What direction will 2018 farmlands rents go?
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 2018 farmland rental rates and the last actual numbers available are for 2016 so I am forced to estimate figures for 2017 and 2018. When I did this last year I used an estimate of a 10 percent decline and the actual figure came in at 2.5 percent 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 2.5 percent decline in 2017 from 2016.
But what direction should 2018 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 and 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 2018 corn and beans are below what farmers sold their grain for in 2007, when rents were $125 per acre. Average production budgets for 2018 indicate losses for farmers if rents are above $122 per acre.
With the average rents in Table 1 in 2016 averaging $212 per acre, to go down to $122 per acre would be over 42 percent reduction in average rents. The average southwestern Minnesota corn farmer has lost money for three consecutive years, and soybeans lost money in 2014 and 2015 and made money in 2016. The results for 2017 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 2018 using 180 bushels per acre, yield and $3.25 price per bushel, for corn and 50 bushel yield and $9.00 price for soybeans, income would be $585 for corn per acre and $450 for soybeans. With average cost projected to be $511 for corn and $281 for soybeans before rent and labor, this would leave $74 per acre for corn and $169 per acre for soybeans to be shared between the landlord as rent and the farmer and income. This would be an average of $122 per acre to be shared.
So I projected a 2.5 percent decline in rental rates from 2017 to 2018 for figures listed in Table 1.
But from earlier examples 2018 farmland rates could go down by over 42 percent or increase from 2016 rates depending on the individual situations. It will be a very challenging year for both the landlord and farmer to determine where the 2018 farmland rental rate should be.