Will your expected crop revenue cover your cash rent?
If you have penciled out a hard pinch for the current year, Schnitkey says a slight increase in commodity prices may provide some breathing room, “Price realizations greatly influence operator and land returns. Take a $.40 increase in corn price from $4.80 to $5.20 and an $.80 per bushel increase in soybean price from $10.75 to $11.55.
This results in a $67 per acre increase in operator and land return from $333 per acre to $400 per acre. As price expectations change, returns will change as well. This then leads to a need to re-evaluate cash rents.”
That is the analysis for the 2013 crop. While no estimates have been made for the 2014 crop in terms of seed, fertilizer, and other non-land costs, there is an expectation that crop prices for the 2014 crop will be less than what is projected for the 2013 crop. That makes it incumbent upon an operator to seek cash rents for next year that have not been as high as in recent years.
Current prospects for commodity prices may be considerably lower than when many operators signed cash rent agreements last fall. And those prices may drift even further down in the coming year when cash rents have to be negotiated for the 2014 crop. Operators will not be able to fund higher level cash rents with prices expected for this fall and in 2014, necessitating an adjustment downward in cash rents.
Source: Farmgate Blog