Illinois farm rents outpacing revenues
New data from the Illinois Farm Business Farm Management Association (IFBFM) show that revenue projections for Illinois soy and corn farmers show no projected improvement for 2016 and 2017. This plateau contrasts with high rent rates — which originally followed the healthy growth of farm incomes that began in 2007 and continued through 2012 — and has left farmers upset and uncertain about their future.
IFBFM data showed significant revenue declines between 2013 and 2014, with 2015 revenues basically at break-even.
While farm revenues declined, corresponding cash rents haven’t declined at nearly the same percentage. According to data released by the association, average cash rents have started to decrease.
David Kline, vice president and managing real estate broker at Soy Capital AG Services, said the trend of declining revenues is one his organization has seen across the Midwest, but the outlook could improve with an uptick in crops production.
“Well it’s a trend in corn and soybean producing states that we are seeing in general across the corn belt,” Kline said. “So at this point, we are still running budgets for 2017. We have had a bit of recovery in soybeans that has has been good and if corn can make some recovery I think we will be holding steady.”
Farmers, landowners and economists all have a hard time determining what is an appropriate cash rent amount considering the current economic conditions. The same data has revealed for the state of Illinois, 43 percent of the land farmed is cash rented, 34 percent is crop shared and 23 percent is owned.
The University of Illinois crop budgets and projections for 2016 indicate that the expected revenue for corn producers is $240 per acre and for soybean growers, revenue is expected to $335 per acre. But data shows that that the majority of rents across the state will be higher.
According to the USDA, average cash rents in 2013 and 2014 were $223 and $234 per acre respectively.
One solution proposed to alleviate the rent burden is a flexible or variable cash rent leases. These leases are based on actual revenue generated with a base and a sliding increase if yields are higher.
Kline agreed and said a variable lease is an idea that can work and help provide a solution to the current cash rent crisis.
“The one thing it requires is trust and verification from both the farmer and the landowner but they can work very well in addressing the needs of both sides,” Kline said. “The need of the landowner to receive a reasonable return on his investment and the flexibility that can help a farm operator with his cash flow.”
–Illinois News Network