Cash rental rates fall for a fourth consecutive year in Iowa
A survey, carried out by Iowa State University Extension and Outreach, shows that cash rental rates for farmland in Iowa fell by 4.8 percent in 2017, accumulating an 18.9 percent decline since 2013. Despite falling for a fourth consecutive year, the average cash rent in 2017 is still higher than the average rate in 2011 (Figure 1). In comparison, the 19 percent cumulative decline in cash rents is only about one third (half) the cumulative 57 (37) percent decline in corn (soybean) prices between 2012/13 and 2017/18 reported in the USDA Agricultural Projections to 2026 (published in February 2017). Iowans supplied 1,448 responses about typical cash rental rates in their counties for land producing corn and soybeans, hay, oats, and pasture. Of the responses, 52 percent came from farmers, 29 percent from landowners, 9 percent from agricultural lenders, 9 percent from professional farm managers and realtors, and 2 percent from other professions. Respondents indicated being familiar with a total of 1.7 million cash rented acres across the state.
The Cash Rental Rates for Iowa 2017 Survey publication provides detailed results by county. There was considerable variability across counties in year-to-year changes, as is typical of survey data, but 82 counties experienced declines in average rents for corn and soybeans. The report also shows typical rents for alfalfa, grass hay, oats, pasture, corn stalk grazing, and hunting rights in each county and district.
Survey shows decline in most districts
Statewide, reported rental rates for land planted to corn and soybeans were down from $230 per acre last year to $219 in 2017, or 4.8 percent. This decline is more than double the decline in Iowa farmland values between March 2016 and March 2017 reported in surveys conducted by the Iowa REALTORS Land Institute, see AgDM File C2-75, Farmland Value Survey (REALTORS Land Institute). But the 18.9 percent accumulated decline in rental rates since 2013 is in line with the cumulative 17.4 percent decline in land values reported in the Iowa Land Value Survey published by the ISU Center for Agriculture and Rural Development, also available in AgDM File C2-70, Farmland Value Survey.
Different regions experienced different changes in cash rents: from a 1.5 percent increase in Crop Reporting District 9 to a 10.3 percent drop in District 2 (Figure 2). Northern and Central Iowa (Districts 1-6) continue to have higher cash rents than Southern Iowa (Districts 7-9).
Rents for high quality land rents declined the most
Not all land qualities have seen their cash rents decline proportionately. High quality land experienced a 5 percent decline, from $270 per acre in 2016 to $256 in 2017, accumulating a 21.9 percent decline since 2013.
Medium quality land experienced a 4.6 percent decline, from $230 per acre in 2016 to $220 in 2017, accumulating an 18.9 percent decline since 2013.
Low quality land experienced a 4.4 percent decline, from $191 per acre in 2016 to $183 in 2017, accumulating a 13.9 percent decline since 2013.
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, and possible services performed by the tenant.
Two major factors with the potential to influence future cash rents are crop prices 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 2017, corn and soybean prices were $3.40 and $9.60 per bushel, respectively, a 57 percent and 43 percent decline from their peak values. Due to current and projected low crop prices, profit margins in corn and soybean production on cash rented acres are expected to remain very tight, and most operators will likely attempt to negotiate lower rents to cash flow the operation.
The second major factor affecting cash rents is the return on investment for landowners. The average return on investment for landowners who cash rent their land to operators has followed a declining trend since the early 1990s, and it has stabilized at around 3 percent after 2010. Note that this ratio does not measure net returns because ownership costs, such as real estate taxes, are not taken into account in its calculation. However, it is indicative that landowners (whose goal is to obtain a reasonable rate of return on their real estate assets) will likely be hesitant to accept lower cash rents in the future unless land values continue to decline (in which case cash rents calculated as a percent of land values will also fall).More farmland leasing resources are available on the AgDM Leasing page. For questions regarding the cash rent survey, contact the authors. For leasing questions in general, contact the farm management field specialist in your area.
Alejandro Plastina, extension economist, 515-294-6160, email@example.com