Operator and farmland returns, which represent the amount that can be split between the landowner and farmer, vary considerably with corn and soybean prices that are likely to occur over the next several years. Herein, landowner and farmer share of returns are shown under share rent and a 40% of crop revenue leases, two arrangements that exists in practice. Resulting returns will show the variability in returns likely to be experienced, and also illustrate the downward pressure cash rents may face when prices decline to likely long-run levels.

Operator and Farmland Returns

In a post last week, operator and farmland returns were calculated for three sets of prices:

  1. 2013 projected prices: $5.50/bu. corn price and $12.50/bu. soybean price
  2. Long-run prices: $4.50/bu. corn price and $10.50/bu. soybean price
  3. Low prices: $3.50/bu. corn price and $8.50/bu. soybean price

Panel A of Table 1 shows operator and farmland returns for central Illinois with high-productivity and low-productivity farmland. For high-productivity farmland, the operator and farmland return is $510/acre for 2013 projected prices. Returns are reduced to $341/acre under long-run prices, and $172/acre under low prices.

 

 

Landowner and Farmer Returns under Share Rental Lease

The split of operator and farmland returns between farmer and landlord is calculated for a lease that shares revenue and direct costs (fertilizer, seed, chemicals, drying, storage, and crop insurance) on a 50-50 share between the landowner and farmer. The farmer also pays the landlord an additional rent equal to $25 per acre for high-productivity farmland and $15 for low-productivity farmland.
For high-productivity farmland, the $510 of operator and farmland return under 2013 projected prices is split such that the landlord receives $351 per acre (panel B) and the farmer receives $159 per acre (panel C). Relative to historical returns, these returns are high.

For high-productivity farmland, long-run prices results in a landowner return of $267/acre (panel B). This return is lower than the cash rents in many central Illinois counties. The farmer return under long-run prices is $74/acre.

For low prices, the landowner return is $182/acre and the farmer return is -$10/acre. The low landowner return is considerably below expectations of many landowners at this time. The negative farmer return would cause deterioration of the financial positions of farms.