Growing up, our family’s house sat in the middle of a corn field owned by a mountain of a man named Johnny. His family had owned the land surrounding our home for many generations and every year we watched as he harvested his crop and plowed and prepped the fields for the next growing season. Up until recently, I had assumed that most farmers operated this way. I thought that most owned their land and any profits (or losses) were based on the bountifulness of their harvest. Apparently, I was wrong.
According to a recent story in the Milwaukee-Wisconsin Journal Sentinel, more than half of the 250 million acres of corn, soybean, and wheat land in the U.S. is rented and in 2014, despite a sharp drop in grain prices, rents are expected to stay high. As a result, farmers are facing rising financial pressure and risk big losses in the New Year, according to analysts and bankers. After five years of record or near-record farm income driven by demand for biofuels and exports, grain prices have dropped 30% since a record-large U.S. harvest in 2013. Across the Great Plains as well as in Iowa, Illinois, and Minnesota, projections based on current costs and prices point to losses for farmers in 2014.
The problem for renters, however, is two-fold says the Journal Sentinel. Lease rates almost always lag drops in grain prices as landowners wait to see what the market will bear. Meanwhile, farmers typically chase land prices for fear of losing acreage in the future. In this scenario, experts tend to agree the landowners have the upper hand in negotiations. For years, they charged lower rents as grain prices worked to catch up and now are in no mood to lower rents. Crop farmers, on the other hand, have reaped the benefits of low rent and high grain prices and can’t risk losing the acreage even with projected negative returns.
So are these farmers prepared to take a loss? Yes, according to a farm manager at Kansas State University. He says that most farmers are optimistic by nature and their desire to keep a hold on acreage and gain production outweighs caution. In other words, they’ll lose money in the short-term if it means bigger profits down the road.
Which side of the negotiation table would you rather sit on?