Expect farm land rental rates to fall
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 Chisel, executive director for Region 7 of IUDS 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:
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.
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.”
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.
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.
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.