How Much Might Cash Rents Change in the Coming Years?

How Much Might Cash Rents Change in the Coming Years?

By Brent A. Gloy

Corn is not high because a rent is paid, but a rent is paid because corn is high” David Ricardo

As commodity prices have fallen there has been considerable speculation about how cash rents for farmland in the U.S. Cornbelt might adjust in the coming years. Cash rental rates are the amount that farmers are willing to pay land owners for having the opportunity to farm their land. Cash rents typically adjust to reflect the economics of farm production, rising when returns over variable cost increase and falling when returns over variable costs decline. However, the increases and decreases do not generally occur simultaneously with changes in returns over variable costs, with rents usually rising and falling more slowly than returns over variable costs.

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Farm Incomes to Decline, But…..

“The optimist sees the donut, the pessimist sees the hole.” Oscar Wilde

I was reminded about the influence of perspective after the USDA’s Economic Research Service released their 2014 net farm income forecast at the recent USDA Agricultural Outlook Forum. It projected a decline from 27% from 2013. Such a sizable percentage decrease caught people’s attention and a series of popular and farm press article followed, many alluding to the potential for a dramatic reduction in crop prices and potentially farmland values.

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