Category Archives: Cash Rents

Interesting Thoughts On Cash Rents

I came across an interesting article discussing how low cash rents could drop with $3.25 corn. It’s a great question, and one I constantly hear when out on the road. The author of this article Mark Gannon, astutely states in his summary that economics always have a way of working things out. And that “working itself out” is exactly what might happen in the foreseeable future. It’s a difficult situation when you drop the price of any commodity -50% in just 36-months, including a -25% since August 2013. Looking back at the forward contract price for corn at harvest, August 1, 2013 we were at $4.30 per bushel; August 1, 2012 we were at $7.59 per bushel; August 1, 2011 we were at $6.50 per bushel. We all understand, there is a lot of variation when it comes to crop prices. The argument being made is that land owners have to STOP basing their rental price decisions exclusively on “price.” Instead rental agreements should be based more around total farm income. It’s important to keep in mind that “price” is only one factor in determining profitability. Gross income is the main consideration which is a combination of price and yield. It may seem elementary, but Gannon describes a problem that he sees far too often. Landowners don’t have very good, current or accurate yield data on their land to figure gross income. They may not admit it, but there are landowners out there who could be getting 220 bushel an acre type cash rents but are only getting 160 bushel acre rent because they don’t have accurate up to date data. Gannon is convinced moving forward there has to become a better free flow of information and honest record keeping between tenants and landlords. This way, both the tenant and the landlord are making a fair long term business arrangement. He’s also convinced (and I tend to agree with him) that the future of farm leases are more flex-based cash rents. With open communication and incentives to get the best harvest possible, everybody wins! In the end, this seems to be the only real answer you can give to how low farm leases with drop. The best solution is roll with the market punches and make sure you are keeping good records and implementing more flexible type rents. For more from information on farm leasing and Mark Gannon, click HERE.