Farm land rental rates need adjustment in Michigan’s Thumb

Some land rental rates must be adjusted for farm operators in the Michigan’s Thumb.

The past six years have been some very good times for cash crop operations across the Thumb and Saginaw Valley areas of Michigan. In general, crops have been average or better since 2003. When you couple good yields with strong commodity prices over the past three years, growers have some very good times (see Table 1).

Table 1

Corn –Saginaw Valley

$/bu

$/bu

$/ac diff

 

2012

2014

2012

2014

12 VS 14

 Yield

165

175

180

175

10

 Price

$6.75

$4.25

$6.75

$4.25

-$2.50

Gov. Program Payment

$15.00

$0.00

$0.09

$0.00

-$15.00

 TOTAL REVENUE

$1,128.75

$743.75

$1,215.09

$4.25

-$385.00

Cash Expenses

 

 

 

 

Seed

$105.00

$110.00

$0.64

$0.63

$5.00

Fertilizer

$191.05

$127.53

$1.16

$0.73

-$63.52

Pesticide

$21.00

$36.00

$0.13

$0.21

$15.00

Crop Insurance

$25.00

$15.50

$0.15

$0.09

-$9.50

Drying

$37.13

$39.38

$0.23

$0.23

$2.25

Custom Machine Hire

$79.60

$87.91

$0.48

$0.50

$8.31

Land Cost*

$150.00

$175.00

$0.91

$1.00

$25.00

sub Tot. Cash Expenses

$614.97

$597.70

$3.73

$3.42

-$17.27

Overhead Costs

 

 

 

 

 Interest

$22.23

$14.88

$0.13

$0.09

-$7.35

 Subtotal Overhead

$61.23

$51.88

$0.37

$0.30

-$9.35

Total Expenses

$676.20

$649.58

$4.10

$3.71

-$26.62

Net Enterprise Budget

$437.55

$94.17

$2.65

$0.54

-$343.38

With good yields and great prices, land rental rates have increased in nearly every county in this area. Now we are faced with a major change in commodity prices with corn, sugar beets, and soybeans all well below the prices that were available 12 or 24 months ago. The estimated change in revenue from 2012 to the projected 2014 crop enterprise budgets (Table 1) suggests $343.38 of less net revenue per acre of corn and that difference will need to be absorbed or adjusted for in the 2014 crop budget. With land rents being one of the single largest expense items, many farm operators will be sharing their economic outlook with landlords in efforts to keep that expense reasonable for the income generated.

In general, landowners are in three groups (1) landlords who have rental rates that are too high for the current economic conditions, (2) landlords who have rental rates that are reasonable for the current and projected economic conditions, and (3) landlords who have rental rates that are still below the average reasonable land rental rates for their situation. This situation is always true and as economic conditions changes the three groups can be identified with increasing or decreasing numbers.

With the 2013 production year wrapped up, many landlords who enjoyed higher rental rates that are now too high and will need to revise their goal. Some of these landlords will need to consider how they can share some of the risk if they wish to continue land rents that are higher than the average for their situation. Land rent value still continues to be a very complex formula and each parcel of land has its own set of plusses and minuses in calculating a fair rental value. One quick analysis seen in 2013 fields with delayed planting last spring were often the same fields with delayed fall harvests which faced wet conditions which is an obvious justification for reduced rental values. As we move forward, both landlords and farm operators who rent farm land need to insure early and open communication to avoid last minute problems with their 2014 farm land rental arrangements. For more information and additional farm land rental links visit the Michigan State University Extension FIRM farm management website. For a copy of a copy of a presentation related to changes that will impact 2014 farm land rental rates and farm profitability is also available online.

Related Events

Related Articles