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Iowa Farm Rental Agreement

Cash grain prices, which are well below 2019 levels, are forcing farmers to review their leases for 2021. Illinois farmers, Can Iowa and Indiana afford a cash rent of ¢222, ¢230 and ¢194 per hectare if the average price of corn and soybeans is expected to be ¢3.35 per hectare in 2020 (minus ¢25 compared to the previous year) and ¢8.50 (minus ¢5 from the previous year)? It`s a tough situation, says Kyle Walker, farm manager at Peoples Company, a real estate and farm management company based in Clive, Iowa. Farmers` yields have been low since 2014: farmers in central Illinois have averaged us$17 per hectare between 2013 and 2018 (see Chart 3). From a yield perspective, $17 per hectare is a low yield for the risk of operating one hectare of cash rent. There are a number of reasons for overall stable cash rents in recent years, including the competitiveness of the agricultural market, farmers` fear of losing their competitiveness in the event of loss of rental land, the accumulation of financial reserves during the years of high yields from 2006 to 2013, and optimism about future prices. „Disclosure of profit information can be unpleasant,“ she admits. „But I recommend sharing a state`s business management data, which shows the performance of farmers across the state. You can tell the owner that you are above average or below average. Also share farm income data, and government payments accounted for 60% of this total. Economists summarize the rental outlook for 2021 as follows: „This would indicate that cash rents would have to average $240 per hectare for farmers to achieve a yield of close to $0 per hectare, or that cash rents would have to fall by $35 per hectare for farmers to work at a break-up level. As a percentage, this would be 12.5%,“ the economists write.

The reduction of $35 per hectare could come from non-dark costs, but wherever they come from, it only brings farmers back to a balanced level. Larger incisions will be needed to become profitable again. These assumptions result in a yield of 224 $US per hectare. We are forecasting that continuing a cash rent of $275 per hectare in 2021 would result in a loss of $51 per hectare for the farmer. It is clear that in the absence of reduced cash rents or other costs, $51 per hectare or more is needed to encourage farmers to obtain yields of $0 per hectare. Ad hoc federal aid is the key to profits: without ad hoc federal aid, farmers` yields would have been negative in 2019 and 2020 and probably negative in 2021. One can speculate on whether or not to grant this aid. Faced with these uncertainties, it will be difficult to set cash rents for 2020. Continuing to set cash rents at the current level will result in significant losses in the absence of ad hoc payments from the federal government.

In some countries, the deadline for notification of changes to land leases is September 1. For farmers, this means that many numbers creak, and in many cases, mathematics is not beautiful. Farmers are generally not in the habit of turning back farmland, but if the cash rent payment takes them out of profitability, 2021 might be the time to do so.

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