The Housing Bubble

A report from Nebraska TV. “After the boom comes the bust. Farm incomes have dropped three straight years following record highs, and that makes for difficult conversations between landlords and farmers who rent. Experts tell farmers the time to dream about better prices has passed. Allan Vyhnalek, an Extension Educator said, ‘2013 was good year yet, 2014 was hope we go back up to $5 corn, 2015 was wishing we’d got up back up to $5 corn, 2016 was dreaming we’d got back to $5 corn, and now we’re at hopes wishes and dreams, figure out where we need to be.’”

“For farmers like Dave Buss of Adams County, that’s not easy. ‘It’s pretty hard to show a profit, you have to have a really sharp pencil,’ he said.”

“Vyhnalek tells landlords, don’t set rent based on coffee shop talk. ‘First I find it very interesting we’re going to manage a farm, farm land worth hundreds of thousands if not millions of dollars based on information we get from a coffee shop. That bothers me, inherently,’ he said. He says landlords and tenants need to do what’s fair for both sides, because everyone needs to do their part to get through these tough times.”

The High Plains Journal. “In conjunction with the Kansas State Ag Econ department, we recently hosted a meeting that focused on 10 considerations to make during a struggling farm economy. How long can I afford to lose money on rented ground? It is no secret that land rental values do not adjust as quickly as changes in commodity prices. This may be the result of multi-year leases with fixed cash rents, negotiating a lower rent may be difficult in some cases, and landowners may search for other tenants who are willing to pay their asking price.”

“A difficult decision is to let land go, often because you may never have the chance to rent it again. In some cases, there may not be a choice. A lender may require you to release the ground or you may not be able to cover your variable costs.”

From Prairie Business Magazine. “Strong crop prices during the 2008 to ’13 boom boosted farm profitability, encouraging landlords to ask for higher rental rates and allowing farmers to pay more. Corn, in particular, provided strong returns, pushing up rental rates the most in areas where the crop is common. Cass County, in eastern North Dakota, reflects the trend in areas where corn and soybeans are major crops. The average per-acre rental rate for nonirrigated cropland in the county nearly doubled from 2008 to ’15, rising from $67.50 to $125.80. It 2016, however, it dropped to $117.”

“Farmland rental rates are said to be ’sticky.’ They go up slowly in good economic times, but also go down slowly when times are tough. That’s because many leases are for multiple years, so what happens in one crop season isn’t necessarily reflected in the rent that a farmer pays the following crop season.”

“That’s why rates generally rose from 2012 to ’15, even though crop prices declined in the same period. U.S. farmers received an average of $3.23 per bushel for corn in November 2016, the last month for which data is available. That’s down from $3.59 a year earlier, $3.77 two years earlier, $3.77 three years earlier, $4.35 four years earlier and $7.02 in November 2012.”

“So, the overall decline in rental rates from 2016 to ’17 reflects, in part, the drop in crop prices in previous years that hadn’t yet been accounted for fully in rents. Overall rental rates began falling a year ago, the result of declining crop prices and the likelihood that few farmers would be profitable in 2016 without big yields. Experts predicted in the winter of 2015 to ’16 that rental rates for 2017 would fall sharply if yields were average or poor in the 2016 crop season.”

“The most likely outcome is that rental rates overall will drop a bit across the Upper Midwest, with so-called ‘high-end rates’ — ones paid by aggressive operators who hoped for strong crop prices — falling the most, say farmers, ag bankers, extension specialists and other who talked with Agweek. In Minnesota, for instance, ‘I’m estimating an overall decline of 7 percent, with a lot of that high-end rates,’ says David Bau, University of Minnesota extension educator for agricultural business management.

“That decline would be comparable with 2016, when Minnesota average rent for nonirrigated farmland fell to $160 per acre from $170 per acre the previous year. Across the Upper Midwest as a whole, rental rates typically fell 5 to 20 percent from 2015 to 2016, though there were many exceptions.”

From Illinois Farmer Today. “Higher farm incomes that began in 2007 and continued through 2012 resulted in significant increases in cash rents. Summary data from the Illinois Farm Business Farm Management Association (FBFM) records for this time period indicated that operator’s total net farm income, except for 2009, averaged over $200,000. During the previous 10 years, total net farm incomes averaged well below $100,000 per farm. Incomes in 2013 and 2014 were about one third of the 2012 total net farm income, and the 2015 income figure was basically a breakeven amount.”

