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Rise in rental rates could be a concern for farmers

WORTHINGTON -- With the recent volatility in grain prices and the cost of rental rates rising, it could be harder for farmers to make a profit in the coming years, according to Dave Bau, Extension Educator for Worthington Regional Extension Center.

The average cost of renting an acre of land in Nobles County has gone from $97 in 2004 to $117 in 2007. Projected estimates for 2009 could be as high as $139, Bau said.

"The trend is rents are still going up, and the prices down," he explained. "Some rents are such a high number that the farmers might lose money."

Many farmers have already signed rental contracts for the coming farm year, and most use the same land year after year. Leases are usually one-, three- or five-year contracts, though typically the year-to-year lease in the most common. Negotiating each year protects both the farmer and the landowner, allowing them to adjust with the markers, inflation and rising property taxes.

"The majority of them are probably already done," Bau said. "But I still get calls from people negotiating for next year."

Unlike Iowa, Minnesota does not have a set date the land rental contracts need to be signed.

"Iowa has a set deadline when landowners have to notify farmers that rent will change," Bau explained. "Minnesota does not."

Bau credited part of the rise in rental fees to high grain prices in the past two years, which he said caused "a lot of euphoria." The rents went up dramatically, from 10 to 15 percent per year. Whether the rentals fees will go back down, Bau said, is hard to know.

He uses a form called an operators case rent worksheet to determine what rent farmers can afford to pay. Based on $3.50 per bushel corn, with a 170-bushel yield per acre, a farmer can afford approximately $131 rent in 2009 and still make a bit of profit for themselves, Bau said. That same profit measure holds true for $8 per bushel beans with a 50-bushel yield per acre.

When prices were higher, with corn at $7 and beans at $15 per bushel, some farmers paid bonuses to landlords. There is a concern now, especially for those who locked in rental land at higher rates and have not sold their grain.

"If they negotiated last fall when prices were higher, they can afford it," Bau stated. "If they didn't sell any grain, they may have a hard time making ends meet."

Grain prices, Bau said, are half of what they were this summer, which could cause a dilemma for those who didn't sell their entire 2008 crop.