CHICAGO, Ill. (Reuters) — Falling grain prices are pitting U.S. landowners determined to sustain rental incomes against farmer tenants worried about making rent payments because their revenues are squeezed.
Some grain farmers in the Midwest already see the burden as too big.
They are taking an extreme step, one not widely seen since the 1980s: breaching lease contracts, reducing how much land they will seed this spring and risking years-long legal battles with landlords.
The tensions add to other signs that the agricultural boom is over. Tractor maker John Deere recently cut its profit forecast, citing falling sales caused by lower farm income and grain prices.
Many rent payments, which vary from a few thousand dollars for a tiny farm to millions for a major operation, are due March 1, just weeks after the U.S. Department of Agriculture estimated net farm income, which peaked at $129 billion in 2013, could slide by almost a third this year to $74 billion.
The costs of inputs, such as fertilizer and seeds, are remaining stubbornly high, the strong dollar is souring exports and grain prices are expected to stay low.
It’s not known how many people are walking away from leases.
A real estate expert in Iowa said that 1,000 or more of the estimated 100,000 farmland leases in the state could be breached by this spring.
The stakes are high because huge swaths of agricultural land are leased.
According to the USDA, at least 40 percent of farmland in the majority of counties in the Midwest corn belt and the grain-growing Plains was leased or rented out as of 2012.
“It’s hard to know where the bottom is on this,” said David Miller, Iowa Farm Bureau’s director of research and commodity services.
However, grain production is unlikely to be significantly affected because landowners will rather have someone working their land, even at reduced rates, than let it lie fallow.
However, prolonged weakness in the farm economy could send ripples far and wide.
“There would be fewer machinery dealers, fewer elevators and so on through the rural economy (as farms consolidate),” said Craig Dobbins, professor of agricultural economics at Purdue University.
Jon Sparks farms 1,400 acres of family and rented land in Indiana. His nephew wants to return to work on the farm, but margins are tight and land rents high. Sparks cannot make it work financially.
“We can’t grow without overextending ourselves,” Sparks said.
“I don’t know what to do.”
Landowners are reluctant to cut rents. Some are retirees who partly rely on the rental income from the land they once farmed, while the rising number of realty investors want to maintain returns.
Landlords have also seen tenants spend money on new machinery and buildings during the boom and feel renters should still be able to afford lease payments.
“As cash rent collections start this spring, I expect to see more farm operators who have had difficulty acquiring adequate financing either let leases go or try and renegotiate terms,” said Jim Farrell, president of Farmers National Co., which manages 4,900 farms in 24 states for landowners.