2017 Cash Rent Projections

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It is the time of the year when farmers and farmland owners begin the process of renegotiating cash rent leases for the next growing season. In Illinois, about 75% of all farmland is owned by non-farming land owners, and nearly 2/3's of those acres are cash rented in some form. This results in approximately half of all Illinois farmland being cash rented.

A lot of factors will ultimately determine whether the final negotiated cash rent for 2018 is higher or lower than 2017. Some of those factors will be: projected farm income, crop price and yield outlook as well as the current trend in farmland values. In the past two weeks, a number of reports have been released than have shed some light on all these factors.

Recently, Dr. Gary Schnitkey from the University of Illinois farmdoc team released the "Forecast of 2017 Net Income on Grain Farms in Illinois". This evaluation showed that "Each acre is estimated to have -$17 per acre of less income in 2017 than in 2016." If this in fact happens, it will make 2017 the second lowest farm income year since 2005.

Another factor is the price outlook for the upcoming marketing year starting on September 1. Currently the National Agricultural Statistics Service, USDA is projecting 2017 to be the third highest production year for corn and the highest production year for soybeans on record. With another year of projected high yields and production, this is resulting in projected market year average prices for corn and soybeans to be at or near the levels seen this past year.

In addition, a large area of the Midwest has had less than ideal growing conditions with the "I" states experiencing below normal rainfall. If the USDA in its September Crop Production report lowers the production estimates of corn and soybeans, then grain prices for the upcoming year can probably be expected to be higher than currently forecast.

The Federal Reserve Bank of Chicago in its August Ag Letter released its survey of farmland value change and that shows that farm land in central and east-central Illinois decreased about 4% from this time last year.

Taking into account all these factors, Dr. Schnitkey released "Illinois Farmland Rents: 2017 State Values and 2018 Outlook". The graph "Cash rent plotted versus Operator and Land Return on Central Illinois high-productivity farmland for the years 2000 to 2016 plus projections for 2017 and 2018" shows that cash rents follow the trend in Operator and Land returns. Although, there can be a time lag between changes in returns is reflected in the corresponding cash rent.

Gary Schnitkey stated, "As has been the case in the last several years, pressures will be to reduce cash rents in 2018. Over time, those pressures will intensify as the financial position of farms erode and commodity prices remain relatively low. Pressures will remain on cash rents as long as corn prices remain below $4.00 per bushel and soybean prices remain below $10.00 per bushel."

Check out this episode of the Out Standing in the Field podcast, which also discusses cash rent negotiations.