With the calendar turning to August, it is the time of year when landowners and tenants should be giving thought to rental terms for the 2022 crop season. Grain prices much higher than have been seen for a few years prompted the first thought that cash rental rates would be up significantly for 2022. But, higher input costs coming for the 2022 crop have now tempered those expected increases. Also, some regions are experiencing a drought and reduced yields, so upward pressure on rents will be less in those areas.
When projecting crop incomes for next year, higher prices times normal yields give a higher gross income than lately. But, input costs, specifically fertilizer, are going to be up significantly with additional smaller increases in seed and chemicals.
In fact, the cost to fertilize a soybean and corn rotation could be up 50-60% in some cases. The higher cost of production will cut into the expected net income which reduces somewhat the available net crop income to pay what was an expected much higher cash rent. At this time, cash rental rates could be up 0-20% depending on commodity price outlook, 2021 yield outcomes, and if the current rent is at market rate or below.
There are landowners taking another look at a crop share lease or a custom operation because of the strong commodity prices especially if rental rates for next year don’t meet their expectations. The owner will need to know costs, expected yields, and factor in the additional risk when comparing different leasing arrangements. For many areas where some type of crop share arrangement is the norm, there will probably be little change in the terms for next year.
One thing that a landowner needs to be aware of before negotiating any changes in leasing terms or rates is whether their state has lease termination notification dates and when those are each year. The owner needs to notify their tenant if they want to make changes in next year’s lease or if not, the lease terms will carry over to the following year. If changes are to be made, it is a good business practice for both the landowner and the tenant to have the conversations started early and before any notification deadline. This gives time to reach agreement and make plans for the next season.