Firming up 2012 cash rental rates is on the minds of many landowners and tenants these days. Coming off a very strong income year in 2011, it looks like cash rents for this year are moving higher. How much higher, though, is the big question.
"We really can't answer that until early March when we have the results from our UNL Nebraska Farm Real Estate Market Survey," says Bruce Johnson, University of Nebraska-Lincoln ag economics and farm management professor. "For now, we can offer a few suggestions that both tenants and landowners might want to consider."
First, in the dynamic times of the past few years, many cash leases have not been kept very current, with levels that are seriously lagging the "going rates" of local markets. In these situations, the parties involved need to work out fair adjustments—even if that means a significant jump from the old level.
The UNL cash rent series in the "Resources" section of our departmental website—agecon.unl.edu--can be a help in those kinds of adjustments.
Second, if the cash rent levels have been kept current, the adjustment from 2011 to 2012 may be rather minor, Johnson says. "While high returns over the past few years will likely lead to some cash rent increases this year, look for other factors to dampen some of the enthusiasm. Recent crop commodity prices are volatile and suggest a year where prices and profit margins may not even come close to 2011 levels." Input costs are also higher, too, and weather is always the wild card. Abnormally dry conditions through the winter across much of the state do not bode well for soil moisture levels going into this crop year. So, most market participants seem to be looking ahead with greater caution, he says.
In instances where landowners are looking for potentially higher returns, they may need to consider sharing some of the risk through going back to the more traditional crop-share lease arrangement or a flexible-cash lease. "Recently, we have been seeing particular interest in flexible cash leases, which are a good option in more volatile times," he says.
Third, be sure to communicate well and strive to keep the rental arrangement current and fair. This is always important, but more critical than ever.
Source: University of Nebraska-Lincoln
Check out these available resources at the UNL Ag Economics website—agecon.unl.edu/realestate/html:
The 20120-2011 Nebraska Farm Real Estate Market Development highlights
Cash rent history in the appendix
Farm lease calculator
Flex lease calculator