At this time each year, farmland owners and farm tenants start to think about lease terms for the next crop season. Tenants want to lock down the farm again for another year so that they can carry out fall fertilization and tillage if necessary in order to get a head start on next year’s work.
Landowners who might want to renegotiate lease terms have to think ahead before harvest to terminate the current lease at the end of its term so that they can be free to work on new terms for next year. The 2021 lease negotiation season will be a challenging one on all sides.
Farmland owners are faced with the on-going obligation of property taxes that at best have leveled off for the time being. Also, if they depend on the farm for an important part of their income and even if they don’t, owners will want to see rents and returns remain steady at least.
tend to go up more slowly than farm profits and come down more slowly, so landowners will be hesitant to have rents decline. Producers are facing challenges with lower commodity prices and declining working capital for many of them.
Uncertainties abound in agriculture as landowners and farmers look to 2021. How big will the 2020 crop be? Will Chinese demand for US soybeans and other commodities fulfill trade requirements? Will ethanol demand bounce back to normal levels anytime in the near future? How soon will the backlog in meat processing be worked through?
When will the world economy and trade bounce back to pre-Covid 19 levels? Will there be additional federal support payments for US farmers and ranchers? What local factors such as a drought or wind damage have to be factored in on a regional basis?
Market rate competitive rents provide a return to the landowner which is capitalized into the value of the land which has kept prices for good cropland steady despite challenges in the farm economy. Having steady land values is good for the financial stability of producers who own land as a part of their operation’s assets.
If cropland rents were to take a large drop, land values could possibly decline too which would decrease a producer’s net worth and potentially create issues with their lender. Ultimately, cropland rents are important to the landowner, the tenant, the lender, and the ag industry.
Time will tell how the uncertainties and various other factors will determine 2021 cropland rents. As the months move along, more of the uncertainties will be resolved or at least more will be known so that better information will be available to negotiate rental terms in 2021.