Last week's USDA Ag Outlook Forum painted a picture of a corn market that could remain in the $3.50- to $4-per-bushel range for a
while. That sort of price range doesn't bode particularly well for sustained strength in farmland rents, with farmers feeling the squeeze created by the divergence of falling grain prices and land prices that have yet to fall too much.
This squeeze is starting to attract more attention, even outside of agriculture. Recent reports hint at farmers "walking away" from land leases due to the inability to pay high cash rent rates with corn, and soybean profitability falling into the red. If that happens, it could dramatically change the land market in areas where highly productive land fetches up to $400 an acre cash rent.
Yet at the same time, there's just as much talk around the country of sustained strength in the farmland market despite the grain price downturn. The land market has lost some value, but those losses won't unfurl into a larger turn south like in the grains, some argue.
So, which one's right? Just as in recent reporting, farmers and landowners are split on both the market's future and how to maneuver through it.
The land market has been stubborn in the last couple of years. It hasn't fallen with grain prices, and landowners generally haven't made big adjustments to rent for their land. On one side, those landowners say they're typically just asking for the rent their acres justify. On the other hand, leasing farmers aren't exactly relishing paying $350 or so per acre to rent a farm that will raise a corn crop that will net $3.50 a bushel. So, where's the breaking point?
Farmers are split on the topic; some say the market will function as all markets do, that something will come along to "put a lid on rent" and put it back in line — or close to it — with grain prices. What that "something" is remains up in the air.
"It looks like there will still be another 'new norm' just starting. What you hear is that banks are reluctant to loan over $325 an acre for operating expense and would like to see collateral to back it up," says Agriculture.com Farm Business Talk senior adviser BA Deere. "That will put the lid on rent."
Others say such a gutting of the land market isn't likely, even if the "players" change. They may fall but won't see the precipitous drop that some farmers expect if the grain profit picture remains gloomy, others say.
"Supply and demand will decide rental rates as they have before. It may reduce rental rates, or it may change the players. But it will be a competitive market as before," adds Farm Business Talk senior contributor OKdon. "What made rental rates high was people willing to pay it, and that will be as always."
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Article by: Jeff Cadwell, Multimedia Editor for Agriculture.com and Successful Farming magazine.