ISU Survey Shows Cash Rent Down 4.8% in 2017

Iowa State University’s annual survey shows cash rental rates for farmland in Iowa fell 4.8% in 2017, accumulating an 18.9% decline since 2013. Despite falling for a fourth consecutive year, the average cash rent in 2017 is still higher than the average rate in 2011.

In comparison, the 18.9% cumulative decline in cash rents is only about a third the cumulative 57% decline in corn prices between 2012-13 and 2017-18, as reported in the “USDA Agricultural Projections to 2026,” published in February. The 18.9% decline in cash rents is about half of the decline in soybean prices (37%) since 2012-13.

The 2017 survey results were released in May. Iowans supplied 1,448 responses to the survey about typical cash rental rates in their counties for land producing corn and soybeans, hay, oats and pasture. Of these, 52% came from farmers, 29% from landowners, 9% from ag lenders, 9% from professional farm managers and real estate agents, and 2% from other professions. Respondents indicated being familiar with a total of 1.7 million cash-rented acres across the state.

Detailed results by county and crop are available in “Cash Rental Rates for Iowa 2017 Survey,” AgDM File C2-10, on the Ag Decision Maker website. There was considerable variability across counties in year-to-year changes, as is typical of survey data, but 82 counties experienced declines in average rents for corn and soybeans. The report also shows typical rents for alfalfa, grass hay, oats, pasture, cornstalk grazing and hunting rights in each county and district.

Survey shows decline in most districts
The statewide survey by Iowa State University Extension reported rental rates for land planted to corn and soybeans were down from $230 per acre last year to $219 in 2017, or 4.8%. This decline is more than double the decline in Iowa farmland values between March 2016 and March 2017, reported in surveys conducted by the Iowa Realtors Land Institute and summarized in AgDM File C2-75. But the 18.9% accumulated decline in rental rates since 2013 is in line with the cumulative 17.4% decline in land values reported in the Iowa Land Value Survey published by the ISU Center for Agriculture and Rural Development (AgDM File C2-70).

Different regions experienced different changes in cash rents: from a 1.6% increase in crop reporting District 9 (southeast Iowa) to a 10.4% drop in District 2 (north-central Iowa). Northern and central Iowa (districts 1 to 6) continue to have higher cash rents than southern Iowa (districts 7 to 9).

Rents for high-quality land declined most
Not all land qualities have seen their cash rents decline proportionately. High-quality land experienced a 5% decline, from $270 per acre in 2016 to $256 in 2017, accumulating a 21.9% decline since 2013. Medium-quality land experienced a 4.6% decline, from $230 per acre in 2016 to $220 in 2017, accumulating an 18.9% decline since 2013. Low-quality land experienced a 4.4% decline, from $191 per acre in 2016 to $183 in 2017, accumulating a 13.9% decline since 2013.

Setting rents 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 be based on productivity, ease of farming, fertility, drainage, local price patterns, longevity of the lease and possible services performed by the tenant.

Two major factors with the potential to influence future cash rents are crop prices and land values. Corn and soybean prices received in Iowa peaked in August 2012 at $7.90 and $16.80 per bushel, respectively. In March 2017, corn and soybean prices were $3.40 and $9.60 per bushel, respectively, and have accumulated a 57% and 43% decline from their peak values. Due to current and projected low crop prices, profit margins in corn and soybean production on cash-rented acres are expected to remain very tight, and most operators will likely attempt to negotiate lower rents to cash flow the operation

The second major factor affecting cash rents is the return on investment for landowners. The bar chart shows the evolution of the ratio of average cash rents to average land values in Iowa. It suggests that the average return on investment for landowners who cash-rent their land to operators has followed a declining trend since the early 1990s, and it has stabilized at around 3% after 2010.

Note that this ratio does not measure net returns because ownership costs, such as real estate taxes, are not taken into account in its calculation. However, it is indicative that landowners (whose goal is to obtain a reasonable rate of return on their real estate assets) will likely be reticent to accept lower cash rents in the future unless land values continue to decline (in which case cash rents calculated as a percent of land values will also fall).

Other resources available for estimating a fair cash rent include the AgDM Information Files “Computing a Cropland Cash Rental Rate” (C2-20), “Computing a Pasture Rental Rate” (C2-23) and “Flexible Farm Lease Agreements” (C2-21). All of these fact sheets include decision tools (electronic spreadsheets) to help analyze individual leasing situations.

For questions regarding the ISU cash rent survey, contact the authors. For leasing questions in general, contact an ISU Extension farm management field specialist in your area.

Source: Alejandro Plastina, Iowa State University Extension economist