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MILKER’S MESSAGE www.thelandonline.com — “Where Farm and Family Meet”
THE LAND — NOVEMBER 26/DECEMBER 3, 2021
Dairy herd sizes decreasing as feed costs rise This column was written for the marketing week ending Nov. 19. U.S. milk output is stalling as cow numbers and output per cow continues to fall. Production fell below that of a year ago for the first time since May 2020, the result of restrictions imposed News and information for Minnesota and Northern Iowa dairy producers by several cooperatives. The U.S. Department of Agriculture’s latest preMIELKE MARKET cent from a year ago, on a 25-pound drop was up 3.9 percent with 22,000 more cows milked liminary data shows October output at WEEKLY per cow. Cow numbers were unchanged. and a five-pound gain per cow. 18.52 billion pounds, down 0.5 percent Wisconsin was up 69 million pounds, or 2.7 By Lee Mielke The Daily Dairy Report says Texas’ increase in from October 2020. The 24-state total, percent, on a 20-pound gain per cow and cows was likely due producer purchases of cows and at 17.7 billion, was down 0.3 percent 21,000 more cows. Idaho was up 0.9 percent production bases from shuttered dairies in New from a year ago. Revisions lowered the September on 6,000 more cows. Output per cow was unchanged. Mexico. 50-state estimate by 37 million pounds from last Michigan was off 0.4 percent on a 30-pound drop month’s report to 18 billion, virtually unchanged The Daily Dairy Report adds that a similar pheper cow, though cow numbers were up 4,000. from 2020. nomenon has been happening in Idaho as an exodus Minnesota was up 2.8 percent on 9,000 more cows of dairies occurs in Washington State which scored Cow numbers totaled 9.40 million head, down and a 15-pound gain per cow. New Mexico again had the second biggest decline in October, down 6.9 per14,000 from September. This is the fifth consecutive the biggest drop, down 12.2 percent after falling cent following a 6.8 percent drop in September. Cow month they were down from the previous month, 12.5 percent in September. Depleted finances shutnumbers were down 15,000 and output per cow was and the September head count was revised 8,000 tered several operations in the state. Cow numbers down 30 pounds. head lower. The October herd was 14,000 head were down 34,000 head and output per cow was below a year ago and down a whopping 103,000 n down 45 pounds. since June. Farm profit margins have been taking a beating, New York was up 1 percent thanks to 2,000 more StoneX Dairy Group says, “The only time we’ve especially between August and October, according to cows and a 15-pound gain per cow. Oregon was seen that in the past 23 years was late 2009 when StoneX, “as longer-term feed contracts expired and unchanged across the board. Pennsylvania was we lost 178,000 head over five months with the help down 3.1 percent on 7,000 fewer cows and 30 many producers went from $180 per ton corn conof CWT and truly devastating margins.” pounds less per cow. South Dakota was up 15.3 per- tracts to $275-$300 per ton. They culled animals Output per cow averaged 1,970 pounds, down 6 cent on 21,000 more cows and a five-pound gain per because of it and we’re losing animals at a near record clip,” says StoneX, though some of it may be pounds or 0.3 percent from a year ago cow. Vermont was off 0.5 percent on a five-pound drop per cow. Cow numbers were unchanged. Texas See MIELKE, pg. 15 California was down 43 million pounds or 1.3 per-
Many modern rental agreements contain ‘bonus rent’ THIESSE, from pg. 13
farm operators who may not be able to afford the higher cash rental rates for farmland. A flexible base rent to be adjusted downward if the actual lease makes it easier for producers to utilize risk crop yields and prices per acre fall below the estabmanagement tools such as crop revenue insurance lished base figures. policies and forward pricing of grain. A flexible Most flexible leases have been modified in recent lease, with a fair base rental rate, allows landlords years into a “bonus rent” agreement. This type of the security of a solid base rental rate, while having flexible lease uses a reasonable base rental rate the opportunity to share in added profits when crop which can flex upward with an added rental payprices and/or yields exceed expectations — such as ment to the landlord if the base crop yield and/or occurred in many areas in 2021. Flexible leases are base crop prices, or the base crop revenue per acre, a nice alternative for landlords who want to continare exceeded. However, the final rental rate does ue to work with long-standing farm operators on not drop below the base rental rate. multi-year rental contracts, without setting cash There are many variations to setting up a flexible rental rates too high to keep the current tenants. lease agreement between a landlord and farm operUtilizing flexible cash lease agreements between ator, including using yield only, price only, a base farm operators and landlords can be a good managecrop revenue compared to a harvest crop revenue, ment strategy as an alternative to extremely high and many more. The big key, regardless of the flexi- straight cash rental rates. However, these agreeble lease agreement, is that both the landlord and ments need to be fair and equitable to all parties. tenant fully understand the rental agreement and Landlords also need to be willing to adjust the base the calculations used to determine the final rental cash rental rates lower as necessary if crop margins rate. It is also very important that flexible lease become quite tight, as occurred from 2015 to 2019. It agreements, as well as all land rental contracts, be is extremely important all aspects of a flexible land finalized with a written agreement. rental lease agreement be detailed in a written rentFlexible leases can work well for newer or younger al contract signed by all parties. The agreement
should include the base rent and yield, price determination, as well as other provisions of a flex lease. Successful flexible cash lease agreements, just as any other long-term cash rental agreement, have always involved cooperation, trust, and good communication between the farm operator and the landlord. Iowa State University has some very good resources on flexible cash leases and written cash rental lease contracts, including sample cash rental contracts, which are available on their “Ag Decision Maker” web site, http://www.extension.iastate.edu/ agdm/. The University of Minnesota puts out an annual publication on annual rental rates and has a computer spreadsheet titled “Fair Rent” which is an excellent resource for determining equitable land rental rates and evaluating flexible lease examples, and is available at https://www.cffm.umn.edu/products/FairRent.aspx. For additional information on flexible rental leases, land rental rates, and 2022 crop budgets, as well as sample lease contracts, you can e-mail me at kent.thiesse@minnstarbank.com. Kent Thiesse is a government farm programs analyst and a vice president at MinnStar Bank in Lake Crystal, Minn. He may be reached at (507) 726-2137 or kent.thiesse@minnstarbank.com. v
