soybeans and current prices offered for 2019 corn and beans are below what farmers sold their grain for in 2007, when rents were $125 per acre. Average production budgets for 2019 indicate losses for farmers if rents are above $112.50 per acre. With the average rents in Table 1 in 2017 averaging $205 per acre, to go down to $112.50 per acre would be 45% reduction in average rents. The average Southwestern Minnesota corn farmer has lost money for four consecutive years and soybeans lost money in 2014 and 2015 and made money in 2016 and 2017. The results for 2019 corn and soybeans look to be negative again.
So you could make an argument for all three scenarios, but looking at the economics for corn and soybean production in 2019 using 190 bushels per acre yield and $3.20 price per bushel, for corn and 52 bushel yield and $8.00 price for soybeans, income would be $623 for corn per acre with $15 government payment and $416 for soybeans with no government payment. With average cost projected to be $528 for corn and $285 for soybeans before rent and labor, this would leave $95 per acre for corn and $131 per acre for soybeans to be shared between the landlord as rent and the farmer and income. This would be an average of $113 per acre to be shared.
So I projected a 4% decline in rental rates from 2018 to 2019 for figures listed in Table 1. But from earlier examples 2019 farmland rates could go down by over 42% or increase from 2017 rates depending on the individual situations. It will be a very challenging year for both the landlord and farmer to determine where the 2019 farmland rental rate should be.