Cash Rents Increased Sharply In 2011

Cash Rents Increased Sharply In 2011

ISU Extension economist William Edwards, who coordinates the annual cash rental rate survey in Iowa, offers observations on the 2011 results and considerations for 2012.

Cash rent for cropland in Iowa has gone up quite a bit in 2011. The annual land rental rate survey
www.extension.iastate.edu/agdm/wholefarm/html/c2-10.html
 released in May by Iowa State University Extension shows a big jump in cash rental rates. The average cash rent for corn and soybean land for the state is estimated at $214 per acre, an increase of $30 per acre or 16% from 2010.

That's no surprise, considering the huge rise in corn and soybean prices that has occurred since last fall, notes William Edwards, the ISU Extension farm economist who coordinates the annual survey. He provides the following answers to questions about the survey, the results it shows for 2011 and things to consider as landlords and farm operators look ahead to 2012.

QUESTION #1: We're talking about cropland rent and scratching our heads about how much cash rents have increased in the last year or two. What are you seeing for cash rents now in Iowa?

ANSWER: Most of the rents have been established for 2011. That period actually starts very early, since Iowa has a September 1 termination deadline on farm leases. So many of the rents we have today were established prior to September 1 last fall.

We had an unusual year in that shortly after that September 1 deadline late last summer, crop prices started going up and kept increasing and have remained high ever since. We know a number of the rents for 2011 were either renegotiated later, or in some cases the tenant and landlord simply agreed to wait until after the first of the year, after January 1, 2011, when prospects for yield and prices were a little more certain before they negotiated.

For those reasons, a wide range of cash rental rates showed up this year in our survey, reflecting on when the rental rate was agreed on.

 

QUESTION #2: Looking at results of the 2011 cash rent survey, it looks like for the first time, average rental rates in many of the crop reporting districts in Iowa had rental rates over $200 per acre.

ANSWER: Yes. We conduct our survey every year in the spring. We send out the questionnaire in March, to be sure the rates have been established before we sample them. This year our overall average for the state was $214 per acre, a 16% increase over last year. That's no surprise. We know in some areas those rates are quite a bit higher for individual farms but we are trying to reflect the overall average of all rental rates, not just those that were negotiated during the period of high prices.

 

QUESTION #3: I've heard of some rental rates in north central Iowa at $350 per acre. The key word is "heard"…… which coffee shop were you in?

ANSWER: I think everyone can top the last person, when it comes to talking about what you've heard regarding high cash rents. No doubt, there are some rents as high as $350 and higher. In our ISU survey, we are reporting the average or typical rent. We do show ranges although keep in mind that those ranges are actually the range of replies we received.

 

QUESTION #4: Who do you send these survey questionnaires to?

ANSWER: We survey people knowledgeable about cash rent--farmers, landlords, farm managers and lenders as to what they think the typical rental rates are in their area. Then we compile and release that data. Our results for 2011 are showing quite a bit of a range.

For example, our survey results indicate a range in Wright county of up to $425 per acre. Which means someone who has high quality land in Wright County is renting it for an average of $425. Again, people are most highly influenced by the most recent things they hear or the rental rates they know about. Of course, there are other people who participate in our survey who know about and report rents on the lower end of the spectrum. So we do get quite a range of answers and I think this year was an extreme case of that. People really didn't always know what a typical rent was for their area, because there is so much variation.

 

QUESTION #5: There's tremendous volatility in crop prices today. What's the tail that wags the dog? Is it farmland values? Crop prices? What are we really looking at to establish cash rents?

ANSWER: It all starts with crop prices. No doubt about it. Both farmland values and cash rental rates reflect crop prices. Interestingly, our latest land value survey which we released at the end of 2010 showed a 16% increase over the prior year too. So our two most recent ISU Extension surveys involving land (the March 2011 cash rent survey and the late 2010 land value survey) are consistent with each other.

 

QUESTION #6: What does your crystal ball say? Where are we going next year, in the 2012 crop year, with land rents?

ANSWER: I think we'll continue to see some upward adjustment, barring a sudden crash in crop prices. Mainly because a number of rents were not adjusted this year, they were negotiated earlier before prices started to go up or there was production uncertainty. So we may not see the top ones get any higher next year, but we'll likely see some inching up on some of the lower rents, which then would result in higher averages.

 

QUESTION #7: ISU's Ag Decision Maker site has helpful tools farmers can use to try to gauge how much they can pay for cash rent and still make a go of it. What tools do you recommend people use to help them try to figure a fair rental rate?

ANSWER: To find our Ag Decision Maker site, just do an online search for "AG DM leasing" and you'll come up with the files. We have worksheets you can print out and fill out by hand, as well as some electronic spread sheets that will help people estimate 1) what they can afford to pay for rent if they are a tenant, and 2) what a market rental rate would be.

That's a little harder to figure this year obviously with prices being so volatile, but based on factors such as expected corn and soybean yields and corn suitability rating of the land, what we are trying to do is make sure people are not only setting cash rental rates according to the market, but that they adjust properly for an individual farm, so the rent is based on the actual productivity for a particular tract of land.

 

QUESTION #8: Another question we've received at Wallaces Farmer lately concerns the value of alfalfa. Corn and soybeans have increased in value but alfalfa prices have caught fire here in Iowa too. Does the ISU cash rent survey report land rents for hay and pasture ground?

ANSWER: Yes. Rental rates for hay and pasture crops don't always get a lot of attention from farmers and others compared to corn and beans. But we do report them in our survey.

One difference compared to corn and soybeans is that hay and pasture are established crops that people are renting the land for and the inputs and expenses are already invested in that forage crop for the most part for a number of years. It's not an annual expense like corn and soybean production. So this adds quite a bit to the rental value compared to just renting a piece of land for row crops.

To read the results of ISU's 2011 Cash Rental Rate Survey and for other information and helpful decision tools such as spreadsheets, visit the "Whole Farm Decisions-Leasing" section of ISU's Ag Decision Maker website. It's at www.extension.iastate.edu/agdm/wdleasing.html.

TAGS: USDA Extension
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