Record high cash rental rates
The most recent annual survey of cash rental rates for Iowa farmland shows that rates increased by 9% in 2023 to the highest average value on record: $279 per acre. This new peak rent is 3.3% higher than the previous one of $270 per acre observed in 2013 (Figure 1). In comparison, average nominal (not inflation-adjusted) corn and soybean prices received by farmers in Iowa in the first quarter of 2023 were 2.8% higher and 4.4% lower, respectively, than in the first quarter of 2013.
Iowans supplied 1,306 usable responses about typical cash rental rates in their counties for land producing corn and soybeans, hay, oats and pasture. Of these, 42% came from farmers, 37% from landowners, 9% from professional farm managers and realtors, 7% from agricultural lenders, and 5% from other professions and respondents who chose not to report their status. Respondents indicated being familiar with a total of 1.4 million cash rented acres across the state.
AgDM File C2-10, Cash Rental Rates for Iowa 2023 Survey provides detailed results by county and crop. There was considerable variability across counties in year-to-year changes, as is typical of survey data, but 91 out of the 99 Iowa counties experienced increases in average rents for corn and soybeans. Only Des Moines, Jefferson, Lucas, Muscatine, Van Buren, Wapello, Warren, and Woodbury Counties experienced declines in their overall average cash rents.
Besides typical rents for ground on corn and soybeans, 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 districts
The survey was carried out by Iowa State University Extension and Outreach. Statewide, reported rental rates for land planted to corn and soybeans were up from $256 per acre last year to $279 in 2023, or 9%. This percent increase is 1.5 times larger than the 3.6% increase in Iowa farmland values between March 2022 and March 2023 reported in surveys conducted by the Iowa REALTORS Land Institute and summarized in AgDM File C2-75.
Furthermore, the cumulative 20% increase in rental rates since 2021 is three percentage points higher than the 17% increase experienced in land values between November 2021 and November 2022 (Figure 2), reported in the Iowa Land Value Survey, AgDM File C2-70.
Different regions experienced different increases in cash rents: from 5% in Crop Reporting District (CRD) 9 to nearly 12% in CRDs 1 and 8 (Figure 3). All CRDs experienced at least a $12.50 increase in average rents, and Northern Districts (1 through 3) saw their average rents increase by $28 per acre, or $8 and $9 more than in Central (4 through 6) and Southern Districts (7 through 9), respectively.
Rent increased more for higher quality land
Average cash rents increased proportionally more for higher quality lands. Low quality land experienced a 6% increase, from $217 per acre in 2022 to $230 in 2023.
Medium quality land experienced an 8.6% increase, from $255 per acre in 2022 to $277 in 2023.
High quality land experienced an 11.1% increase, from $297 per acre in 2022 to $330 in 2023.
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, conservation practices, and possible services performed by the tenant.
Three major factors with the potential to influence future cash rents are profitability of crop production, government payments, 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 2023, corn and soybean prices received by farmers in Iowa averaged $6.70 and $14.90 per bushel (Figure 4). The United States Department of Agriculture projected in February 2023 average corn and soybean prices for 2023-24 and 2024-25 of $5.70 and $4.90 per bushel, and $13.30 and $11.40 per bushel, respectively, implying an expected 14% decline in both prices. The price of the December 2023 corn futures contract has declined about 20% from $6 per bushel in January 2023 to around $5 per bushel in late May 2023. Similarly, the price of the December 2024 corn futures contract has declined by about 13% from $5.65 to $4.90 over the same period. Soybean future prices for the November 2023 and November 2024 contracts have declined by 16% (from around $14 to $11.75 per bushel) and 12% (from around $13 to $11.60 per bushel) between early January and late May 2023, respectively.
Lower projected crop prices, along with sustained input inflation in 2024 would result in lower net farm income and put downward pressure on cash rents. In February 2023, the USDA Economic Research Service forecasted a 15.9% reduction in net farm income between calendar years 2022 and 2023 in nominal terms, and an 18.2% decline in inflation-adjusted dollars. The projected decline in net farm income would result from lower farm cash receipts (-4.3%), lower direct government farm payments (-34.4%), and higher production expenses (+4.1%).
A major factor considered by landowners when negotiating cash rents is the return on their farmland investment. Figure 5 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, stabilizing at around 3% after 2010, but dropping closer to 2% in 2021 and 2022. Although this ratio does not measure net returns to land because ownership costs (such as real estate taxes, maintenance and repairs, etc.) are not considered in its calculation, it suggests that landowners will likely be reticent to accept lower cash rents in the future unless land values decline or stagnate. According to the REALTORS Land Institute, Iowa farmland values increased only by 0.8% between September 2022 and March 2023, suggesting that landowners might exert less pressure to increase cash rents in the near term. However, in a scenario of high interest rates to curtail inflationary risks, the opportunity cost to hold farmland as an investment vehicle remains elevated.
Other resources available for estimating cash rents 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 these fact sheets are on the Ag Decision Maker Leasing page and include decision tools (electronic spreadsheets) to help analyze individual leasing situations.
For questions regarding the cash rent survey, contact the authors. For leasing questions in general, contact the farm management field specialist in your area. An online tool is available to visualize the cash rents by land quality in each county by year, and compare trends in cash rents for a county versus its CRD and the state average.
Farmland Leasing and Management Workshops, facilitated by ISU Extension farm management field specialists in July and August each year, are an additional opportunity to learn more on leasing trends and topics impacting farmland owners and tenants. The Ag Decision Maker events page will have details as the workshop dates approach.
Alejandro Plastina, extension economist, 515-294-6160, firstname.lastname@example.org