Expect farm land rental rates to fall
FORT DODGE – If landowners think most farmers are sitting on buckets of cash and ready to sign on for high rents in 2015, they need to think again.
Most of farmers’ cash, said Kelvin Leibold, an Iowa State University farm management specialist, “either went underground (for tiling improvements) or for new machinery.
“Rents are not looking optimistic. You have to expect lower rates.”
Leibold was talking to more than 30 landowners, tenants and farm managers Aug. 7 in Fort Dodge.
Leibold said farmers are thinking about conserving their cash reserves and that might mean giving up rented acres for the 2015 growing year.
“We’re going to see those million-bushel corn piles this fall,” Leibold said. If the U.S. does harvest a record corn crop this fall, it will also likely mean the largest carryover in years, if not ever, in August 2015. This will also keep downward pressure on the price of corn futures.
“Where are we going to send all that extra corn?” Leibold asked. “There’s a lot of volatility and unknowns out there.
“I really don’t know what’s going to happen (to rental rates).”
Leibold, who has conducted several land lease meetings through north central Iowa said, “Landowners are not smiling at me.
“Many are shocked at how much and quickly the pendulum has moved.”
Although land values have been climbing for several years without a reversal, rental rates tended to lag behind.
But with the value of a bushel of corn falling by more than $2 in the past 12 months, land value will slip and rental rates are likely to keep pace with the reductions.
Jerry Chisek, executive director for Region 7 of ISU Extension, which encompasses Hamilton, Humboldt, Webster and Wright counties, said rental rates may lower naturally since many landowners will want to maintain good working relationships with their tenants.
Leibold told his audience that there are other issues likely to affect rental rates including:
A). INRS: The Iowa Nutrient Reduction Strategy is requiring Iowa to lower its nitrogen and phosphorus escapes into surface waters by 45 and 28 percent, respectively.
This will require new farming methods and alter work schedules, plus could actually increase crop input costs.
B). Ag finances: Leibold said he expects some farmers who are worth a million dollars to have trouble getting financed.
“We’re going to see some bankruptcies,” he said. “There are people farming today who don’t know they won’t be farming next year.”
C). Farm bill: Besides the loss of direct payments in the 2014 farm bill, federal efforts are trying to move crop insurance away from revenue guarantees.
The farm bill will also require landowners who participate in farm programs, to pick one of two program options in 2015 that will last for the life of the farm bill.
D). Inputs: There is a world shortage of phosphorus and potassium that will drive up costs, coupled with rising seed costs. “We’re not likely to see a lot of give in these prices,” Leibold said.
E). Bioenergy: POET’s Project Liberty cellulosic ethanol plant, in Emmetsburg, is now in operation, and DuPont’s cellulosic plant is scheduled to begin producing in 2015, these will provide new revenue streams for tenants and landowners.
Cropland cash rent paid to Iowa landlords in 2014 averaged $260 per acre, according to the USDA, National Agricultural Statistics Service, Iowa field office.
Non-irrigated cropland rent averaged $260 per acre, up $5 from a year earlier.
Irrigated cropland rent averaged $255 per acre, an increase of $10 from last year.
Pasture rented for cash, which averaged $50 per acre, is up $1 from the previous year.
County level averages of 2014 cash rents paid to landlords will be released on Sept. 5.
Iowa’s farm real estate value, a measurement of the value of all land and buildings on farms, averaged $8,500 per acre in 2014.
This is up $800 per acre or 10 percent higher than last year’s level.
Cropland value increased 9 percent from last year to $8,750 per acre.
Pastureland, at $3,400 per acre, increased 6 percent from a year ago.
Iowa farm production expenditures totaled $29.8 billion in 2013.
This is 2.9 percent above the 2012 total expenditures.
Feed expense, which rose 2.2 percent to $5.05 billion, represented the largest single production expense for Iowa farmers in 2013, accounting for 16.9 percent of the total.
Livestock and poultry purchase expense was the second largest expense, totaling $4.53 billion and 15.2 percent of the total.
This is up 13.5 percent from 2012.
Rent expense rose 4.3 percent to $4.11 billion, and accounted for 13.8 percent of the total.
The largest percentage increases were for miscellaneous capital expenses -up 20 percent- livestock and poultry purchases, and fuels – up 10.8 percent.
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