“According to the USDA, average cash rents in Illinois increased from $141 per acre in 2007 to $212 in 2012, a 50 percent increase. Average cash rents continued to increase in 2013 and 2014 even though farm incomes declined, averaging $223 and $234 per acre respectfully. Another source of cash rent data, survey information from the ISPFMRA, indicates the mid one-third average rent for excellent farmland averaged $183 per acre in 2007 and increased to $379 per acre in 2012, a 207 percent increase. The mid one-third averaged $396 per acre in 2013.”

“According to the USDA and ISPFMRA data, cash rents have started to decline. The USDA data indicated the average cash rent for Illinois for 2016 was $221 per acre. But this is only $13 per acre less, or a 5.6 percent drop from the 2014 high of $234 per acre. According to the ISPFMRA data, cash rents peaked in 2013. The mid one-third average cash rent for excellent land was $396 per acre and for good land was $339 per acre. The average cash rent for excellent land for 2016 dropped to $325 per acre, a $71 per acre or almost 18 percent drop from the peak.”

The Dispatch. “While a study by the Mississippi State Extension Service forecasts a possible farm crisis for 2017, local farmers hold a more optimistic view, thanks to what they believe will be a strong cotton crop. While both commodity and input costs — primarily seed costs — have risen steadily over the early part of the decade, a decline in commodity prices since 2013 has not coincided with a comparable decline in those input costs, according to Bryan Parman, an agricultural economist for the Extension Service.”

“‘The year 2013 was the last year of relative high commodity prices,’ Parman said in the report. ‘Now, commodity prices have come down, but input costs have not come down nearly as fast. We’ve had a couple years in a row now of negative returns for farmers,’ he said. ‘They’ve lost money per acre, especially those who are renting land.’”

“The prospects continue to be discouraging when it comes to soybeans, where prices have fallen dramatically over the past four years — from $14.40 per bushel in 2013 to $9.25 last year. The current market price of $9.50, if it holds by the fall harvest, only slightly reverses that trend.”

“David Johnson, who farms 650 acres in Noxubee County, said he plans to divide his acreage equally between corn and cotton. Johnson irrigates about a third of his acreage, which points to a concern farmers say is potentially as serious as crop prices. The drought that began last fall has continued into winter, which means ponds farmers use to irrigate their crops are far below normal. ‘Our ponds are very low,’ he said. ‘If the winter continues to be dry, there’s going to be some farmers that are going to be in trouble.’”

From Successful Farmer. “We want to help you take in the blue sky for agriculture in 2017. After sinking prices in nearly every grain and livestock market in 2016, economists see a return to higher ground. Now may be the time to buy good, used equipment. The outlook for fertilizer prices and cash rent rates point in favor of savings for farmers. Still, it will take a while to work through the glut of several years’ worth of high yields, which could mean an extended period of low rental prices.”

“Certainly one of the biggest silver linings in the storm clouds of a depressed farm economy has been the significant savings being offered on late-model, and low-hour machinery. Values on high-horsepower tractors, four-wheel drives, combines, self-propelled sprayers, and grain carts are one quarter to one third less than in 2012. ‘I’ve never seen opportunities to buy large machinery at such competitive prices as exist today,’ says Jeremy Knuth of Heritage Power, a John Deere dealership out of Baldwin City, Kansas. ‘We are looking to move out built-up inventories, and we are willing to work hard to make a transaction work for an individual farmer’s situation.’”

“Another hallmark of this massive inventory of late-model machinery is that most of the equipment for sale carries unprecedented low hours. It is not uncommon to uncover a 2014 model year 300-plus-hp. tractor for sale with fewer than 500 hours. The poster child of like-new large machinery is the grain cart. A search of John Deere’s dealer website, machinefinder.com, finds 252 large (1,000-plus-bushel) grain carts for sale that are 3 years old or younger. Even more amazing is the number of brand-new carts that are 2, 3, and even 4 years old still sitting on dealers’ lots.”