Numerous farmland surveys (Iowa State, KC Fed, Chicago Fed, Purdue) now seem to be clearly indicating what many had expected for some time, farmland values are heading lower. This is not surprising given how sharply farm incomes have fallen. As we pointed out last year, the declines in income have pushed the rate of return to owner operated farmland very low.
Given that both cash rents and farmland values have started to decline, we thought that it would be interesting to examine these values and the current level of farmland capitalization rates on farmland. Continue reading →
Cash rent is often the single largest expense item in a crop budget, making its level critical to the profitability of farming operations. During the farm sector’s economic slowdown, rents have been persistently high, greatly contributing to the profit squeeze. It now appears that they are heading lower. For instance, Dr. Craig Dobbins reported that a February poll of Indiana farm managers and rural appraisers found expectations that 2016 cash rents would be down about 8% in 2016.
If realized, a decline of that magnitude would be one of the largest since the 1980s. Given the importance of rents to profitability we decided that it would be useful to examine some historical data on cash rents and examine whether these declines are likely to be sufficient to return farms to profitability.