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Rent to Revenue Percent Offers Clues for 2015

Rent to Revenue Percent Offers Clues for 2015

High cash rents must decline for farms to breakeven, says economist

An analysis of cash rents as a percent of corn crop revenue may help you negotiate cash rents for 2015.

According to University of Illinois Ag Economist Gary Schnitkey, the cash rent to corn crop revenue percentage in Illinois was higher from 2000-2005 compared to the boom years of 2006-2013, when revenues shot through the roof. If cash rents do not decrease for next year, projections indicate that 2015 cash rents percentages will be near 2000-2005, setting off red ink alarm bells.  

In fact, if you just look at the numbers, cash rents in most cases must decrease from 2013 levels – and that's mighty tough to do if history is any indication.

Cash rent as a percent of corn crop revenue is expected to return to early 2000 levels.

In a 2015 central Illinois scenario with highly productive soils, Schnitkey penciled in expected yields of 199 BPA at $4 per bu., producing revenue of $796 per acre. With non-land costs at $582, using a 2013 average cash rent of $290 per acre, the tenant loses $46 per acre.

That cash rent as a percent of corn crop revenue is 36%, roughly the same as 2003. By comparison in 2011 that number was closer to 24%.

Likewise for northern Illinois, the expected corn yields from 2015 Illinois crop budgets is 194 BPA. With $4 corn that comes to $776 per acre revenue. Non-land costs are estimated at $625 per acre. Add in 2013 average cash rent of $262 per acre gives a total cost of $887, leaving the farmer with an $81 per acre loss.

"These large negative numbers illustrate the need for cash rent decreases from 2013 levels," says Schnitkey.

In the highly productive soil central Illinois scenario, the breakeven rent needs to be around $244 for the farmer return to be $0. Looked at another way, that land needs to yield 211 BPA to generate the needed revenues to cover costs.

In the Northern Illinois scenario, breakeven cash rent must be $181 per acre, down from the average of $262 per acre, for farmers to breakeven. Looked at another way, that land needs to average 214 BPA for breakeven to occur.

This may or may not be a talking point as you open negotiations with landlords for 2015. You can find the full report at University of Illinois' Farmdocdaily website, here.

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