Record Land Values Push Farm Rents Higher
July 2011 Farm & Ranch Scene Article Continuation
Steve Wright, Area Vice President
201 E.
Main Street, Ste 700, PO Box 1478
Lafayette, Indiana 47902-1478
Office Phone: 1-888-673-4919
swright@FarmersNational.com
Cash rental rates rose through the 2011 leasing season. As the
commodity prices went up, so did cash rents. Under a traditional cash rent scenario,
once you lock in a rate, it is set for that year. When the commodity prices
escalated after the first of the year and early lease terms had been secured,
it was challenging to feel comfortable that the right thing had been done.
The primary lease on farm for 2012 will be a flexible cash rent lease.
Our clients will then continue to earn a fair return on their land investment
with a market adjusted base rent. Actual farm yields and commodity prices will
also be taken into consideration to determine the final cash rent rate. The
base rent will be collected upfront and the flexible portion, which will be
calculated from the farm yield and commodity prices, will be collected after
harvest.
Parke Carter, AFM, Area Vice President
201 East Main Street, Suite 1405
Lexington, Kentucky 40507
Office Phone: (859) 381-0228
PCarter@FarmersNational.com
Many of our leases here are long-term leases and renew from year
to year. As we went into 2011, we renegotiated some of the terms to be more
favorable for our clients by increasing planned corn and bean acres and cash
rental income by converting some previously dedicated pasture or hayland to row
crops. Crop share leases are usually on a 50/50 split with input items divided
with the landowner. In many cases, this means providing land and fertilizer,
splitting crop chemicals and seed costs, while the operator harvests the grain
and provides labor, equipment, and machinery to produce the crops. We will look
at splitting fertilizer or equalizing the value expended as we go forward since
row crops have not been a stand-alone enterprise.
Livestock operations across Kentucky are most common where
cropland has been used for hay and forage, however, recent high grain prices have
seen a shift to corn, soybeans, and other grains. Tobacco production and other
specialty crops remain good cash flow operations. Our cash rents on a whole
have increased from 5% to 20% and crop divisions on net crop share remains the
same at 30% to 33.33% in most cases.
As we go forward, it will be necessary to keep current on cash rents.
Crop inputs are significantly increasing, but sales proceeds continue to
increase. We believe we will see additional increases in cash rents in 2012 with
crop farms changed from the historical long-term leases to an annual lease. Livestock
farms may continue the longer term leases with the opportunity to adjust rental
amounts on an annual basis.
Dennis Hoyt, AFM, Area Vice President
PO Box 3276
Quincy, Illinois
62305-3276
Office Phone: (217) 223-8035
dhoyt@farmersnational.com
Rising grain prices and higher land values influenced lease terms
in 2011. Many farms leased early in the leasing period were negotiated at
steady to slightly higher rates. Then, as grain prices and land values
accelerated through the winter, farm operators became very aggressive and lease
terms increased substantially. The key drivers for 2012 lease terms will be
very similar and should provide a continuation of the strong demand for land.
Unless something unexpected occurs between now and this fall, I am expecting
the competition to lease land for 2012 to be very strong, which will translate
into much higher rents. The timing of when you negotiated your 2011 lease terms
will have a big influence on how much of an increase from 2011 to 2012. Commodity
prices, a key factor to land prices, are much higher than recent years creating
strong demand from farm operators. Our custom leases are generating the most
owner income with cash rent and updated share crop leases battling for the
second and third. Landowners that have not kept their share crop lease
equitable and fair with adjustments to either crop splits or shared expenses are
generally below our negotiated cash rent lease.
Paul Joerger, AFM, Area Vice President
PO Box 25276
Overland Park, Kansas 66225
Office Phone: (913) 549-4241
pjoerger@FarmersNational.com
Land rents will be volatile for 2012. It is a matter of when the lease is negotiated that will determine
the final rent. Commodity prices are driving cash rent plus much volatility is
reflected in the wide fluctuations in land rent. Input prices, in general, will
be higher than 2011. These prices will affect the cash rent bids slightly for
2012.
Farmers are inherently optimistic and have a track record of
paying high rents even when the future is not as bright as the previous
production year. The number of farmers bidding on land will definitely create
higher rents than areas of few "true" competitor bidding.
Many producers will bid higher rents since they believe cash rents
should follow higher land prices. In reality, increased profitability in
farming drives higher land prices. Higher interest rates will slightly impact
the land rents for 2012.
Larry Hill, AFM, Area Vice President
111 North Commercial Avenue, Box
326
Eagle Grove, Iowa 50533
Office Phone: (515) 448-9090
lhill@farmersnational.com
In 2011 the grain markets got stronger after harvest last fall,
thus the rents kept working higher as we headed into spring of 2011. Many
farmers are trying to lock up farms with multiple year leases to enhance
profits and control their land cost. We are cautious about that as the cash
rent prices that seemed very strong a year ago now are below market. New
clients that thought they had great rents now suddenly find they were as much
as $150 per acre below the market! Neither the landowner nor the farm operator
likes to miss out on income opportunities. We are anticipating that there will
be tremendous interest from clients, landowners, and farm operators in flexible
cash rent leases this coming year. Thus landowners can be rewarded in years of
high grain prices and/or higher-than-average yields allowing for more rental
income in years the farmer has greater profits.
We will be closely watching input expenses as we head into this
fall to make sure all of our lease types remain equitable and fair. Seed and
fertilizer costs appear to be the most sensitive to higher grain prices. We
continue to negotiate with our suppliers working on behalf of our clients to control
cost and protect net profits. With high prices come high expectations from
everyone involved in agriculture. We are very excited about this upcoming year!
David England, AFM, Area Vice President
PO Box 69
Hastings, Nebraska 68902
Office Phone: (402) 462-6248
denglund@farmersnational.com
We began our 2011 leasing season on the
hopes of good support of grain prices in late summer. Our plan was to have our leasing
completed from September to December in 2010. In general, our cash rents had
been increasing from 5% to 15% based upon recent negotiations and location. However, by the December USDA crop production reports that put corn
and bean yields below market expectations combined with stronger-than-normal
export demand, this caused sharp increases in commodity prices elevating the expectations
on land rentals to higher levels. Farmers were looking at the 2011 prices and were able to forward
price commodities at historic levels, thus locking in high potential profits.
Therefore, any leasing that was done in January
through March was mostly at higher rents. Increases as much as 25% to 40% over
standard rents of 2010 became common coffee shop talk. Landowners that share in
the good times with their crop share lease made little adjustments and had new
leases in place between September to December. Keeping our clients' farm lease
equitable did require some of the crop share lease changes to be made by increasing
their split of the crop or decreasing shared expenses. I expect this trend to
continue as needed into the 2012 leasing season, especially if commodity prices
continue at the current higher level.
Our managed custom-operated farms by far
reward our clients with the highest net income exceeding other leasing
opportunities, such as cash rent or traditional share crop leases. We do expect
crop production costs to be slightly higher in 2012, so locking in these costs
early will be beneficial.
