Get any group of farm land owners together for more than a few minutes and the discussion will quickly turn to the topic of farm land rent. In rural communities, everyone seems to be impacted in some way by the rapidly changing land rental values. What we often see is the debate of what will happen to farm land rental rates in 2013 as landowners renew their rental agreements. Several factors will come to play in this discussion:
- Commodity prices: It is easy to see that the market prices for corn next fall could be well below today’s price.
- Weather Conditions: Much of Michigan suffered under dry to drought level growing conditions during 2012 and in many parts of the state crop yields suffered.
- New Farm Bill Pending in Congress: In general information found regarding the progress of the development of a new farm bill, it is clear that the current version will reduce or eliminate direct payments to farm producers.
Looking at the most recent 2012 Michigan Land Value and Leasing Rates Survey, it will show an increase in land rental rates for 2012.
It is clear that some farm land rental rates will increase for 2013 as they are still lagging behind the increasing trend over the past several years. Farm land owners that pushed up rents over the past couple of years will see their rent values remain the same or even see some decreases from the record high rents paid in 2012.
We have noticed in the Saginaw Valley region that farm land rental rates have increased over the past few years on the most productive land. In general, farm land rental rates increased 30 percent or more from the years of 2008 to 2012. However, farms that have no-tile or poorly tiled drainage continue to lag behind in the rent being paid. We now have some cash rental rates paid in 2012 that are overpriced when related to the current market and production estimates for 2013. So for some farms, a decrease in land rents will be justified and expected.
Most farm operators need to shift to a combination of flex rental arrangement, which has a minimum cash value but allows for a bonus or increase in rents paid. The flex rental agreement provides for higher land rental rates to be paid if the gross income (yields x prices) are higher than normal. We see a wide variety of methods being used to provide some flexibility in the total rent being paid. You can find a variety of farm land rental information at Michigan State University Extension educator, Dennis Stein’s farm management web page.