Cash Rent Farm Incomes Will Be Affected More When Prices Decline

When grain prices fall, cash rent farms will take a substantial hit in income.

Published on: Feb 27, 2012

Grain farms with a higher percentage of their acres cash rented will have much lower incomes when commodity prices decline than farms with lower percentages cash rented.

The ag economists at the University of Illinois have run four different price scenarios to see how cash renting affects the net income of a grain farm. The farm has expected yields of 187 bushels of corn and 54 bushels of soybeans, grows corn on two-thirds of the acres, has non-land costs of $546 per acre for corn and $306 per acre for soybeans, and a $480,000 debt load.

The four price scenarios are projected 2012 prices, long-run prices, low price year and poor price year. University of Illinois Ag Economist Gary Schnitkey says the comparison farms cash rent mixes were set up with a typical farm with 10% owned, 30% share rent and 60% cash rent, which he says is about the cash rent splits that exist. They also went to a 100% cash rent just to see how the cash rent farm would compare with the typical farm.

"At the 2012 projected prices the typical farm had $222,000 of income; the 100% cash rent farm with $275 cash rent had $200,000, so those are reasonably close together at those price levels," Schnitkey said. "When we go down to long-run prices we see dramatic falls; the typical farm has $86,000 revenue while the 100% cash rent goes to $40,000. The fall is much higher for the cash rent farm primarily because they are bearing all of the risk and the rents aren't adjusting."

Projected 2012 prices of $5.40 per bushel for corn and $11.70 per bushel for soybeans results in above average incomes and most farms would have good financial incomes. Price reductions to long-run averages result in lower incomes particularly for farms with high percentages of cash rent. At high cash rents, farms with 100% of their farm cash rented would have negative incomes. Lower prices would result in further reductions in net