Forecasted profits for 2015 continue to look bleak for farmers and they will more than likely see the lowest returns of the last 5 years. A new article posted by Gary Schnitkey on the University of Illinois’ Farm Doc Daily (Farmland Returns in 2015) analyzes the hard numbers and where the financial outlook may end up, if grain prices stay at expected levels.
As Schnitkey addresses, one of the main deciding factors that will determine whether a farmer is profitable or not in 2015 will be the level of cash rent that they are paying. When factoring in non-land costs such as fertilizer, seed, chemicals, and equipment there is a very good chance that the farmers that are paying the very high cash rent prices will be losing money on those particular farms. According to the article, average non-land costs more than doubled from $302 per acre in 2006 to $615 per acre in 2013. Gross profits were for the most part going up during that same time period, so farmers were able to still take some profits. However, the input costs have remained at a high level while grain prices have been cut in half from their highs of a few years ago.
The main takeaway for landlords: For those in a cash rent situation, don’t expect tenants to be able to maintain current rent levels in 2016 if both grain prices and input costs remain static. Even if you are locked into a long-term lease, there is a chance the tenant may need to renegotiate terms to stay afloat financially. For those under a shared lease agreement, there should still be profits there, just at a reduced rate from previous years.