The big story this year is inflation, with virtually everything seeming to move higher with each visit to the grocery store, big box outlet, or gas station. Agriculture is certainly not immune to inflationary pressures. As an energy intensive industry, cost of production has ratcheted higher along with the rapid rise in energy this year. Part of the reason for higher energy prices is the war in Ukraine, which grinds forward with no near term prospect for resolution. Our grain prices have benefited from the uncertainty on Ukrainian production and exports the war has created. However, higher oil, natural gas, and fertilizer prices are also a result and likely something that will be with us for a long time, even if grain prices shift back lower. It is quite likely that seed and chemical prices will join the upward movement as well. Getting a handle on input costs for the next crop will be a major consideration as we begin making lease plans for 2023.
High Grain Prices Offer Opportunities
As this letter goes to press in early July, grain prices are off their recent highs from a better weather outlook for mid-summer, and inflation/ recession concerns. Prices for new crop 2023 are still strong on a historcal basis, with corn over $5.00/bu and soybeans near $12.00/bu. Grain stocks are at low levels, and the price floor underneath them is likely to be fairly strong until further down the road when geopolitical concerns ease and possibly better yields worldwide help rebuild supplies.
Where should lease discussions begin? First off, consider where your cash rent is currently at. If you have not adjusted your lease higher over the last several years, it is time to give it serious consideration. Even with higher input costs for the 2022 crop, profit potential for this year is very good if we are able to achieve at least average yields. In addition excellent yields and strong prices for the 2021 crop have created the best profit year in a decade, allowing farm operators the leeway to increase cash rent offers.
This year, even more than normal, having a trusted source of information will be important. We at Stalcup Ag Service can help you weigh the multitude of factors that go into negotiating an equitable cash rent lease. We stay on top of input prices and grain market trends, and know crop prospects and neighborhood influences where your farm is located. Taking all these factors together, negotiating a lease is more art than science, but it is a decision critical to your return as a farm owner, and a responsibility that we take seriously. The first step in the process is to make sure your current lease is properly terminated prior to September 1st of this year. There is no deadline on when a new lease is signed, but terminating your existing lease allows you to clear the deck and start new when the time is right. We can assist you with the lease termination process.
