Renting cropland still competitive

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combining beans
Farm and Dairy file photo

WOOSTER, Ohio — Much like land values, cash rents for farmland are holding steady and even seeing a slight increase in some areas.

According to the U.S. Department of Agriculture, which publishes the results of a cash rent survey each August, the average cash rent in Ohio is $152 an acre, unchanged from 2017, but up from $122 an acre in 2012.

In Pennsylvania, the average rent for farmland is $80.50 an acre, up a dollar from last year, and up $8 per acre from 2012.

However, according to Ohio State University’s Western Ohio Cropland Values and Cash Rents Survey, published Aug. 13, cash rents are actually expected to decline in western counties, from 1.2 percent to 3 percent, depending on the region and land class.

Reaching a deal

The actual rent a landlord and farmer agree to varies widely, and is based on location, geography and the potential return per acre.

Anthony Bush, a grain farmer from Morrow County who also serves on the National Corn Growers Association Board, said rent is still highly competitive in his area, even though inputs are going up and the farm profit margin for grain crops is slim.

“It’s a pretty tight squeeze right now,” he said. “Nobody wants to let go of anything right now because another farmer will come in and take it.”

Bush said it’s usually less expensive to rent ground than to buy it, which is part of the reason there’s so much demand for farmland.

map of cash rents
Source: USDA National Agricultural Statistics Service

He said farmers can use conservation practices, and quality of farming as tools for negotiating a fair rent, but it still comes down to what each landlord is willing to accept.

“I still think it all comes down to the relationship you have with that landlord,” he said. “That means everything.”

Buying vs. renting

Casey Niese, whose family grain farms in nine Ohio counties, said they’ve seen cash rents stay consistent the last two years. But with all the competition, he said it sometimes makes more sense to buy the ground outright.

Niese said he expects more farms to come onto the sale market, because the older generation is dying and there’s no one in the family to continue those operations.

“I think that number is just going to keep growing, because the rented thing is so competitive,” he said.

Niese said it’s also important to study each parcel of land, and to have a budget for each farm. Some farms may require $100 an acre for fertilizer, and some may only need $15, so by keeping better track of the numbers, he’s able to offer a more accurate figure for cash rents.

According to OSU, cash rent per parcel ultimately comes down to supply and demand, coupled with the expected return from producing crops and the variability of those crops. A wide variety of factors can influence the return, including location, size of field, the potential for wildlife damage, and of course, soil type and fertility.

Factors that affect cash rents:
• Soil quality and fertility: Higher quality soils that are more fertile usually translate into higher rents.
• Drainage/irrigation capability: Better surface and subsurface drainage of a farm often results in better yields and higher rent.
• Size of farm/fields: Large farms and fields typically command higher rents per acre due to the efficiencies of working in larger fields.
• Shape of fields: Square fields with fewer “point rows” will generally translate into higher rents, as operators have to turn less and can plant complete, straight rows.
• Previous tillage systems and crops: Previous crops and tillage systems that allow for an easy transition for new operators may enhance the cash rent value.
• Field border characteristics: Fields surrounded by tree-lined fence rows, woodlots or other borders that affect crop growth at the field edge will negatively impact yield. Wooded borders can shade sunlight from reaching the crop, and also harbor wildlife, which can lead to crop damage and loss.

Secondary factors that affect rent:
• Buildings and grain storage availability: Access to machinery and grain storage may enhance the value of the cropland rental rate.
• Location of farm (including road access): Proximity to prospective operators may determine how much operators are willing to bid for cash rents. Good road access will generally enhance cash rent amounts.

• USDA farm program participation: Farms that participate in the USDA farm program and have higher “program yields” may command higher cash rents than non-program farms.
• Services provided by operator: Farmers who provide services such as clearing fence rows, snow removal and other services may be valued by the landowner. This may even be a partial substitute for cash rent compensation.
• Conditions of lease: Conditions placed on the lease by the landowner may result in fewer prospective operators and a lower average cash rent.
• Payment dates: Leases that require part or all of the rent to be paid early in the year (upfront) may result in lower rental rates due to higher borrowing or opportunity costs for the operator.
• Reputation of landowner or operator: Reputations of the parties may play a part in the cash rental negotiations. A landowner with a reputation of being difficult to work with may see cash rents negatively affected by this reputation. Farmers with a similar negative reputation may have to pay higher rents.
• Special contracts: Farms with special contract commitments may restrict the operator from changing crops based on market conditions. This may negatively impact cash rents. There may also be contracts that positively affect cash rents such as high value crop contracts.
(Sources: OSU Western Ohio Cropland Values and Cash Rents 2017-18; USDA Cash Rents Survey, published each August.)

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