The Bearish Corn Market Scares Producers with Long Term Land Rent Agreements

It is amazing how fast things can change.  With the corn markets fearing a very large US corn harvest some producers are starting to squirm about their profit margins a year from now.

As I talk to corn growers many say, “the market will find a bottom and we will be fine” and some say, “there are lots of weather issues that will move the market higher again.”

What if cash was $3.50, $3.00 or $2.50?  Would you panic then?

What Does the September 2014 Corn Future Market Look like?

Some commodity analysts like Moe Agostino, Farms.com Risk Management are predicting a very dire situation for corn prices by September 2014.  Other analysts feel that Moe may be too bearish but the point is that predicting a bottom can be difficult especially in the world of hedge funds and blackbox trading.

The first group of corn growers getting concerned are land renters.

Follow this math.  A five year land rent agreement with a $200 – $250 / acre payment is a stretch in a $5.50 market nevermind $3.50.   A corn yield of 155 bushels per acre at $3.50 grosses $542 dollars per acre with a land rent cost of $250.  That only leaves $292 for fertilizer, seed, equipment, labor, and general overhead.

In some areas of the US where land rents can push above $325 per acre the scenario gets even tighter.  Obviously the length of the agreement impacts how worried you are at this point.

On my trip to Ontario last week and in discussion with US farmers this week, the math on high priced land rental agreements is starting to worry some producers, and it should.

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