Cash Rent Considerations for Corn Farmers

DTN Executive Editor Marcia Taylor reported yesterday that, “In the 1980s, bankers defined high-risk borrowers as those with debt-to-asset ratios over 40%. By no coincidence, that segment swept up young farmers or parents who expanded to bring young farmers back to the home farm…[T]his time around, the at-risk farm segments are those who cash rent more than half of the land they farm, ag lenders and ag economists are finding. Some of these likely are young farmers, but some are also established operators who expanded rapidly on the fumes of $8 corn.”

Ms. Taylor indicated that, “Unfortunately, cash rents throughout the Corn Belt haven’t adjusted nearly as quickly after the commodity price crash. Recent Iowa State University surveys show average statewide cash rents have only slipped from a peak of $270 per acre in 2013 to an average $230 per acre by 2016.

“As I mentioned in my last post, University of Illinois economist Gary Schnitkey estimates that a typical Illinois corn producer lost $101 per acre in equity in 2015 on cash rented land while those who owned their land lost about $1/acre.

“Heavy reliance on cash rented acres could be an early indicator of which farms will experience financial stress if corn prices stick under $4, agrees Dwight Raab, a co-author of several other recent studies of Illinois Farm Business Farm Management records. ‘Higher levels of cash rent (as a percent of total acres) has brought on some additional risk to farm operations–more risk than we thought it did,’ he says.”

The DTN update also stated that, “University of Illinois economists point out that corn growers will need to shave $50 per acre off 2017 average budgets (based on trend yields and current price forecasts) just to break even, much of that coming from rents.

“‘Cutting rent is hard to implement in practice, because if you give up land you can’t cash flow, you may never get it back,’ Raab says. ‘And if you try to maintain control with the hope of a profit in the future, you need your lender’s support.'”

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