With expected increases in risk and costs in store, a University of Illinois Extension economist says farmland owners should be cautious in negotiating 2008 cash rents.
"Increased risk during the upcoming year suggests caution in increasing cash rents," says Gary Schnitkey. "Much larger farmer margins will need to be in place for similar risk levels as compared to the 2001-2005 period."
Schnitkey's conclusions are based on his study, "Consider Higher Costs and Additional Risk When Negotiating 2008 Cash Rents," which is available on U of I Extension's Web site, www.farmdoc.uiuc.edu/.
As a result of higher expected commodity prices, Schnitkey expects cash rents to rise in the 2008 cropping year.
"Farmers will face additional risk for three reasons," he said. "First, price variability likely will be higher over the next several years. Second, risk will increase because federal commodity programs will not provide as much downside price protection.
"Finally, revenue for crop insurance must fall more in periods of high prices before insurance programs are received."