In last’s month news release, I discussed farmland rental rates for 2011.  Since last month, corn prices have gone above 2008 record highs, while new crop 2011 cash bids are $1.07 lower for corn with the nearby cash bid of $7.10 in Worthington while only 41 cents lower for soybeans with nearby cash bid of $13.12 for soybeans.  This is a dramatic difference in corn price from this year to next.  In addition, I work with three marketing groups, they practice what historically is a rewarding activity of pre-harvest marketing at profitable prices.  

 


In last’s month news release, I discussed farmland rental rates for 2011.  Since last month, corn prices have gone above 2008 record highs, while new crop 2011 cash bids are $1.07 lower for corn with the nearby cash bid of $7.10 in Worthington while only 41 cents lower for soybeans with nearby cash bid of $13.12 for soybeans.  This is a dramatic difference in corn price from this year to next.  In addition, I work with three marketing groups, they practice what historically is a rewarding activity of pre-harvest marketing at profitable prices.  
 
Unfortunately this pre-harvest marketing strategy has the farmers with 2011 cash prices locked in below $4.00 for corn and below $10.00 for soybeans.  Historically, over the last five crop marketing year’s cash corn prices in Worthington have been at or above $4.00 only 18 percent of the time, while in the last ten years only 6 percent of the time.  With soybeans in the last five crop marketing years soybeans have been at or above $10.00 27 percent of the time and for the last ten years only 14 percent of the time.  So when farmers forwarded contracted their 2011 close to these prices, history would support that was a good decision.
 
But what happened in 2010 was grain prices took off in late June and have remained strong since.  Historically prices are at highs or above average in March through June for corn and then drop through harvest and start increasing after the first of the year and rallying to above average prices from March through June.  That pattern did not happen in 2010.
 
Each year I complete an Operator’s Cash Rent Worksheet for inclusion in the annual Farm Resource Guide.   It looks at what a farm operator can afford to pay the landlord in rent after covering the production costs and a $45 per acre labor.  For the 2011 crop, the examples on the worksheet utilize $4.00 corn and $10.00 soybean cash prices with production costs of $548 per acre of corn and $309 for soybeans.  Compared with corn yields of 170 bushels of corn and 48 bushels of soybeans, a farmer would have $175 left to pay toward land costs in a 50-50 corn soybean crop rotation.   This is all a farmer will be able to pay toward rent after making $45 profit.  The situation changes dramatically for a farmer who has not done any pre-harvest marketing.  With 2011 cash harvest prices of $6.03 for corn and $12.86 for soybeans and if a farmer gets the crop in with our wet spring and they receive normal yields, they would have more than double the amount available for rent and to keep for profit.  There is a wide range of rents being discussed for 2011 and the record commodity prices are what are driving the farmland rental rates higher. This is the widest range of rents I have ever witnessed due to the unusual rally in the markets when they normally move lower.
 
Pre-harvest marketing pays about 70 percent of the time for corn and 60 percent for soybeans based on historic data.  So when a farmers shares with the landlord he or she has locked in prices and has only so much available for rent, complete the worksheet and look at what percentage of the crop has been sold and for what price to see what is a fair rental rate.  Even with today’s current high prices for 2011 corn and soybeans available, farmers should not sell more than what they have insured in case we have a short crop year.
 
If a farmer wants to try to share some of risk and reward with the landlord and not be locked into a large cash rent rate, a flexible agreement may be appropriate.  There are many ways to determine a flexible rental agreement.  The 2011 crop is just starting to be planted, but negotiations take place throughout the year in Minnesota and are needed to determine a fair cropland rental rate.