What's 'fair' cash rent for your land?
Is what you're paying for cash rent "fair?"
That's the target of recent data from University of Illinois ag economist Gary Schnitkey. Though average cash rent figures are posted for each state in corn and soybean country on an annual basis, those numbers are just that -- averages. But within those averages lie a lot of variability.
"Published average cash rents mask the variability that exists in the farmland rental markets," Schnitkey says. "To a large extent, land owners and farmers are aware of the differences that exist in rents. Much of the difference in cash rents likely is due to desires of land owners and relationships between land owners and farmers. Quantifying these desires and relationships is difficult."
But, it can be done. Schnitkey took the numbers for his state from Illinois Farm Business Farm Management (FBFM) and subtracted them from figures published by USDA-NASS. The results for 2010:
- 35% of farm cash rents are within $20/acre of average county cash rent
- 19% are between $20 and $60/acre higher than average county rent
- 10% are $60 higher than average county rent
- 26% are between $20 and $60 lower than average county rent
- 10% are $60 below average county rent.
"While NASS averages are accurate, average county rents mask the variability in rents within a county," Schnitkey says. "Only 35% of farm cash rents are within $20 of the average rent. This leaves many cash rents that vary significantly from averages."
Why do these numbers matter? They're important in showing it's not always best to rely on county or state average figures for land rent regardless of whether you're a landowner or renter.
"Some of the difference in cash rents can be explained by differences in land productivities, with higher productivity leading to higher cash rents. Even given the productivity explanation, there is a large difference in rents across farms," Schnitkey says. "The distribution of cash rents points out difficulty in relying on average to cash rents. It also suggests that 'high' cash rents should be taken as a limited indication of all rents within the rental market."