corn field
CROPLAND RENT: Simply charging what others are charging for rent may not be appropriate for your farm. ISU’s Ag Decision Maker online tool provides six different methods for calculating cash rent.

Don’t rely on surveys to set your cash rental rate

To determine a fair cash rent for your farm, use ISU Ag Decision Maker tool.

Each spring Iowa State University Extension and Outreach conducts a statewide survey for cash rental rates. In 2017, survey respondents indicated the average cash rents for tillable acres planted to corn or soybeans were down by 4.8%, or $11 per acre, to $219 per acre. This is the fourth consecutive year that average cash rents have declined in Iowa accumulating to nearly a 19% drop since 2013.

Detailed cash rent results by county are available in AgDM File C2-10, Cash Rental Rates for Iowa 2017 Survey, found on the ISU Ag Decision Maker website. There will be considerable variability across counties in year-to-year charges, as is typical of survey data.

For the purpose of calculating a fair cash rental rate, also consider using the Computing a Cropland Cash Rental Rate decision tool, C2-20. This Excel spreadsheet provides six different methods for calculating a cash rent amount per tillable acre. Farmers, landowners and agribusiness personnel can use this decision tool in making farm cash rental rate calculations that more accurately reflect a fair cash rental rate.

Advantages of flex vs. cash rent
The latest ISU survey data indicated that nearly 20% of all Iowa’s cash leases are deemed “flex leases” rather than fixed-cash lease. These flex leases typically provide a guaranteed base rent, which will likely be slightly lower than the amount of a typical fixed cash rent. Most fixed cash leases rarely reflect the farm’s actual yields, local cash prices or crop costs.

A flex lease could reflect all three, with the flexible portion providing a potential bonus to the landlord depending on the farm’s actual yields, cash prices offered and total crop costs. That flexible portion if triggered could then be paid after harvest.

So a flex lease would likely trigger a more appropriate rental rate that more accurately reflects the annual revenue potential for the tenant operator. The tenant would then share the farm’s actual yield information with their landlord. In many cases, the base rent is set at a level that operators can cash-flow at breakeven prices based on their crop insurance actual production history guarantees.

Landlords share in risk, reward
Besides the potential bonus landlords might receive with a flex lease, they could receive the same yield information the tenant provides for their crop insurance purposes. In addition, the tenant operator might share factors attributed to yields, such as rainfall data, soil tests, fertilizer use and other agronomic practices in addition to the actual yield maps of the harvested crop.

Most farm operators have a wealth of crop-related information that they could share with their landlord. Consider the use of the ISU’s Ag Decision Maker website, including “Flexible Cash Farm Lease Arrangements a Cropland Cash Rental Rate,” C2-21.

Deadline for terminating lease Sept. 1
The Sept. 1 deadline for terminating 2018 farm leases is fast approaching. In Iowa, without a legal termination notice provided by the tenant operator or landlord before that date, the farm lease will automatically reset with the same terms and conditions as the 2017 lease.

In response, Iowa State University Extension and Outreach is conducting over 70 farmland leasing meetings statewide in late July and in August, where farm lease arrangements will be discussed. For a list of meetings, check the ISU Extension calendar or contact your local county Extension office.

Johnson is an Iowa State University Extension farm management specialist. Contact him at [email protected].

 

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