Farm profits remained strong in 2013, keeping the demand for land leases steady, according to Farmers National Company. Despite lower commodity prices and decreased gross incomes, farm profitability remains good due in part to a 30 percent drop in fertilizer prices since 2012 and carryover grain sales from the previous crop year.
“Demand for high quality property is keeping both land values and rental rates strong,” said David Englund, AFM, executive vice president of farm and ranch management of Farmers National Company. “Overall, lease rates are higher on quality land if the land was rented below market in 2013, but rates across the board are mostly level. Fertilizer costs are expected to drop further in 2014, which will help farmers remain profitable.”The desire of farm owners to expand existing operations is leading to highly aggressive sales activity and keeping the demand for farmland strong. In addition, there has been a trend of young people coming back to family farm operations prompting additional demand for land.
“As a result of these factors, lease rates for land should remain steady and strong throughout the year,” said Englund.
Farm profitability is prompting a widespread movement from traditional cash rent arrangements to Cash Rent-Plus (flex rent) leases. This rental arrangement provides landowners with a negotiated base cash rent supplemented by a potential additional payment, based on operation profitability.
“Many local operators and landowners are finding this option provides the best scenario for achieving results for each party,” said Englund.
While leasing activity is fairly consistent nationwide, there are a few regional trends, according to Englund. Crop yields in northern Iowa and southern Minnesota were negatively impacted by delayed planting caused by wet ground. However, risk management tools, including crop insurance, have allowed farms in this area to curb losses and hold lease terms steady.
Ranch properties in the Sandhills of Nebraska and in Texas have experienced strong demand for pasture land boosting rental rates. Rental rates in the Mid South are fairly stable with some areas seeing slightly lower levels with drops of nearly 10 percent. Many multi-year leases being re-negotiated are seeing rates jump 50 to 60 percent as a result of appreciation in recent years and previously under-valued rates. New client with existing leases often are below the market as much as $100 an acre.
“Overall, lease rates were stable throughout 2013 following a record farm income year. Cash Rent-Plus leases should continue to be popular in the current market,” said Englund.