By Cole Moody

USDA National Agriculture Statistics Service data indicates Iowa has about 24 million tillable acres, most of which are in corn and soybean production. According to the latest Iowa State University data, about 45% of those acres are owner-controlled. That leaves about 55%, or roughly 13 million acres, of farmland that are rented (fixed or flexible cash rent, crop share, etc.). Thus, the importance of understanding the implications for the single largest per acre expense for Iowa farmers: land costs.

These costs associated with farmland are often reflected as cash rent equivalent. That’s because some farmland is owned outright with no debt. Other acres are partially owned, but principal and interest payments are still being made. For Iowa’s row crop acres, this cash rent equivalent reflects about one-third of the total cost of corn production per acre and nearly 50% of the total cost for soybeans per acre.

Farmland leasing trends
In the past four years, cash rental rates for tillable farmland have been declining. From 2013 to 2017, cash rent prices have declined 18.9% on average statewide, according to the most recent ISU Cash Rental Rate Survey.

DOWN AGAIN: ISU’s annual survey shows cash rental rates for cropland in Iowa have fallen 18.9% since 2013. Despite falling for a fourth consecutive year, the average cash rent in 2017 is still higher than the average rate in 2011.

The latest ISU Cash Rental Rate Survey indicated a drop of 4.8% in average cash rents from 2016 to 2017. Putting this in more common terms, an Iowa average cash rent dropped $11 per acre to a statewide average of $219 per tillable acre. Cash rents can fluctuate for a number of reasons, and the single most important is the productivity of the land.

The ISU survey breaks Iowa farmland into three different quality categories: high, medium and low. Not all categories have declined at a proportional rate. It makes sense to see the largest decline in average rental rate per acre over the past few years coming from high-quality land. In 2017, high-quality land dropped 5% to $256 per acre from $270 per acre just a year ago, followed by a 4.6% drop in medium-quality land to $220 an acre from $230, and a 4.4% drop in low-quality farmland down to $183 per acre — a decline of $8 per acre.

The role of cash rental rates reflecting the quality of the land plays an important part in determining a fair cash rental rate. In addition, communication between the landlord and the tenant operator is critical in determining a fair cash rent rate. All of these factors, even as basic as some might seem, play a role in the profitability and sustainability of today’s farm operations.

Determining a fair cash rent
A variety of methods can be used to determine a fair cash rental rate. A simple rule of thumb centers around the cash rent return per acre, figured by multiplying the value of your farmland per acre by say 3% (this can be adjusted to be more or less depending on the quality of your farmland). The 2016 ISU Land Value Survey indicated the average value of Iowa farmland at $7,183 per acre. Multiply this number times 3% and the fair cash rental rate would be $215 per tillable acre.

So, what about 2018 cash rent leases? Do you need to adjust your rental rate? Keep in mind that legal termination of the existing farmland lease is required on or before Sept. 1 each year. In other words, Iowa Code 562.6 requires that either the landlord or tenant operator must provide a legal termination on or before the Sept. 1 deadline or the lease will automatically renew for the following crop year. This is regardless whether the current rental arrangement is simply verbal or in writing. Bottom line: a six-month notice in writing must be given on or before Sept. 1 to legally terminate the lease for Iowa farmland.

Iowa State University Extension and Outreach will be conducting nearly 70 farmland leasing meetings statewide in late July and August where lease-related information will be discussed. For a list of meetings statewide, check the ISU Extension calendar for a meeting near you at extension.iastate.edu/calendar.

Moody is a farm management summer assistant with ISU Extension and Outreach.