Cash Rent Issues, While Producers Cope with Lower Commodity Prices

University of Illinois agricultural economist Gary Schnitkey indicated recently at the farmdoc daily blog (“Downward Pressures on 2016 and 2017 Cash Rents“) that, “Cash rents on professionally-managed farmland decreased in 2016. In 2017, pressures to lower cash rents will intensify if commodity prices do not increase. In this article, a table is presented that summarizes cash rents for professionally managed and ‘average’ farmland in Illinois for 2014 through 2016. The 2016 cash rents for ‘average’ farmland is a projection.”

In his farmdoc update, Dr. Schnitkey explained that, “Downward pressures will be placed on 2017 cash rents, particularly if commodity prices remain low. Professional farm managers were asked how much they anticipated cash rents to change in 2017 if conditions remain the same as they are currently. When asked, corn prices were near $3.60 per bushel and soybean prices were near $8.70 per bushel. Of the farm managers responding to the survey, 41% expected cash rents to decrease between $25 and $50 per acre while 50% expected decreases in the $5 to $25 per acre range. Only 9% expected cash rents to remain the same, and none expected rents to increase. These expectations point to larger increases in 2017 than in 2016.

Much of the reason for this downward pressure is because farmers are projected to have losses in 2017 on cash rent farmland.”

Recall that earlier this month, The Des Moines Register reported that, “Faced with declining profits, some Iowa farmers are defaulting on cropland rents — a largely unheard of move given the intense competition for the state’s fertile farmland and a sign that financial pressure and debt are mounting.

“With farm real estate debt across the United States at its highest levels since the farm crisis years of the early ’80s, farmers are increasingly nervous about trying to turn a profit while paying sky-high rents.”

In a related item, a news release earlier this week from AgriBank stated that, “Commodity prices are the greatest challenge facing agricultural producers in 2016, according to a poll of Farm Credit directors from America’s heartland.”

Meanwhile, DTN Special Correspondent Elizabeth Williams provided an interesting look at how some producers are coping with lower commodity prices in an article from yesterday (“The Hunt for Profits“).

Ms. Williams stated that, “Tumbling commodity profits have producers scurrying for ways to pump up their bottom line. After controlling costs and better marketing, conventional farmers are looking at other alternatives to bring in extra cash. Organic crops perhaps?”

The DTN article added that, “You can get $8.50 per bushel for organic corn (when conventional corn is selling for $3.80). Organic soybeans can bring $20 per bushel and organic wheat is currently priced around $8 per bushel, according to the Agricultural Marketing Service’s latest bi-weekly report. Those prices have plunged significantly since 2014, but still appear enough to encourage more organic acres.

“Compared with conventional farming, the cost of production for organic commodities can run as low as $5 to $10 per acre more, reported Lynn Clarkson of Clarkson Grain, which buys organic grain and oilseeds, in Cerro Gordo, Illinois. (However, total economic costs of organic compared with conventional production were roughly between $83 and $98 per acre higher for corn, a national 2015 USDA study estimated.)”

The DTN article also pointed out that, “Because organics are still a niche market, you should price your grain or oilseed before you plant it. There are several companies that work on a broad scale such as Clarkson Grain, Scoular Grain, SunOpta and SK Food. You can contact the Organic Trade Association at www.ota.com for resources in your area.”

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