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 Some grain farmers 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 sow this
spring and risking years-long legal battles with landlords.
The tensions add to other signs the agricultural boom that the U.S.
grain farming sector has enjoyed for a decade is over. On Friday,
tractor maker John Deere 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 on March 1,
just weeks after the U.S. Department of Agriculture (USDA) 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.
How many people are walking away from leases they had committed to
is not known. In Iowa, the nation's top corn and soybean producer,
one real estate expert says that out of the estimated 100,000
farmland leases in the state, 1,000 or more could be breached by
this spring.
 The stakes are high because huge swaths of agricultural land are
leased: As of 2012, in the majority of counties in the Midwest Corn
Belt and the grain-growing Plains, at least 40 percent of farmland
was leased or rented out, USDA data shows.
"It's hard to know where the bottom is on this," said David Miller,
Iowa Farm Bureau's director of research and commodity services.
SIGNS OF TROUBLE
Grain production is, however, unlikely to be affected in any major
way yet as landowners will rather have someone working their land,
even at reduced rates, than let it lie fallow.
But prolonged weakness in the farm economy could send ripples far
and wide: as farms consolidate, "there would be fewer machinery
dealers, fewer elevators, and so-on through the rural economy," said
Craig Dobbins, professor of agricultural economics at Purdue
University.
Possibly also fewer new farmers.
Jon Sparks farms about 1,400 acres of family land and rented ground
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, and the
rising number of realty investors want to maintain returns.
Landlords have also seen tenants spend 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 about 4,900
farms across 24 states for land-owners.
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Take an 80-acre (32 hectare) farm in Madison County, Iowa, owned by
a client of Peoples Company, a farmland manager. The farmer who
rented the land at $375 an acre last year offered $315 for this
year, said Steve Bruere, president of the company. The owner turned
him down, and rented it to a neighbor for $325 -- plus a hefty bonus
if gross income tops $750.
There are growing numbers of other examples. Miller, of the Iowa
Farm Bureau, said he learned about a farmer near Marshalltown, in
central Iowa, who had walked away from 650 acres (263 hectares) of
crop ground because he could not pay the rent. Just days later, he
was told a north-central Iowa farmer breached his lease on 6,500
acres.
COURTS OR LOANS
Concern about broken leases has some landlords reviewing legal
options, according to Roger A. McEowen, director of the Iowa State
University Center for Agricultural Law and Taxation. His staff began
fielding phone calls from nervous landowners last autumn.
One catch is that many landlords never thought to file the paperwork
to put a lien on their tenants' assets. That means landowners "can't
go grab anything off the farm if the tenant doesn't pay," McEowen
said. "It also means that they're going to be behind the bank."
Still, farmers could have a tough time walking away from their
leases, said Kelvin Leibold, a farm management specialist at Iowa
State University extension.
"People want their money. They want to get paid. I expect we will
see some cases going to court over this," he added.
To avoid such a scenario, farmers have begun turning to banks for
loans that will help fund operations and conserve their cash.
Operating loans for farmers jumped 37 percent in the fourth quarter
of 2014 over a year ago to $54 billion, according to survey-based
estimates in the Kansas City Federal Reserve bank's latest
Agricultural Finance Databook.
Loans with an undefined purpose -- which might be used for rents,
according to the bank's assistant vice-president Nathan Kauffman --
nearly doubled in the fourth quarter of 2014 from a year earlier to
$25 billion.
Total non-real estate farm loan volumes jumped more than 50 percent
for the quarter, to $112 billion.
"It's all about working capital and bankers are stressing working
capital," said Sam Miller, managing director of agricultural banking
at BMO Harris Bank. "Liquidity has tightened up considerably in the
last year."
(Editing by Tomasz Janowski)
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