Uneven changes in cash rental rates in Iowa
The most recent annual survey of cash rental rates for Iowa farmland shows that rental rates decreased, on average, by 1.4 percent in 2019, eroding the increase in rents from the previous year, and marking the fifth year of declining rates from the historical peak at $270 per acre in 2013. The average cash rent at $219 in 2019 is still higher than the average rate in 2011, and only 18.9 percent lower than in 2013 (Figure 1). In comparison, corn and soybean prices received by farmers in Iowa declined by 50 and 45 percent, respectively, since mid-2013.
Iowans supplied 1,262 responses about typical cash rental rates in their counties for land producing corn and soybeans, hay, oats and pasture. Of these, 47 percent came from farmers, 30 percent from landowners, 12 percent from professional farm managers and realtors, 8 percent from agricultural lenders, and 3 percent from other professions. Respondents indicated being familiar with a total of 1.6 million cash rented acres across the state.
AgDM File C2-10, Cash Rental Rates for Iowa 2019 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 65 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 district.
Survey shows declines in most 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 down from $222 per acre last year to $219 in 2019, or 1.4 percent. This percent decline is equivalent to about half the decline in Iowa farmland values between March 2018 and March 2019 reported in surveys conducted by the Iowa REALTORS Land Institute and summarized in AgDM File C2- 75, Farmland Value Survey (REALTORS Land Institute).
However, the 18.9 percent accumulated decline in rental rates since 2013 is in line with the cumulative 16.7 percent decline in land values over the same period reported in the Iowa Land Value Survey published by the ISU Center for Agriculture and Rural Development, or AgDM File C2-70, Farmland Value Survey (Iowa State University).
Different regions experienced different changes in cash rents: from a 3.4 percent increase in Crop Reporting District (CRD) 9 to a 2.7 percent drop in CRD 2 (Figure 2). Northern and Central Iowa (CRD 1-6) continue to have higher cash rents than Southern Iowa (CRD 7-9).
Rents for medium quality land declined the most
Not all land qualities have seen their cash rents decline proportionately. High quality land experienced a 1.2 percent drop, from $258 per acre in 2018 to $255 in 2019.
Medium quality land experienced a 1.8 percent drop, from $223 per acre in 2018 to $219 in 2019.
Low quality land experienced a 1.1 percent decline, from $185 per acre in 2018 to $183 in 2019.
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 2019, corn and soybean prices received by farmers in Iowa average $3.57 and $8.46 per bushel and have respectively accumulated a 55 percent and 50 percent decline from their peak values (Figure 3). 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 tenants will likely be using profits generated in owned land to cover any negative profit margins on rented land.
The second major factor affecting cash rents is the return on investment for landowners. 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 cash rent their land to operators has followed a declining trend since the early 1990s, and it has stabilized at around three 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 reticent to accept lower cash rents in the future unless land values continue to decline. Furthermore, in a scenario of increasing interest rates, the opportunity cost for landowners would increase and pressure would mount to increase the asking price for renting their land out.
Other resources available for estimating a fair cash rent 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 of these fact sheets are on the Ag Decision Maker Leasing page, 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 a farm management field specialist in your area. An online tool to visualize the cash rents by land quality in each county by year, and compare trends in cash rents for a county versus its Crop Reporting District and the state average is available on the Center for Agriculture and Rural Development website.
Alejandro Plastina, extension economist, 515-294-6160, firstname.lastname@example.org