1. 2015 Farmland Leasing Outlook Gary Schnitkey University of Illinois

2. www.farmdocDaily.illinois.edu Net Farm Income Projected in 2015 2015 Projections $4.20 corn price $10.00 soybean price Normal yields Slight decreases in costs and cash rents From FBFM, averages in 2014: 1,450 tillable acres All across Illinois 19% owned 39% share rent 43% owned Why 2015 lower than 2014: Marketing gain Lower projected yields

3. Financial Strength Increased Between 2006 and 2013 Intermediate Asset Values Increased Debt-to-Asset Ratio Decreased Working Capital Increased Intermediate Assets Per Acre Debt-to-Asset Ratio Debt per Acre

4. www.farmdocDaily.illinois.edu Working Capital Working Capital Per Acre

5. www.farmdocDaily.illinois.edu Where We Are At? Strong, but weakening, financial position (e.g., current position) Strong need to reduce cash flows

6. www.farmdocDaily.illinois.edu National Corn Price, Monthly, 1975 to 2015

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12. $100 cost reduction for 2016 It has to come from –Cash rents –Fertilizers –Seed –Machinery depreciation –Pesticides

13. www.farmdocDaily.illinois.edu Types -- Illinois Share rent (27%) Cash rent (55%) Variable cash rent –Cash rent with bonus Owned (18%)

14. www.farmdocDaily.illinois.edu Typical Share Rent Northern/Central Illinois Share the following items (typically 50/50): fertilizer, seed, chemicals, drying, storage, crop insurance Landlord provides land, pays taxes Farmer provides equipment and labor Often an additional rent of $20 to $35 per acre

15. www.farmdocDaily.illinois.edu Cash Rent Fixed cash rent Usually paid in one or two installments, one in spring, one in fall Typically one year in length Difficulty in setting cash rent each year Concerns with fertilizer applications Concerns with yield documentation

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17. Average and Professionally Managed Rents

18. www.farmdocDaily.illinois.edu Variable Cash Rents From “Parameters for a 2016 Cash Rent with Bonus”, farmdocDaily, September 9, 2015 Example is for 195 bushel per acre expected corn yield

19. www.farmdocDaily.illinois.edu Parameters of Farmland LEase

20. www.farmdocDaily.illinois.edu Calculatin of Bonus

21. www.farmdocDaily.illinois.edu Historic Performance

22. www.farmdocDaily.illinois.edu Ending Thoughts Cost cutting environment Suggests: –Lowering cash rents –Variable cash rents Need to evaluate leases at the each year (my opinion: most cash rents lag economic conditions)