I’m 66 years old. Five years ago, we sold our cows and paid off our mortgage. I continued to farm the 300 acres we own, plus I rent 100 acres from a neighbor. Now that it looks like low crop prices are back again to stay, I’m thinking this fall might be a good time to sell my equipment and rent my farm to another neighbor next year. Last year, after putting a crop in the ground, paying my rent, buying crop inputs and harvesting, I figured I might have broken even. This year, I’m not so sure I will break even.

Renting my land will give me $175 an acre, which is about $52,000. That, combined with Social Security and Medicare, should give me and my wife enough income to retire on and pay our taxes, insurance and living expenses. Is there something I’m missing, or does this sound like a viable plan?

Tom Kestell: Congratulations on the final phase of your farming career and for being debt-free after a successful career. I would seek advice from a financial planner on how to protect yourself from tax liability on the sale of your equipment. Perhaps splitting the sale of your equipment and your final crop will even out your tax liability and save you some tax money. Remember, there will be no crop expenses to offset your future tax liability.

Also look at long-term health care needs and try to mitigate their impact on your lifestyle as much as possible. I would play a little game with your wife of “What if?” Think of different scenarios that could develop and how you would handle them. Do this with a positive and self-educating point of view. This could be a beneficial and informative exercise that could relieve the stress of retirement planning. Proceed with your retirement plans, but be open to different ideas and opportunities that could enhance your retirement together. Good luck.

Sam Miller: I believe you have thought this through pretty well and have positioned yourself for transition to retirement, at least from a financial standpoint. There are a few things you still need to do — namely, visiting with your tax professional about the tax implications of selling your equipment, getting a rental agreement in writing with your neighbor for the land, and visiting with a financial adviser to invest the proceeds from equipment sales. Lastly, you will need to figure out what you plan to do with your time in retirement — travel, work part time, volunteer, read books, etc. Good luck with your next chapter.

Katie Wantoch: Congratulations on your successful career. It sounds like you have thought this through and have a plan to exit from farming. I would encourage you to meet with your tax preparer or accountant to talk about the sale of your farm machinery. You want to develop a strategy to manage your tax obligations. This is best done prior to the sale rather than afterward. For example, your tax preparer might suggest selling machinery over multiple years to spread out the depreciation recapture.

One other note, you don’t mention having retirement accounts to support you and your wife. Review your current expenses to determine what your cost-of-living needs will be after you exit from farming. Income can fluctuate, so plan on worst-case scenarios where land rental may decline and Social Security is variable. This way you’ll be set for many years during your retirement.

Land rental rates

Crop prices have dropped significantly during the past year. My son and I own 275 acres of cropland and rent an additional 600 acres. We also milk 100 cows. I’m wondering what impact these lower crop prices will have on land rental rates. I’m thinking there will be less competition for land next fall and prices will hopefully drop. Right now, we’re paying an average of $200 an acre. In 2017, we were renting the same land for $150 an acre. Will rent prices get that low again? I don’t want to overpay for land.

Tom Kestell: At first glance, this question seems simple. Of course lower commodity prices will bring lower rent — but will they? Local land rents are driven by local demand. In areas where you have aggressive cropping operators or young operators with a desire to spread their wings a bit, lower commodity prices are seen as a chance to spread costs by operating more acres with the same equipment. Once good land is rented by younger farmers, they seldom give it up. I would be quite surprised if rental rates drop in your area next fall.

Before giving up good land, think about how this will affect your future. Once land is gone, it will be hard to get back. Talk to your landlords and maybe you could work out a win-win for both of you as commodity prices rebound. It might also be a good time to look at your livestock business and see if it would be a wise decision to expand that segment of your enterprise. Good luck, and do not make hasty decisions with long-term impacts to your livelihood.

Sam Miller: Historically, land rental rates do not move up or down much. A review of cropland rental rates according to the Wisconsin Ag Statistics Service indicates average rates moved from $130 per acre in 2013 to $149 per acre in 2022, with only one year declining — 2021 declined $8 per acre and then increased $11 per acre the following year to $149. Bottom line, rental rates may decline a little, but it usually takes a couple of years of lower crop prices before this is reflected in rental rates.

One item keeping rental rates from moving lower is higher productivity. As yields increase, income increases, keeping pressure on rental rates. Educating your landlords may be a way to influence what you pay to rent land. Be prepared to show the changes in net income to rent land, and how that increased when prices were higher and may need to adjust lower, following crop prices.

Katie Wantoch: While current commodity price trends are declining, farmland rental and land prices have not always followed those same exact trends. According to an article by the University of Illinois, average rent levels tend to follow trends in farm returns, but with a one- to two-year lag.

While returns declined in 2023, most average rents continued to reflect the high return levels from 2020 to 2022. The moderate decline expected for 2024 reflects the lower returns expected for 2023 as well as expectations that 2024 returns will also be lower than in 2020 to 2023.

I would suggest reviewing the USDA National Agricultural Statistics Service cash rents by county report. Those rates, along with recent farm returns, provide information that can aid you in setting your 2024 cash rents. Typically, periods of higher returns quickly lead to higher cash rents. In contrast, cash rents are generally “sticky” or slow to decline in periods of lower cash returns. The projected 2023 and 2024 farmer returns are currently negative, reflecting a significant shift from the high farmer returns achieved in 2020, 2021 and 2022.

Consistent with these return expectations, professional farm managers also expect lower cash rents in 2024. However, larger adjustments may be needed to achieve positive return levels in 2024.

Agrivision panel: Tom Kestell, Sheboygan County, Wis., dairy farmer; Sam Miller, retired managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, statewide Extension farm management outreach specialist and professor of practice. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].