AgDM newsletter article, May 2007

Cash rental rates jump in 2007

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

As anyone who is involved with the rental market for Iowa farmland knows, rental rates have been jolted by the sharply higher corn and soybean prices that have been available since last fall. Results from Iowa State University Extension survey estimated that the average cash rent for corn and soybean land in the state for 2007 was $150 per acre, compared to $137 in the 2006 survey. This is the largest increase in a single year since the statewide survey was initiated in 1994.  All of the 12 areas in Iowa that were surveyed showed increases, ranging from $11 to $22 per acre.
The intent of the ISU survey is to report average rents in force for 2007, not the highest or lowest values heard through informal sources or expected rental rates for next year. Rental values were estimated by asking over 1,000 tenants, landowners, farm managers, lenders and other people familiar with the land market what they thought were typical rates in their county for high, medium and low quality row crop land, as well as for hay and pasture acres. Opinions about rental rates varied widely, even within counties, indicating a great deal of uncertainty this year.

The surge in grain prices began after the September 1, 2006, deadline for terminating or revising lease contracts. Thus, many rents for 2007 reflect expectations of market prices below current levels. Other lease contracts were negotiated later in the fall or winter, usually at higher levels. Some tenants and owners have entered into flexible lease agreements in which the actual rent will not be determined until the crop is harvested.

The most positive factor affecting rents has been higher grain prices, especially for corn. Consistently good yields in recent years have alsolent support. On the negative side, escalating costs for fuel, fertilizer, seed, pesticides and machinery have offset some of the higher revenues.

The latest survey also presents typical dollars of rent per bushel of corn and soybean yield for each county, based on the county average yield for each crop during the last 10 years. This year the rent per bushel ranged from $.93 to $1.10 for corn and from $3.20 to $3.60 for soybeans across the 12 areas.

Survey results are intended to be used as guidelines, only. The appropriate rent for an individual farm should take into account factors such as fertility levels, drainage, USDA program parameters, size and shape of fields, existence of seed production or manure application contracts, local grain prices, and other services provided by the tenant.

Other resources include Ag Decision Maker Information Files Computing a Cropland Cash Rental Rate and Flexible Farm Lease Agreements. Both of these include decision file electronic worksheets to help analyze leasing questions.


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