Land Rent Continues To Capture Attention Across Corn Belt

High rents discourage tenants, especially as prices fall.

Published on: Dec 5, 2011

If you could ever make some of the cash rent figures floating around in coffee-shop talk and sailing through the air of the Internet work, which is questionable, it was when corn was pushing $8 per bushel and soybeans over $13 per bushel. And although some onlookers are surprised those prices aren't still around, they're not. Marketers say the factors are there to support such prices, but the overall fear of the global economy and a possible collapse continues to keep investors who pour billions of dollars into the grain markets on the sidelines.

Whether markets will rally as planting time approaches and those who need various commodities realize they will need to bid to make sure enough acres are planted to meet future needs remains to be seen. In the meantime, talk of high cash rents continues to swirl, and perhaps gets more ridiculous all the time.

The latest is a report from southeastern Indiana that land considered average at best across the Corn Belt as a whole, rented for $250 and over $300 per acre, respectively, with the lower rent paid for very rolling land. And this isn't Iowa soil with four feet of black dirt on the hills- it's Indiana soils with much less productive soil on those hills. In many cases, due to past erosion in earlier days of farming, those 'red hills' are down to or nearly down to the subsoil.

Purdue University ag economists noted last summer after an annual land value and cash rent survey that even though cash rents went up from 2010 to 2011, they didn't go up as high on a percentage of land value basis as land values. So perhaps they're catching up. But at what cost? Are those paying the high rent factoring in applying fertilizer, or are they intending to mine the fields? Is there already enough fertility there to mine, or will yields suffer? Are they willing to bid so high that without super-high prices, they won't recover costs for machinery depreciation and labor? Are they basing their bids on some sort of budgeting process, or on raw emotion?  Are they forward contracting or using hedges to lock in profit on ground that they pay high prices for just to rent for a year?

The best line of the year so far is form a farmer who observed that the original buyer paid about $300 per acre 40 years ago for the same type of land that just fetched over $300 per acre in rent for one year. This observer bought land for around $5,000 per acre this past summer. "Will I get $5,000 per acre for a year's rent on it in 40 years?" he quips.

It's certainly food for thought, although I hope our observer friend doesn't bank his retirement on that theory. Just when will this wild ride end?