I recently attended a land rent auction in Green County, Wis., and the land went for $350 an acre. I’m wondering how corn or soybean ground in southern Wisconsin can rent for $350 an acre. Who can make money paying that much land rent?
Hodorff: The price for land rent will be determined by willing participants. Rent can be affected by how productive the land is and how close it is to other land the bidder has. Someone thought that $350 for rent was something they could afford. I would have to agree that that amount for land rent is very high. Grain prices where they are now makes it difficult to cash-flow. When one parcel of land rents for that amount, other landlords think their land is worth that much too.
Miller: Corn and soybean prices have not been favorable for the past several years, and land rents in general are pressured to come down to align the costs of growing a crop with the prices received for it. It is unlikely, with today’s economics, for a farmer to pay $350-an-acre land rent and make money on that land. So why would they? Several potential reasons include: They have a large owned land base and are averaging the owned and rented acres for a much lower blended average land cost. Or they rent a substantial portion of land at a lower cost and again are blending the average cost. Third option would be they can spread the cost of machinery, equipment and labor over more acres and lower their total average cost of production even with paying a higher land rent.
Regardless of the reason, corn and soybean returns have been at or below the average cost of production for the past three to four years. The winner of this land rent auction may wish they had come in second place, given the current corn and soybean price dynamics.
Wantoch: It may be hard to believe high cash rental rates like this are still being paid during the current down cycle in commodity prices. Hopefully the renter has analyzed their crop budget to determine a maximum rental rate to generate a profitable return when bidding on this land.
The USDA National Agricultural Statistics Service reported the average cash rental rate for Green County in 2017 was $164 per acre. However, several factors could have played into the reason for this rental rate to be higher than the average. This parcel may border a neighboring county that has higher rental rates, such as Lafayette County (average $230) or Stephenson County, Ill. (average $231). The field may be located closer to the renter’s farm, thus creating labor and fuel efficiencies during planting, harvesting and manure application. The parcel may have high fertility levels and produce above-average crop yields. The landowner may have been offered a multiyear lease agreement and would provide the renter with an opportunity to capitalize on nutrient applications over the next few years. There are differing opinions of what’s fair and reasonable for every situation.
Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Dunn County Extension agriculture agent specializing in economic development. If you have questions that you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].