This is one of the most frequently asked questions I receive is how much are cash rents in Ellis County for dryland cultivated and pasture farmland?
Because of the frequency of this question throughout the state, our K-State Research & Extension Agricultural Economics department has worked hard to provide answers to those questions. Extension agents even have sent out anonymous questionnaires or surveys to landowners and tenants asking what they are receiving or paying for cash rents. Unfortunately when I have done this in years past, the return rate was low, and thus I have not sent out a survey in several years.
However, the U.S. Department of Agriculture-National Agricultural Statistics Service (USDA-NASS) does send out surveys to landowners and tenants asking this question. So that information is available to anyone, and as mentioned, the K-State Ag Economics department has compiled information as well. All of this information can be found on their website at www.agmanager.info hold your cursor on the “Land & Leasing” tab and then click onto “Land Rental Rates.”
When you look at the 2017 Kansas County-Level Cash Rents for Non-Irrigated Cropland, March 2017, you quickly will notice the estimated 2017 KSU Rent of $13.10/acre is much lower than the survey of 2016 NASS Rent of $40/acre.
So why are those two numbers not even close? Well in the brief space I have, it would be difficult to fully explain. Essentially the rental rate estimates by KSU reflect what producers could pay for rented ground, based solely on expected yields, commodity prices and production costs. There is more to the equation than this, but in a nutshell, that is how the estimated KSU rent is figured. The good news is you can read pages two through five of the publication and it will fully explain how KSU figured its estimated cash rent number — which, by the way, both NASS and the KSU figure are averages; please keep that in mind. Numerous factors can influence land prices and thus cash rental rates.
Rental rate market overview
Profitability in the Kansas farm sector has declined dramatically in the past two years. According to Kansas Farm Management Association data, net farm income per operator declined statewide from $122,190 in 2014 to $4,568 in 2015, and $43,161 in 2016. Although the impacts of low profitability are varied across the state.
The KSU rental rate estimates reflect what producers could pay for rented ground, based solely on expected yields, commodity prices and production costs. Ignored in these calculations is the ability of producers to pay rent on leased ground using profits gained in previous crop years or available equity from owned assets. These factors most likely will come into play when rental rates are negotiated for the 2018 crop year. The difference between the K-State and the USDA-NASS estimates reflect a transition process from high to relatively low rents that will occur as long as profitability in the farming sector stays low for the next several years.
It is worth noting not all farmers have the same amount of working capital or equity in owned land available to them for paying rental rates above expected profit levels. Producers who started farming in the last five to 10 years are less likely to own most of the land they operate, making it difficult to subsidize high rental rates with returns from land they own. Similarly, a producer who employed an aggressive growth strategy in the past decade also might have trouble paying high rents due to borrowing costs on land they purchased. The impact of a farm recession on producers’ ability to pay rents above expected profits will not be uniform.
The recent decline in farm profitability puts producers in a difficult situation. Producers do not want to lose land if they can afford to keep it, because the capital investment (e.g. machinery purchases, breeding herd size) and labor decisions they made during the past several years were based on the amount of land they had to farm. This will lead many to pay more for the land than estimates of expected profitability suggest they can pay and keep rental rates from falling at an accelerated rate, at least in the short-term. During a longer period of time, if profitability remains low, rental rates will continue to decline as producers burn through existing working capital or equity and are unable to continue to pay higher rates.
• Information provided by Mykel Taylor, K-State Extension ag economist.
Stacy Campbell is a Kansas State Research and Extension agent in Hays for the Cottonwood Extension District Office.