Valley farmers should be careful budgeting for 2014 because rising rates for land rental and lower prices for corn will impact their profits for the year.
“Bull markets in corn in 2011 and 2012 helped create a marked increase in land- rent values,” said Eric Barrett, Ohio State University extension agent for Mahoning County.
Land rents should decrease along with the decrease in corn prices, said David Marrison, extension agent for Trumbull and Ashtabula counties. However, it’s unlikely that landowners are going to be willing to reduce rents, he said.
“Once rates have increased, it’s difficult for them to go back,” he said. “It’s sort of like a business telling you in a bad year that they want to take back 20 percent of your salary.”
The typical rent for an acre went from $55 in 2012 to $76 in 2013, Marrison said.
“In 2014, they shouldn’t go up at the same rate,” he said.
Landowners are reading stories about rental rates going up on farmland all over the country, and they’re trying to get a better return on their investment, Marrison said.
“It’s amazing how many calls we get about average land rents,” he said.
Many property owners try to estimate the yield on their property by counting the number of vehicles that leave the property during the harvest, Marrison said. Typical yield helps determine rent amounts.
Part of the issue is that land values overall are increasing, so owners are paying more to buy land, Barrett said.
Real-estate debt for farmers also is increasing due in part to the low interest rates, he said.
“I hope they all locked in their interest rates,” Barrett said.
In addition, most costs with the exception of energy are either flat going into 2014 or increasing, Marrison said.
One thing tenant farmers can do to mitigate their potential risk is make a flexible lease agreement that shares risk with the landowner, he said. The agreements pay a higher rent if yields are good and lower rents if they aren’t.
“The issue is these agreements require better sharing of information [including yields],” Marrison said. “As an industry, we’ve done a poor job of sharing that information.”
The key is for farmers to understand their budgets and to start planning now for 2014, Barrett said.