Iowa State University Extension farm management specialists are holding meetings across Iowa in August to discuss farmland leasing issues with farmers and landlords. The meetings are held each year to prepare for the Sept. 1 deadline for providing a written notice if you want to terminate your lease for the coming crop year. That deadline to give the other party such notice is set by Iowa law.

One of the key topics covered at this year’s meetings involves farmers renegotiating cash rents with landlords. Cash rental rates for cropland have declined in each of the past four years and are likely to stabilize in 2018. The expected stabilization in cash rental rates will put added economic pressure on farmers coping with continued low commodity prices.

“Farmers who rent land are probably going to have to find other ways to reduce costs than just renegotiating cash rental rates,” says Steve Johnson, ISU Extension farm management specialist in central Iowa. “Many landlords have already adjusted the cash rent downward. And the demand for rented land continues strong. I don’t see much more room to adjust rental rates for 2018, with the demand there is for rented land.”

Look for ways to improve margins
Johnson is suggesting to farmers they need to work harder on improving their crop marketing skills to find the extra revenue needed to make a profit. If you can pick up $50 per acre that way, it helps, he notes.

Another part of the solution for adjusting cash rental rates is tying lease arrangements to good land stewardship practices. Landlords are becoming more interested in soil and water conservation on their land, and may be more willing to work with a tenant on adjusting the cash rent down, if the tenant uses conservation farming practices. “Today, landlords are more engaged in how their farm is being managed than I’ve ever seen,” he says. “They really want to know how their land is farmed.”

Cash rental rates in Iowa have declined about 19% since 2013, or about $51 per acre. ISU’s annual survey shows the average rental rate for cropland in Iowa for 2017 is $219 per acre. But 2018 may not be another year of decline. Rents tend to follow closely with farmland values, which in most cases reflect productivity of crop yield. The price of Iowa farmland appears to have stabilized after several years of declines.

Cash rent and conservation
Surveys of real estate agents and bankers earlier this year showed Iowa farmland values holding steady or slightly higher so far in 2017. Respondents in these surveys said a big factor in the stronger market is the limited amount of land for sale. “It’s the same situation with rented land,” says Johnson. “The limited amount of land available to rent provides support for cash rental rates.”

With tight crop margins and more emphasis on stewardship practices to improve soil conservation and water quality, this situation should foster more conversations between tenants and landlords, says Johnson. “Landlords want to keep soil and nutrients on their land and they typically want to work with their tenants to improve these practices.”

Johnson encourages landlords to attend conservation meetings and field days to gain information on both the effectiveness and costs of stewardship practices. That can help reduce disagreements and tension that can occur when a landlord wants a tenant to adopt conservation practices but doesn’t realize the costs of putting those practices on the land.

Landowners and tenants need to have conversations about the cost of inputs to produce a crop and reasonable expectations of profit margins, says Melissa O’Rourke, ISU Extension farm management specialist in northeast Iowa. She suggests acquiring copy of the farmland leasing workbook handed out at the ISU Extension farm leasing meetings. Also, visit the ISU Ag Decision Maker website for information on farm leasing arrangements.