AgDM newsletter article, July 2003

Cash Rent Acres Are Increasing

By William Edwards, extension economist, 515-294-6161, wedwards@iastate.edu

Slowly but surely Iowa’s farm tenancy is changing. Every five year since 1982, Iowa State University has carried out a detailed survey of farmland ownership and leasing practices. Some interesting trends appear.

Ownership Decreasing

In 1982 over half - 55 percent - of Iowa’s farm acres were owner-operated. However, as farmers have retired they have tended to maintain ownership of their land. For the latest survey year, 2002, only 42 percent of the farmland was operated by the owner, and the rest was leased.

Several factors encourage leasing. Giving heirs a new basis for assets passing through an estate is probably the biggest one. Selling land before death would result in a considerable amount of capital gains tax for many people, but passing the land on through inheritance wipes out most of that gain. Moreover, retired farmers are living longer. The 2002 survey showed that 37 percent of Iowa farmland is owned by persons 65 year of age or older. This compares to only 29 percent in 1982.

Increases in farmland values also make ownership more difficult. Younger operators have a hard time accumulating enough capital to purchase more acres. They can increase the size of their operation more quickly through renting land than by buying it.

Types of Leases

For many years Iowa farmers have rented land under both cash leases and 50-50 crop share leases. However, the mix of these is shifting. In 1982 they were equally popular, each accounting for 22 percent of farm acres in Iowa. Over time cash leases have replaced share leases for many tenants. Today 42 percent of Iowa’s farmland is rented under a cash lease, and only 15 percent under a crop share lease.

Iowa Farmland Tenure

As landowners become older they are less likely to want to deal with issues such as marketing grain and paying seed and fertilizer bills. Having a fixed cash income is more important to them. Moreover, cash rent income is generally not subject to self-employment tax. Many tenants also prefer to cash rent, to simplify record keeping and to allow all their acres to be farmed as a unit.

Some owners still prefer to rent with a share lease, so they can be a material participant and possibly qualify the estate for special use valuation. Share leases also create a farm program payment limitation for both the owner and the operator, as well as share production and price risks.

Regional Differences

Leasing is significantly less popular in the southern third of Iowa. Owner-operated and custom farmed land still accounts for more than half of the acres in the southwest, south central, southeast, and northeast crop reporting districts. On the other hand, only 26 percent of the farm acres in central Iowa are owned by the operator.

Southwest Iowa has always been a stronghold for crop share leases. Although they have declined in importance, they still account for 31 percent of the farmland acres there. Only 17 percent of the acres surveyed in southwest Iowa were cash rented. Higher production risks in this district probably influence tenants to maintain share lease arrangements.

Tenure of Iowa Farmland

In central, north central, and east central Iowa the proportion of acres cash rented is close to 50 percent. These are some of the most productive areas of the state, and competition for rental acres is strong. In northeast Iowa only 6 percent of the acres are share rented. The higher number of livestock farms in this part of the state means that tenants more often want to own all of the crop, to meet feed needs.

Custom farming has increased in popularity in recent years, although it still accounts for a small proportion of the total cropland. Custom farming was most prevalent in central and west central Iowa.

Ownership, cash rents, share leases, and custom farming all have a place in Iowa, and will continue to be used. How important each one is will depend on tax laws, trends in farm type and size, and demographic patterns.

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