With farmland prices escalating rapidly in recent years, rental rates have also been rising, and since half of Iowa and other Midwestern area farmlands are rented, a common and difficult question to answer is how much to charge for cropland rent. Of late, we have seen a rapid rise in the price of farmland, input costs, and farm commodity prices. Both risk and reward are increasing, creating volatility and difficulty when it comes to rental rate decision making time.
Cropland rental rate increases in 2011 ranged widely from 5-30% across the upper Midwest. In this posting is the latest available cropland survey rental data (that I was able to find) for Nebraska, Iowa, Indiana, Illinois, North and South Dakota, Kansas, and Minnesota, based on state-wide surveys provided by their respective universities and the USDA.
According to Economist Ernie Goss, 39% of Midwestern regional bankers reported that cash rent prices for agricultural land rose more than 10% in March 2012 year-over-year. He reports that there has been a substantial increase in rents this year, with an overall average of 7.8%.
For the past four decades, farmland values continue to rise faster than rental rates. In the year 2007, it would take 33 years to pay for farmland through cash rents. Back in 1951 it would have taken only 14 years.
In 2011 the average farmland price reached $6,708 per acre in Iowa, up 32.5% from 2010. Rents rose more than 11% in 2011. Because farmland prices advanced significantly, the return on the farmland dropped from 3.8% to 3.4% in 2011, in Iowa.
Rental agreements vary by type, but are most commonly cash lease, crop share lease, or flexible cash rent agreements. As an example, currently in Illinois, traditional fixed cash-rent leases make up 32% of farming agreements and 68% of agreements include sharing in crop production and price risk.
To follow, are the farmland rental rate averages from the individual states.
NEBRASKA CROPLAND RENTAL RATE AVERAGES 2005-2011
To view the entire Nebraska report: http://agecon.unl.edu/c/document_library/get_file?uuid=3740277f-4fee-45aa-af27-1428d261d462&groupId=2369805&.pdf
IOWA’S AVERAGE CASH RENTS FOR CORN AND SOYBEAN ACRES 2007-2011
To view the entire Iowa report: http://www.extension.iastate.edu/agdm/wholefarm/html/c2-10.html
SOUTH DAKOTA AVERAGE FARMLAND RENTAL RATES FOR 2011
To view the entire South Dakota report: http://pubstorage.sdstate.edu/AgBio_Publications/articles/C278.pdf
INDIANA AVERAGE FARM RENTS FOR 2011
To view the entire Purdue (Indiana) report: http://www.agecon.purdue.edu/extension/pubs/paer/pdf/PAER8_2011.pdf
KANSAS CASH RENTS FOR FARMLAND 2002-2011
To view the entire Kansas report: http://www.nass.usda.gov/Statistics_by_State/Kansas/Publications/Economics_and_Misc/Landval/landvlcashrnt11.pdf
FARMLAND AVERAGE CASH RENT BY ILLINOIS COUNTY IN 2011 AND EXPECTED 2012 RENTS
To view the entire Illinois report: http://web.extension.illinois.edu/jsw/downloads/40766.pdf
MINNESOTA AVERAGE FARMLAND RENTAL RATE INCREASES FROM 2006-2010
To view the entire Minnesota report: http://www.cffm.umn.edu/Publications/pubs/FarmMgtTopics/RentalRates.pdf
In North Dakota, farmland rents are up 5-10% over a year ago where farmers will plant a record 3.4 million acres of corn this year, up from 2.2 million acres last year. Richland County had the state’s highest rental rate for nonirrigated this year at $175 per acre. Rental rates in south-central North Dakota increased an average of 12%. Nonirrigated farmland in Emmons County was up 15% from $48.10 per acre last year to $55.40 per acre this year. Nonirrigated farmland in North Dakota’s southwestern region of Bowman County saw rental rates up 4.7% from $31.80 per acre last year to $33.30 this year.
RENT TO VALUE RATIOS ARE IN DECLINE, ACCORDING TO USDA SURVEY DATA
There has been a 45 year trend in decreasing rent-to-value ratios of U.S. farmland. Survey data collected by USDA’s National Agricultural Statistics Service shows that since 1999, almost every USDA region has seen a decrease in RTV ratios. The Lake States and Southern Plains experienced the largest relative decrease in RTV ratios, a decline of 48.3% and 51.2%, respectively. The Delta and Mountain regions had the lowest relative (percentage) decrease in RTV ratios between 1999 and 2008, 4.2% and 8.8%, respectively. Some experience larger levels of volatility in the RTV ratios, especially in the Delta, Mountain and Pacific regions (more farmers in these three regions use irrigation, and some of the volatility could be due to our averaging of irrigated and non-irrigated rents and land values). The areas with the highest RTV ratios are the Northern Plains, Delta, Mountain and Pacific regions. The Corn Belt and Lake States are closer to the national average. The Southeast, the Southern Plains, Appalachia and the Northeast all have lower RTV ratios.
For more information from the USDA on declining rent to value ratios of U.S. farmland: http://www.ers.usda.gov/Publications/EIB92/EIB92.pdf
The Federal Reserve Banks of Kansas City and Chicago have come out with their 4th Quarter 2011 farmland price/credit conditions reports. It is always interesting to see how much farmland prices have changed in these reports, especially at year’s end.
2011 was another stellar year in farmland price gains. It is reported that more absentee and elderly landowners were motivated to sell given these very high prices. Credit conditions remain healthy with cash from high commodity prices being used to make many of the necessary farm expense purchases.
The Chicago District reported the highest average gain in farmland prices since 1976, up a 19% inflation adjusted average for the year.
They attributed the rise to commodity gains, as follows, according to the USDA:
Corn, soybean, and wheat prices averaged 57 percent, 26 percent, and 45 percent, respectively, higher in 2011 than in 2010. Milk, hog, and beef cattle prices rose 23 percent, 21 percent, and 21 percent, respectively, although producers faced costlier feed as well.
Net farm income in 2011 was up 24% over the previous year. For 2012, the USDA is predicting an 8.2% reduction in net farm income.
The three states across these two regions showing the largest gains for the year were Nebraska (up 37.8%), Iowa (up 28%), and Indiana (up 27%). Farmers continue to be the main buyers of farmland in these two districts.
Many cash rents were negotiated up steeply for 2012, up 18% in the Kansas City district, compared to 6% higher the year before.
To see multi-year chart go to Iowa State Edwards report.