Iowa Farmland Rental Rates Are Beginning To Ease

Iowa Farmland Rental Rates Are Beginning To Ease

New Iowa State University Extension survey shows first decline in cash rental rates since 1999.

A new survey shows that a 15-year trend of rising cash rental rates for cropland in Iowa may have turned around. This is consistent with recent evidence of a leveling off or slight decrease in Iowa farmland values. The annual rental rate survey, conducted by Iowa State University Extension each spring, reports rental rates for 2014 for land planted to corn and soybeans are down from $270 per acre last year to $260 in 2014, or nearly 4%.

CASH RENT DECLINE: The annual survey by Iowa State University Extension indicates the 15-year trend of rising cash rental rates for farmland in Iowa may have turned around in 2014. It indicates an average decline of 4% for the state this year.

"This is very close to the change in Iowa farmland values over the past 12 months reported in surveys by the Iowa Realtors Land Institute," notes William Edwards, retired agricultural economist at Iowa State University. In the following article, he explains the results of the annual farmland rental rate survey released this past week.

Survey shows rental rate declines in most districts
Iowans who were surveyed in March supplied nearly 1,700 responses regarding typical cash rental rates in their counties for land producing corn and soybeans, hay, oats and pasture. Of these responses, 50% came from farm operators, 25% from landowners, 15% from ag lenders, 7% from professional farm managers and 3% from other ag professionals.

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This is not to say that all cash rents were lowered in 2014. The intent of the survey was to report typical rents being paid for the current crop year, including those that may have been negotiated in prior years as well as those that were set more recently.

The Cash Rental Rates for Iowa 2014 Survey can be found on the ISU Ag Decision Maker website as file C2-10. It provides detailed results by county and crop.

There was considerable variability across counties in year-to-year changes, as is typical of survey data, but 75% of them show at least a small decrease in average rents for corn and soybeans. Grundy County showed the highest average rent, at $330 per acre. The report also shows typical rents for alfalfa, grass hay, oats, pasture, cornstalk grazing and hunting rights in each county and crop reporting district.

Decline in rental rates reflects lower crop revenues
All districts in Iowa showed a decrease except the southeast district, which showed no change from last year. The largest decrease in average rents was recorded in the north-central district. This region of the state suffered from a very wet spring last year, which reduced crop yields and prevented many acres from being planted. No doubt this tempered people's enthusiasm when rents were being negotiated for 2014.

West-central Iowa had the highest average cropland rental rate in this year's survey.

All areas of the state faced significantly lower grain prices at harvest for the 2013 crop, as well as decreased forward pricing opportunities for the 2014 crop. This likely was the major factor impacting rents.

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In 2012, the state had a below-average corn crop, but much of the loss in revenue was off-set by higher market prices and crop insurance payments. In 2013, yields were about average for corn and below average for soybeans. However, selling prices for 2013 crops, as recorded through March 2014, have been dramatically lower. Crop insurance payments have offset only a portion of this decline.

Not surprising that the trend in cash rent has reversed
Estimated gross revenue per acre is over $200 less than was realized in 2011 and 2012 for corn, and about $60 per acre less for soybeans, so it is not surprising that the trend for cash rents has reversed itself. Delays in the passage of a new farm bill by Congress may also have contributed to uncertainty about future income prospects for crop farmers.

What about trends to expect for next year? Survey information can serve as a reference point for negotiating an appropriate rental rate for next year. However, rents for individual farms should vary based on productivity, ease of farming, fertility, drainage, local price patterns, longevity of the lease and possible services performed by the tenant.

Other resources available for estimating a fair cash rent include the Ag Decision Maker information files "Computing a Cropland Cash Rental Rate" (C-20), "Computing a Pasture Rental Rate" (C-23) and "Flexible Farm Lease Agreements" (C-21). All of these fact sheets are available online and include decision files (electronic spreadsheets) to help analyze individual leasing situations.

For farm management information and analysis visit ISU's Ag Decision Maker site at www.extension.iastate.edu/agdm; ISU farm management specialist Steve Johnson's site is at www.extension.iastate.edu/polk/farm-management.

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