Once all the thoughts and numbers are done and you decide to terminate the lease of arable land, there are steps you should take to do it properly, says Erin Herbold-Swalwell, a lawyer at Brick Gentry, PC in Mingo, Iowa. Taylor says survey data at KSU show that the reliability and reputation of farmers is one of the key determinants in the choice of a tenant by a landlord. “The rent rate was at the bottom of our surveys,” she says. “Owners want to make money, but they know it`s not easy to find a good tenant. They want the land to be supplied. Farmers are generally not in the habit of turning back farmland, but if the cash rent payment takes them out of profitability, 2021 may be the time to do so. Farmers` yields have been low since 2014: farmers in central Illinois have averaged us$17 per hectare between 2013 and 2018 (see Chart 3). From a yield perspective, $17 per hectare is a low yield for the risk of operating one hectare of cash rent. There are a number of reasons for overall stable cash rents in recent years, including the competitiveness of the agricultural market, farmers` fear of losing their competitiveness in the event of loss of rental land, the accumulation of financial reserves during the years of high yields from 2006 to 2013, and optimism about future prices. Cash grain prices, which are well below 2019 levels, are forcing farmers to review their leases for 2021.
Illinois farmers, Can Iowa and Indiana afford a cash rent of $222, $230 and $194 per hectare if the average price of corn and soybeans is expected to be $3.35 per hectare in 2020 (minus 25% from the previous year) and $8.50 (minus $5 from the previous year)? “This would indicate that cash rents would have to pay on average close to $240 per hectare to farmers to achieve a yield of almost $0 per hectare, or that cash rents would have to drop by $35 per hectare so that farmers could work at a break-even level. As a percentage, this would be 12.5%,” the economists write. The reduction of $35 per hectare could come from non-dark costs, but wherever they come from, it only brings farmers back to a balanced level. Larger incisions will be needed to become profitable again. Ad hoc federal aid is the key to profits: without ad hoc federal aid, farmers` yields would have been negative in 2019 and 2020 and probably negative in 2021. One can speculate on whether or not to grant this aid. Faced with these uncertainties, it will be difficult to set cash rents for 2020. Continuing to set cash rents at the current level will result in significant losses in the absence of ad hoc payments from the federal government. In some countries, the deadline for notification of changes to land leases is September 1. For farmers, this means that many numbers creak, and in many cases, mathematics is not beautiful. “Farmers who have good relationships share a lot of information with them and are much easier to talk to them to explain the situation. In the absence of good information from the tenant, landowners receive mixed information from the media: how government programs pay farmers a cheque, if the weather is good and if farmers will have a good harvest,” she explains.
Most landowners will listen when you say you need to lower the rent if there is information that explains why. Whenever communication is unilateral, there is the possibility of misunderstandings. It`s a tough situation,” says Kyle Walker, farm manager at Peoples Company, a real estate and farm management company based in Clive, Iowa. Since 2018, the decline in crop prices has been offset by ad hoc federal aid in the form of market facilitation payments and the coronavirus food assistance program, selo