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2018 Outlook: Downward Pressure on Cash Rents

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Farmers should see a slight decrease in cash rental rates in the year ahead. Here’s what you can expect.

© AgWeb

The cash rent line for farmers’ budgets has been a point of relief for the past few years. As grain prices dropped and stayed stagnant, many landowners agreed to lower cash rents. For 2018, that trend is expected to continue.

The annual LandOwner/Pro Farmer Cash Rent and Land Values Survey polls landowners and farmers from across the U.S. on an annual basis. For next year, the majority of survey respondents look for cash rent rates to decline, but the survey shows the focus to reduce cash rents might ease up just a little, says Mike Walsten, consultant and columnist for LandOwner.

2018 Cash Rent Expectations

The survey suggests cash rental rates will likely slide 3% to 5% for 2018. That’s compared with the 5% to 10% yearly declines noted in previous years.

© LandOwner/Pro Farmer Cash Rent and Land Values Survey

“Some 53% of survey respondents say they expect cash rents will decline in 2018,” he says. “While that is a majority, it is down from the 74% in the 2016 survey and 73% in our 2015 survey. Our 2014 survey found 67% anticipated a decline in cash rents.”

The percentage of survey respondents expecting cash rents to remain unchanged in 2018 rose to 45%. That’s up from 24% in the 2016 survey and 21% in the 2015 survey.

“That boost in the percentage expecting no change in rates might be an early indication a bottom in cash rental rates might be nearing,” Walsten says. “But LandOwner experts do not expect cash rents to bottom until 2019 or 2020.”

The LandOwner/Pro Farmer survey matches other nationwide cash rental surveys. For 2017, the national average for cropland cash rents is $136 per acre, which shows no change from the 2016 national average, according to USDA’s 2017 Cash Rents Survey. But it does show a retracement from 2015, when the average cash rent peaked at $144 per acre.

The story is the same in many Midwestern states. For instance, Illinois state-average cash rents peaked in 2014 at $234. In 2017, the state-wide cash rents were $218, a nearly 7% drop.

Illinois Average Cash Rents

Illinois cash rents declined to $228 in 2015, $221 in 2016, and $218 in 2018.

© farmdoc Daily

Data from Iowa State University’s annual cash rents survey shows average cash rents have decreased for four consecutive years.

“With that much adjustment already factored into the market, it is reasonable to expect some decline in the percentage of respondents anticipating another decrease in cash rents for 2018,” Walsten says.

Based on the LandOwner/Pro Farmer survey, Walsten says, cash rental rates will likely slide 3% to 5% for 2018. “That’s compared with the 5% to 10% yearly declines noted in previous years,” he says.

These projections assume no change in corn, soybean and wheat prices into 2018 and 2019. A sharp surge in demand or unexpected drop in planted acres would change that outlook, but no such events are currently on the horizon, Walsten explains.

Several factors point to lower cash rents, says Gary Schnitkey, ag economist at the University of Illinois. Per a recent farmdoc daily report, those factors include:

  • Average net incomes across all grain farms in 2017 is projected to be lower than in 2016.
  • At this point, 2018 budgets suggest returns will have negative returns on cash rent farmland in 2018 when cash rents are at average levels.
  • The 2018 expected cash rents for professionally managed farmland will result in large losses to farmers.
  • Since 2014, many farmers have had negative returns to cash rented farmland at average cash rent levels.

“At this point, a continued reduction of $5 to $10 per acre should be expected on the state-wide average for cash rents,” Schnitkey says. “Reductions of this size are not large enough to cause cash rented farmland to be profitable. However, declines in cash rents resulting in profitability are projected to be long and protracted. As long as corn prices remain below $4.00 per bushel, there will be downward pressures on cash rents.”

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