Farmland rental rates are unsustainably high and must come down if crop production is to remain economically viable.
So says Rabobank senior analyst Sterling Liddell.
“Let’s just look at the center of the country, where the most intensive corn and soybean production comes from—the Iowa-Illinois area—where the price of land, or cost of land, is still running in excess of $1.60 per expected bushel,” Liddell says.
Which is much too high, Liddell says.
“To be sustainable where we see the price going long-term, which is a lower price than had been forecast, we believe that it has to drop from that $1.60 down to $1.25 to $1.30 per bushel.”
Liddell says, in general, that means a $30 to $50 per acre decrease in rental rates is needed to bring returns from farming back to near break-even levels.
“We believe this will lead to the valuation of land also adjusting lower,” notes Liddell. “If rental costs remain sticky at unsustainable levels through the 2017/18 growing period, individual land assets face the threat of much deeper devaluation, as nutrient and crop protection programs are cut and abandonment (usage changes) increases.”
Source: brownfieldagnews.com