October 31, 2013

In the coming years commodity prices will likely be lower than in previous year meaning per acre returns will also decline, which in turn will likely necessitate lower cash rents on some farms.  Data from 2012 from the Illinois Farm Business Bureau was used to classify farms that receive most of the revenue from grain operations which tend to rent more of their land.  Results from farm financial simulations suggest that farms that meet two criteria might face greater difficulty in generating income at current cash rent levels:

–          Farms which cash rent more than 90% of their acres

–          Farms that have $25 per acre or more farm-minus-county-cash rents

For all grain farms in Illinois, only 12% cash rent 90% or more of their acres and for all grain farms the average farm-minus-county-cash rent is $2 per acre, but this increases with farm size.  Farms with less than 500 acres average $33 per acre of farm-minus-county cash rent, and farms over 5,000 acres average $52 per acre of farm-minus-county-cash rent.  Only 4% of farms meet both criteria for possibly needing to lower cash rent with most of these farms being in the larger farm size.  25% of farms between 4,000 and 5,000 acres meet the criteria and 28% of farms over 5000 acres meet the criteria.   Of course there are farm-specific factors such as off-farm income, cost levels, and debt to asset ratios that could play a role in each farm’s ability to handle lower income.

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