Lower Crop Prices Should Impact Land Rental Rates

Most land rental rates in Southern and Western Minnesota increased from 40-50 percent or more from 2010 to 2014, according to average farm business management land rental data compiled by the University of Minnesota. Average rental rates for 2015 did drop a bit in some areas, but in general have remained quite high across the region. Farm operators and landlords are now beginning the process of negotiating land rental contracts for the 2016 crop year, and are trying to arrive at equitable rental rates, based on the lower crop prices that we are now experiencing.

The commodity prices for corn and soybeans have dropped in recent months, due to the expected large U.S. corn and soybean production in 2015, and the associated expected increases in the U.S. grain supplies. The final USDA national market year average (MYA) crop prices for the 2014-2015 marketing year are expected to be near $3.68 per bushel for corn and $10.06 per bushel for soybeans. The MYA average prices are calculated from September 1 in the year of harvest, until August 31 the following year. The MYA prices in recent years for corn were $4.46/Bu. in 2013-14, $6.89/Bu. in 2012-13, $6.22/Bu. in 2011-12, and $5.18/Bu. in 2010-11. The MYA soybean prices were $13.00/Bu. in 2013-14, $14.40/Bu. in 2012-13, and $12.50/Bu. in 2011-12. USDA is currently estimating the 2015-16 MYA average prices to be near $3.75/Bu for corn and $9.15/Bu. for soybeans.

Current 2015 cash corn prices are below $3.50 per bushel at most locations in the Upper Midwest, while cash soybean prices are below $8.50 per bushel. Forward pricing opportunities for the Fall of 2016 for next year’s corn and soybean crop are close to the same or slightly lower than the current cash grain prices. Many farm operators could face a substantial loss per acre at the current projected commodity prices for corn and soybeans in 2016, if the 2016 land rental rates are not adjusted to lower levels. Crop input costs for seed, fertilizer, chemicals, fuel, and crop drying are not likely to decline significantly for the 2016 crop year, according to most farm management experts.

Based on Southern Minnesota farm business management (FBM) records, the average total direct costs in 2014 for seed, fertilizer, chemicals, fuel, etc., excluding land rents, on cash rental corn acres was approximately $502 per acre. Fertilizer costs, and some other expenses, declined slightly for 2015; however average direct expenses for corn are probably still in a range of $475-$500 per acre for many farm operators. The average direct expenses in 2014 for soybeans in Southern Minnesota, excluding land rent, were approximately $221 per acre. Average soybean direct expenses for 2015 are likely to be similar to 2014 expense levels. In addition, the 2014 FBM records showed an average of $114 per acre on cash rented corn acres, and $70 per acre for soybeans, for costs of farm machinery, hired labor, property insurance, and other overhead expenses.

Based on the FBM records, the average crop yields for 2014 across Southern Minnesota were approximately 174 bushels per acre for corn and 47 bushels per acre for soybeans. At those yield levels, along with the average direct and overhead expenses listed earlier, and an average land rental rate slightly above $240 per acre, the breakeven price to cover the cost of production was over $5.00 per bushel for corn and over $11.00 per bushel for soybeans. If you include crop insurance income, as well as a small return for labor and management, the breakeven prices were about $4.60 per bushel for corn and $10.85 per bushel for soybeans. Of course, there can be a big difference in crop yields and crop expenses from farm-to-farm that can cause the breakeven price to either increase or decrease. Breakeven crop prices for corn and soybeans in 2015 may be slightly lower the 2014 levels for most farms, due to higher than average corn and soybean yields in 2015.

Most land rental rates in 2015 were steady or slightly lower, as compared to comparable 2014 land rental rates. Many farm operators realize that at current rental rates for the 2016 crop year, along with expected crop expenses and projected commodity prices, they are likely to project a loss per acre on next year’s crop. In many cases, landlords have been reluctant to lower land rental rates, due to high commodity prices and net crop returns from 2010-2013, as well as strong demand for rented crop land. However, it appears that crop economics have changed significantly from levels that existed in recent years. Serious and honest negotiation between farm operators and landlords will be required to arrive at equitable rental rates for 2016.

Note — For additional information contact Kent Thiesse, Farm Management Analyst and Vice President, MinnStar Bank, Lake Crystal, Minnesota. Phone: (507) 381-7960); Email: kent.thiesse@minnstarbank.com; Web Site: www.minnstarbank.com


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