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Outlook: Cash rents not likely to drop

By Staff | Oct 16, 2009

By ROBYN KRUGER

Farm News staff writer

Even though commodity prices have dropped, while seed and equipment costs are expected to go higher or stay the same, land rents are also expected to remain the same in 2010.

That assessment was made last week during a DTN webinar.

“As a rule, the past has shown us that rents stay the same and seldom go down,” said Des Keller, a researching ag journalist. Keller noted that both producers and landlords alike were not excited about flexible cash rents and that 2010 will likely bring about rent negotiations.

He also stated that at the present time there are 24 counties in Iowa where cash rents are averaging $200 an acre. A few years ago, there was one county at $200/acre.

Gary Schnitkey, an Illinois ag economist, said that after crunching numbers and averages, he was advising new negotiations for cash rents and tracking profitability. “With 2009 being a low income year in land market trends,” Schnitkey said, “2010 budgeting suggests (farm income) in the 2004-2005 range.” He also stated that though one would like to think markets would come down, this is doubtful.

Schnitkey said the typical formula for figuring one’s rent prices includes price x yield x the rent factor, which is agreed upon by the landlord and tenant.

He also recommended using Iowa State University’s ag decision-maker Web site at www.extension.iastate.edu/agdm/decisionaidswd.html#llv

“Some,” said Schnitkey, “are asking the question, should I take a loss this year to keep my landlord? This is where landlords should be made aware, or reminded, of declining crop prices.

“They (landlords) should know that even though fertilizer prices have declined, variable costs like seed and farm machinery have gone up or are unchanged. Commodity prices can change dramatically and there is a great deal of uncertainty.”

ISU’s program, said Schnitkey, has various tools one can use in making farm rent decisions.

“Good relationships between renter and landlord are a must,” said panelist Ben Reinsche, who rents 6,000 acres in northeast Iowa. Reinsche said he documents all costs and keeps his landlords informed of what is spent and profits made on the land he is renting.

Reinsche also said he sees variable rents may be an option for those landlords who are looking for new renters.

Contact Robyn Kruger by e-mail at rangerob@hickorytech.net.

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