With another harvest behind them, farmers are beginning to sit down with their landlords to look at farm land rental contracts for the year ahead. In most cases, it’s the landlords who hold the cards.
“Based on commodity prices, yields and input costs, rents should be about $100 an acre,” said University of Minnesota Extension Educators David Bau. “But (rents) are about double that or more.”
The University of Minnesota Extension is holding 40 land rental workshops around the state, including three in the Mankato area. (See related information.)
With recent years seeing low crop prices and higher input costs, along with yields this year that were below normal, traditional economic formulas would say rents should be falling. While they have dropped some, they haven’t fallen nearly as fast or as much as they rose several years ago when commodity prices were at record highs.
In south-central Minnesota, rents went down 13% from 2014 to 2018 but were down just 0.6% from 2017 to 2018, according to an Extension report. Statewide, rates fell an average of 1.6% last year.
The report notes that while rents have decreased some in recent years, they went up substantially more in the years leading up to 2014.
“Farmland rents are the largest input cost for both corn and soybean farmers, and they have not come down as quickly as commodity prices have,” Bau said.
For many farmers, rent comprises about 25% to 30% of crop expenses.
Kent Thiesse, farm management analyst and vice president at MinnStar Bank in Lake Crystal, said after falling some in the past five years, rental rates seem to have mostly leveled off.
“There’s not a lot of change. Some of the higher rental rates have started to come down.”
He said some farmers also have been looking more closely at the individual parcels they rent to see if they are worth keeping. “If the yields have been down and maybe they had drainage problems the last couple years and if the rent’s high, they are walking away.”
Thiesse said rents in the region vary considerably but estimated that good land is renting for an average of $200 to $220 per acre.
Thiesse noted that while farmers are strained by higher rents, landlords are looking at relatively high real estate taxes on the land they own and rent to farmers.
Southern Minnesota farmers have, on average, incurred losses on corn for six years in a row while soybeans have at least broken even or generated a small profit.
Bau said that in spite of the recent farm economics, both farm land sales prices and rental prices haven’t budged. Farmers have continued to bid up farm land that comes up for sale, which Bau attributes to the fact many farmers are still in strong financial shape overall.
“Farmers’ balance sheets, the value of wealth, is good. It’s just the cash flow that’s bad.”
He said in the 14 counties in south-central and southwestern Minnesota that he covers, land sales prices have stayed strong. “The average sale prices didn’t change at all. Land only comes up for sale so often, it’s kind of a once-in-a-lifetime thing. If it’s close to you, you want to buy it.”
Bau said the workshops he and fellow educator Nathan Hulinsky put on around the state give landlords and farmers historical information on land rents, different types of rental agreements and help farmers determine land rental budgets and help landowners calculate what they can receive based on the value of their farmland and costs associated with it.
In the past, farmers have sometimes gotten “flexible” contracts with their landlord, with the landlord getting more or less depending on the yield and crop prices that year. But Bau said there are fewer of those now. “Because cash leases are so strong, now it’s hard to flip to a flexible lease.”