The most recent annual survey of Iowa farmland cash rental rates shows rates increased, on average, 4.5% in 2021 to $ 232 an acre. This is the first substantial increase in cash rents since 2013, when rents peaked. Four years of declining rents and three years of relatively stable rents followed (see Figure 1). By comparison, nominal corn and soybean prices received by Iowa farmers have fallen 31% and 14%, respectively, since mid-2013.
Figure 1. Average cash rents in Iowa, $ per acre (nominal)
Graphics for Figures 1-4 courtesy of Alejandro Plastina
The Iowans provided 1,363 usable responses on typical cash rental rates in their counties for land producing corn, soybeans, hay, oats and pasture. Of these, 41% were from farmers, 33% from landowners, 11% from farm managers and professional real estate agents, 9% from agricultural lenders and 6% from other professions and respondents who chose not to declare their status. Interviewees said they were aware of a total of 1.5 million acres leased for cash across the state.
Ag Decision Maker (AgDM) C2-10 file, Cash Rental Rates for Iowa 2020 Survey, at bit.ly/admicrr, provides detailed results by county and by culture. There was considerable variability between counties in year-to-year changes, as is typical of survey data, but 76 of Iowa’s 99 counties saw increases in average rents for corn. and soy. The report also shows typical rents for alfalfa, grass hay, oats, pasture, corn stalk grazing and hunting rights in each district.
Survey shows rent increases in all neighborhoods
The survey was conducted by Iowa State University Extension and Outreach. Statewide, reported rental rates for land planted with corn and soybeans fell from $ 222 an acre last year to $ 232 in 2021, or 4.5%. This percentage increase is slightly less than two-thirds of the percentage increase in Iowa’s farmland value between March 2020 and March 2021 reported in surveys conducted by the Iowa Realtors Land Institute and summarized in the AgDM file. C2-75, Farmland Value Survey (Realtors Land Institute), at bit.ly/irlifvs.
However, the cumulative drop of 14.1% in rental rates since 2013 is in line with the cumulative 13.3% drop in land values over the same period reported in the Land Value Survey of the ‘Iowa published by the ISU Center for Agriculture and Rural Development (AgDM File C2- 70, Farmland Value Survey), bit.ly/isuilvs.
Different regions experienced different increases in cash rent: from 1.3% in Crop Reporting District (CRD) 1 to a decrease of 7.8% in CRD 9 (Figure 2). With the exception of Northwest and Northeast Iowa (CRD 1 and 3), where average rents increased by $ 5 or less per acre, all CRDs saw an increase of at least 10 $ average rents.
Figure 2. Average Cash Rents by Harvest Reporting District, $ per acre
Percentage increases in similar rents for all qualities of land
All land qualities saw their average cash rents increase by similar percentages. High-quality land saw an increase of 3.9%, from $ 257 per acre in 2020 to $ 267 in 2021.
Average-quality land increased 4.5%, from $ 223 per acre in 2020 to $ 233 in 2021.
Prices for low-quality land rose 4.8%, from $ 188 per acre in 2020 to $ 197 in 2021.
Fixing of rents for next year
The information from the survey can serve as a benchmark to negotiate an appropriate rental rate for the next year. However, rents for individual farms should be based on productivity, ease of operation, fertility, drainage, local pricing models, longevity of the lease, and possible services rendered by the tenant.
Crop prices, government payments and land values are the three main factors that can influence future cash rents. Prices for corn and soybeans received in Iowa peaked in August 2012 at $ 7.90 and $ 16.80 per bushel, respectively. In March, corn and soybean prices received by Iowa farmers averaged $ 4.89 and $ 13.30 a bushel and, despite the price hike seen since July 2020, they have accumulated a decrease of 38% and 21% since August 2012 (Figure 3). The USDA is currently forecasting average corn and soybean prices for MY 2021-22 at $ 5.70 and $ 13.85 per bushel, respectively. These higher prices would improve net farm income compared to last year, but would not be able to compensate for the reduction in income due to lower government payments. In February, the USDA’s Economic Research Service forecast an 8.1% reduction in net farm income between 2020 and 2021.
Figure 3. Prices received in Iowa for corn and soybeans, $ per bushel
A major factor considered by landowners when negotiating cash rents is the return on investment of their farmland. Figure 4 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 lease their land to operators has trended downward since the early 1990s, leveling off at around 3% after 2010.
Figure 4. Ratio of Average Cash Rent to Average Land Value in Iowa, 1992-2019
Note that this ratio does not measure net returns because the costs of ownership, such as property taxes, are not factored into its calculation. However, this does indicate that landowners (whose goal is presumably to obtain a reasonable rate of return on their real estate assets) are likely to be reluctant to accept lower cash rents in the future, unless the land value is higher. continues to decline. However, with current interest rates at historically low levels and early indications of potentially increasing inflation risks, future interest rates are likely to be higher than current rates.
As a result, the opportunity cost for landowners would increase and there could be pressure to charge higher rents. Additionally, Iowa’s farmland values increased 7.8% between September 2020 and March 2021 (Realtors Land Institute), putting upward pressure on cash rents for 2022.
Other resources available for estimating a fair cash rent include the AgDM information files Calculate Cash Rental Rate for Cropland (C2-20), Calculate Pasture Rental Rate (C2-23), and flexible agricultural rental contracts (C2-21). All of these factsheets can be found on the Ag Decision Maker rental page, bit.ly/isuadmleasing, including decision tools (electronic spreadsheets) to help analyze individual rental situations.
For questions regarding the cash rent survey, contact the authors. For questions about leasing in general, contact a farm management field specialist in your area at bit.ly/isueleasing. An online decision tool for viewing cash rents by land quality in each county by year and comparing trends in cash rents for a county against its CRD and state average is available at bit.ly/isucashrents2021.
Plastina is an economist at ISU Extension.
Source: ISU Extension and Outreach Ag Decision Maker, which is responsible for the information provided and is fully owned by the source. Informa Business Media and its subsidiaries are not responsible for the content of this information asset.