Dear Landlord…cash rents need to come down!
September 8, 2014
In the past, share cropping was a very popular way for a landowner and producer to share both the risk and reward in crop farming. More recently, most share arrangements have transitioned to cash rent for various reasons. This transition is most likely when the land changes hands to someone who did not actively farm the ground. Over the past decade, both share arrangements and cash rent were likely very lucrative for both the producer and the landlord. However, the increase in cash rent over this period has become quite a concerning trend, especially for the producer.
As we look forward to 2015, input costs should be very similar to 2014. Direct expenses (including seed, chemical, fertilizer, application, crop insurance, tillage, planting and harvesting) should be approximately $325 per acre for corn and $250 for soybeans. I want to emphasize again that these are direct costs, and do not include any overhead expenses such as farm insurance, interest, depreciation, utilities, or land cost. According to data from the South Dakota Center for Farm/Ranch Management 2013 Annual Report, the average overhead expenses for corn were $133 per acre on owned acres and $72 on rented. Similarly on soybeans, overhead costs were $100 on owned and $55 on rented acres.
Based on the above estimates, farmers will be looking at approximately $400 per acre of direct and overhead expenses for rented corn acres in 2015. So with $3.50 per bushel corn, the farmer will need 114 bu. corn to break even. But wait, this does not include any land costs! Sadly, $150 – 200 per acre cash rent has become common in the Mitchell area, so if you add $200 per acre cash rent, your break even becomes 171 bu. per acre. Although possible, this yield is not likely. A more conservative average yield of 125 bu. per acre corn would net you a loss of $162.50 per acre. Soybeans do not look much better, with expenses exclusive of cash rent totaling $310 per acre, the producer would need 31.6 bu. to break even at $9.80 per bushel. With $200 cash rent, the producer would need 52 bu. per acre to break even. Again, a more realistic yield of 38 bu. per acre would create a loss of $137.60 per acre.
As much of the rented farm land is owned by investors or has been inherited by a generation that is no longer active on the farm, the point of my article may fall on deaf ears, but I will say it anyway: landlords, you need to lower the cash rent for 2015. Farming has been good to both you and the farmer the past few years and if you have a renter who has taken good care of you, please consider taking good care of them and lowering your cash rent for 2015. If you are concerned with losing income potential if prices or yields improve, consider a flex lease with a lower base rent and a bonus option.
For more information on our Farm Management program, please contact one of our instructors at the South Dakota Center for Farm/Ranch Management at 605-995-7196 or firstname.lastname@example.org.