Can Crop Shares Come Back to Life?
By Chris Seifert, 06.26.2015

It is no secret that crop share rents have been in long-term decline in the Midwest [1].  The reasons can be several:  In some cases, landowners have moved away from farm communities and are no longer as involved in what is going on with their land. In others, landowners may prefer a steady cash payment rather than sharing in the risk of volatile markets. Some growers have also pushed for cash rent for enterprise insurance unit eligibility reasons, and because cash agreements are often more flexible than shares, which often get stuck at crude figures like “thirds” or 50-50 splits. We see this trend play out on our customers’ farms: the average Granular grower has around seven different cash rent levels but only two different share levels.

There are factors, however, that indicate that crop shares could come back in fashion or, at least, slow their decline in popularity:

    • Government policy: under the ARC-CO program (massive winner in the program choice corn and soybean growers faced under the 2014 Farm Bill) share landlords are considered producers [2] which could allow them to participate in government payments, decreasing their exposure.

 

  • Falling commodity prices: The dollar cost of share rents has fallen dramatically with the fall in commodity prices, while cash rents have remained stable. This is exemplified in recent analysis by Gary Schnitkey at the University of Illinois, which shows share rent costs falling below cash rent costs in Illinois for multiple years in a row for the first time in over a decade [3].

In a related analysis, the figure below shows the share of expected non-irrigated corn revenue (using NASS data) that would accrue to average non-irrigated rent by county in the U.S. during three periods, 2000-2009, 2012 and 2015.  Two broad patterns pop out – the first is geographic, where the highest share of rent as a percent of revenue tends to be in places with lower risks for dryland corn crops. The second is over time – land costs as percentage of revenues have returned to or exceeded the levels of the 2000’s.  This is incenting growers to consider shifting to share rent, using the cushion of sharing in potential ARC-CO payments as a carrot for the landowner.

rents3

What are your own cash rent vs. share breakdowns and land costs? If you’re a Granular customer (with the required permissions to view financial data), you can look at map views of your crop share vs. cash rent agreements under Analyze > Granular Labs > 2015 Land Agreement Report. Even if you’re not a customer, you can visit AcreValue to browse farmland and their estimated values.

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