Land Rental Prices, where to next?

Kevin O’Hara, Drystock Advisor, Teagasc Claremorris

We have all heard of the sharp increase in the price of rented land over the past 18 months, but the question has to be asked, can these high prices continue? In many situations it cannot. We will look at the current profitability of different farming systems within this article and compare to the prices being paid for rented land. But for some context we will look at the typical prices paid so far in 2023 and the reasoning behind the increased demand for land.

Typically in the more Southern and Eastern parts of the country it is being driven by dairy and tillage farmers who are competing for land. In many cases this is driven by issues with nitrates on dairy farms, forcing farmers to take on additional land to offset cow numbers on the milking platform and also due to a high milk price in 2022 (which is far from the case in 2023), but the question is, is this sustainable? Land in these areas is freely making €250-400 per acre which may be profitable in a good year but not in a year of poor product prices.

In the western regions the term I hear regularly is ‘young farmers’ are driving up the price of land, but this is not always the case, many of these are more young at heart than age. Many of these ‘young farmers’ are renting large tracks of marginal land which in reality has little to no agricultural value other than to draw down payments, but, in other situations I also hear the same farmers paying €200-300 per acre for land on long term leases.

When I hear prices like this I wonder have these farmers taken the time to do a financial analysis on the projected income from this leased land. In many cases they intend to farm cattle or sheep enterprises, neither of which is currently hugely profitable so what is going to pay the rent on the leased land? In many cases most of the Entitlements and Young Farmer Top Ups they receive, is all going back to the land owner (the unintended target) and these young farmers will essentially be working for very little financial reward. A term I often refer to is ‘your entitlements are per hectare and you are renting land by the acre, so do the sums and see what you can make on the stock after that’.

Below we see the figures for the 2022 Teagasc National Farm Survey. These figures give an insight into the profitability of the main farming sectors. These figures are from 2022, a once off year for many farming systems in terms of profitability so are to be used with caution when signing into expensive long term leases. We will break it down into each sectors average direct payment per hectare and the actual money which is retained into the household including payments from the farm, otherwise known as family farm income (FFI) and ultimately the value per acre received.

As can be seen in the table above some of these systems of farming are highly profitable while others are making modest incomes. However, 2022 was a peak year for sectors such as dairy and tillage as their output prices were high, while many (not all) had forward bought inputs which protected them from the huge increase we saw in inputs. So the question is how will 2023 look with decreased milk, beef, lamb and cereal prices and consistently high input costs throughout the year?

Potentially it may not read well for many especially if expensive additional land was taken on in 2023. As can also be seen in the beef, cattle and sheep sections there is very little scope to pay high land rental prices, especially in western regions where our growing season is 10-20% shorter than in other parts of the country.

So the question should be asked before taking on more rented land is ‘who will I actually be working for?’ A farmer should always try to get any owned land working productively and profitable first before taking on additional leased or rented land. Remember many land owners who are leasing out land on a 5 year plus contract are doing so on a tax free basis. Farmers leasing land in will not have the same luxury with the income they earn from it.