In an era of $250-per-acre cash rents, expected-yields formula may still apply
In many parts of the Midwest, farmland cash rents are moving to price levels beyond what many farmers might consider reasonable. But, $200- to $300-per-acre cash rent price levels are likely justified when taking corn and soybean per-acre income into account, economists say.
Farmers struck up a conversation about cash rental rates in a recent Agriculture Online Farm Business discussion group. Most say $250 per acre could be the new benchmark next year, going higher in some areas depending on the corn and soybean markets.
"My guess would be around $225 to $235 per acre. Even if you are feeling generous, I wouldn't accept less than $210 per acre," writes discussion group poster James22. "Unless corn goes back to $4.00 per bushel, I don't believe that, at $250 per acre, you are giving the tenant enough 'wiggle room' if the year isn't so good. If corn is a good solid $4.00 per bushel, then I would consider anywhere between $250 and $275 per acre."
One way to gauge these cash rent rates is by basing agreements on expected crop yields. While the marketplace has caused the dollar values to rise significantly in the past few years, this formula, says one Farm Business discussion group poster, should still apply.
"I remember years ago in this area, the cash rents were based on what a farm had the capability of producing a year per acre of corn," writes poster nw ia fmr. "If a farm could produce 100 bushels per acre, the rent was figured to be fair to both landlord and tenant at $100 per acre. Today, if a farm had a yield capability of 200 bushels per acre for corn, would $200 per acre cash rent be fair?"
Alongside rising commodity prices, trendline yields are also increasing, making the expected-yields formula still applicable to today's cash rents. Even though it's more likely to result in higher rental rates when rented acres are planted to corn under current market conditions, Iowa State University Extension economist William Edwards says rental agreements based on expected yields should be "an average for both crops...based on the actual acres planted."
A survey of 2006 cash rent and land values in Iowa indicates variability exists in the expected-yield formula, as cash rental rates in Iowa ranged from 93 cents to $1.10 per bushel for corn and between $3.20 and $3.60 per bushel for soybeans.
Ohio State University Extension economist Barry Ward says, on average, Ohio cash rental rates in 2006-2007 have ranged between $.69 and $.74 per bushel of corn raised per acre and from $2.24 to $2.27 per bushel of soybeans per acre. This would mean, on a 50-50 corn-soybean crop rotation, an average cash rental rate of $237.60 per acre of ground capable of growing 160-bushel-per-acre corn.
"Measures such as 'rent as a percentage of land value' and 'cash rent per bushel of corn production' are valuable in many rental negotiations, as many use these measures as rules of thumb when negotiating cash rental rates," Ward says.