Lease prices under pressure
American farmer unwilling to work at a loss
Land prices that fall when product prices are under pressure; in the United States (US) this is slowly becoming a reality. After several years of low margins, lease prices are moving. That's what real estate agents in the Upper Midwest notice.
According to several brokers, the rent and lease prices of arable land are under pressure Ag Week† The question of how much the reduction is cannot be answered unequivocally. This varies by state, by region and/or even by municipality. "However, one thing is certain: prices don't go up," said Andrew Swenson of North Dakota State University.
Situation price-bearing
Rent and lease prices also remained unchanged in 2017. Depending on the state, prices fell 2,5% to 4,5% in the Upper Midwest, according to data from the United States Department of Agriculture, USDA. This area covers the states of Minnesota, Wisconsin, and parts of Michigan, North and South Dakota, Illinois, and Iowa. No figures are yet given for 2018, because not all agreements have been concluded yet.
Due to the large seasonal differences per state and region, rents also fluctuate considerably. In North and South Dakota, for example, it was very dry, leaving arable farmers with few reserves. Which crops are grown is also an important factor. This also applies to the varying tax rates per municipality.
Sticky Prices
Much of the agricultural land is leased for a period of 3 to 4 years. Contracts terminated this year are declining proportionately more than a 1 or 2 year contract. The Americans speak of 'sticky rates'. The rates will stick and will only move at a later time. Especially now that landowners are aiming for multi-year agreements. This slows down the effect of crop prices.
When grain and soya yielded good money, rents rose relatively slowly and now they are falling again slowly. The slowdown is partly due to the price of the land, which forms a buffer. For example, there are other privateers on the coast when the land can also be used for industry or other purposes. Moreover, the sector remains positive about its future.
Alternative rental method
So-called "cash rents," in which the tenant pays the rent or rent to the owner annually in dollars, is most common in this part of the Midwest. An alternative is crop shares, where the landowner is paid in part of the crop yield. In the good years the price is high, while in the bad years it is the other way around. This old method has fallen out of favor because it is difficult to determine the correct payment level. An intermediate form is flexible rent, in which cash rent and crop share are mixed. A fixed rental amount forms the soil, which is supplemented with a part of the crop yield.
The landowners who have no knowledge of the sector themselves have little interest in this. Farmers who calculate with 3 digits after the decimal point also prefer not to opt for such a vague form. They want to know in advance where they stand and what their cost will be. Experts expect that negotiations between the tenant and the landlord will be difficult. Arable farmers like to see a drop in prices, while the owner tries to limit his loss.
Niels van der Boom
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