With corn prices rising, cash lease arrangements may altered to reflect the extra money many corn farmers will have made. University of Nebraska-Lincoln agricultural economist Bruce Johnson says the over-$3 corn prices - caused largely by demand from ethanol plants - are likely to continue through the 2007 crop season.
For landowners and tenants, Johnson says cash rent adjustments should be carefully considered with an eye not just on the good times, but on the long-term outlook.
Some landowners have been using higher corn prices as an excuse for "demanding, and sometimes getting, exorbitant cash rent increases for 2007," Johnson says, while some renters have taken advantage of uninformed landowners by "quickly trying to lock in last year's cash rents for 2007."
While in some cases the 2007 rate may already be set, Johnson suggests that "a particularly noble action would be for the tenant to take the initiative to renegotiate the contract for a higher rental rate. While that may certainly mean forgoing some of the 2007 earnings for the tenant, it would do wonders to solidify the longer-term tenant-landowner relationship."
That long-term relationship is key, Johnson says, because neither party knows what the future holds.
"Only time will tell whether or not this economic environment is viable long-term. Therefore, it is important for both parties to understand and agree that a negotiated upward adjustment in crop cash leases is for one year only," he says.
Johnson says that a 15-20% increase in 2007 cash rents over 2006 levels may be a reasonable amount to expect.