In many parts of the Midwest, farmland cash rents are moving to price levels
beyond what many farmers might consider reasonable. But, $200- to $300-peracre cash rent price levels are likely justified when taking corn and soybean peracre income into account, economists say.
Farmers struck up a conversation about cash rental rates in a recent Agriculture
Online Farm Business discussion group. Most say $250 per acre could be the
new benchmark next year, going higher in some areas depending on the corn
and soybean markets.
"My guess would be around $225 to $235 per acre. Even if you are feeling
generous, I wouldn't accept less than $210 per acre," writes discussion group
poster James22. "Unless corn goes back to $4.00 per bushel, I don't believe that,
at $250 per acre, you are giving the tenant enough 'wiggle room' if the year isn't
so good. If corn is a good solid $4.00 per bushel, then I would consider anywhere
between $250 and $275 per acreOne way to gauge these cash rent rates is by
basing agreements on expected crop yields. While the marketplace has caused
the dollar values to rise significantly in the past few years, this formula, says one
Farm Business discussion group poster, should still apply.
"I remember years ago in this area, the cash rents were based on what a farm
had the capability of producing a year per acre of corn," writes poster nw ia fmr.
"If a farm could produce 100 bushels per acre, the rent was figured to be fair to
both landlord and tenant at $100 per acre. Today, if a farm had a yield capability
of 200 bushels per acre for corn, would $200 per acre cash rent be fair?"
Alongside rising commodity prices, trendline yields are also increasing, making
the expected-yields formula still applicable to today's cash rents. Even though it's
more likely to result in higher rental rates when rented acres are planted to corn
under current market conditions, Iowa State University Extension economist
William Edwards says rental agreements based on expected yields should be
"an average for both crops...based on the actual acres planted."
A survey of 2006 cash rent and land values in Iowa indicates variability exists in
the expected-yield formula, as cash rental rates in Iowa ranged from 93 cents to
$1.10 per bushel for corn and between $3.20 and $3.60 per bushel for soybeans.
Ohio State University Extension economist Barry Ward says, on average, Ohio
cash rental rates in 2006-2007 have ranged between $.69 and $.74 per bushel of
corn raised per acre and from $2.24 to $2.27 per bushel of soybeans per acre.
"Measures such as 'rent as a percentage of land value' and 'cash rent per bushel
of corn production' are valuable in many rental negotiations, as many use these
measures as rules of thumb when negotiating cash rental rates," Ward says.
Variability in cash rent rates should be expected, Edwards says, contingent on a
few factors including:
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percent of total acres that are tillable
small size or irregular field shapes
presence of terraces, creeks or roadbeds that affect planting, harvest
times
difficult or restricted field access
high or low fertility levels or pH
existence of contracts for seed, specialty grains or for manure spreading
above- or below-average grain prices because of transportation costs
USDA program variables like corn base and assigned yields or CSP/CRP
contracts
"Differences in the quality of land should be taken into account when comparing
rental rates," Edwards says. "Not all land in a county is of equal productivity.
Actual yield history is the best guide for assessing productivity, if it is available."