Some rents will go up and some down
Kelvin Leibold, an Iowa State University Extension farm management specialist, said his goal for Thursday’s farmland lease meeting was not to tell landowners how to set their rents, but to help them consider they may have to accept some income losses, when producers are faced with narrowing margins.
Futures grain prices are falling, he noted, and the cost of crop production inputs are rising. He estimated that in 2014, the cost to produce corn following soybeans will be $4.43 per bushel, and $5.17 per bushel following corn. Soybeans may cost $11.40 per bushel. December 2014 futures prices on Aug. 16 were at $5.02 for corn and September 2014 soybeans was at $12.10. The margins, he said, just keep getting smaller.
“My goal would be that people would understand more about their land,” Leibold said, “where they’re at and what the cost of input production is, because input suppliers take a piece out of the pie before the landowners, and they know where they really need to be in this range of rents and try to be equitable to both parties.
“So if you look at the very wide range of rents we’ve got out there right now, there’s some that are too high and there’s some that have room to come up.”
Landowners, he said, don’t have a lot of control at the end of the day. That they “are at the end of the stream, the residual of the profits.
“So we’ll see some producers next year that will keep renting ground,” Leibold said, “going into it thinking they aren’t going to cover all the costs, but the alternative is take that investment machinery and spread it over fewer acres – and that’s a cost, too.
“We’ll see some go down the path and say, ‘I have some cash reserves from prior years, I’m going to spend those down a year or two, see what happens in the rental market, if it shakes out, we’ll see if we’re still a game player.
“Some of them won’t be. Some guys will get out of farming, it’ll be time for retirement.
“They are three or four years older when the good times started, but they’ve struggled a couple of years with the pressures and stress from the weather.”
If cash rents look unattractive, he said, they may decide they could make more money by being retired, because they won’t be paying social security tax.
Beginning farmer tax credit
Many young farmers are using the beginning farmer tax credit.
“If they can get their landlords to give them a crop-share lease,” Leibold said, “their landlords can walk away with $50 per acre in tax credits.
“So if you’re renting 200 acres to a beginning farmer, that’s $10,000 in income tax credits.”
Leibold said what’s making him nervous is that young farmers are driving shiny pickups in these boom times, starting families and taking vacations.
“But how do we behave when the market starts to tighten?”