Trends in cash rents and leasing terms for farmland and pasture
There are noteworthy trends in land lease terms, as well. University of Illinois Ag Economist Gary Schnitkey found three in particular:
• One-year leases are making a comeback. In years past, three-year leases were somewhat common and five-year leases occurred occasionally. But now many longer-termed leases have been discontinued in favor of a one-year lease term. Two reasons: First, a longer-term lease that had its cash rent level set prior to 2006 often had a level below that which would have occurred after 2006, leading to current concerns among landlords about locking current rents into the future. Second, there is increasing variability in farmland returns. If a longer lease-term is desired, variable cash leases often are used.
• “Verified” fertilizer applications are increasingly required. Some landlords, particularly those with high cash rents, are concerned that farmers will not apply enough phosphorus and potassium fertilizer to replace that removed by a crop, leading to depletion of soil nutrient levels.
• Leases requiring yield “documentation.” The 2012 and future farm bills could allow for program yields used to determine program payments to be updated. This yield updating likely will require documentation of recent actual yields from a farm. The potential for yield updating has led landowners to request yield documentation from their farms. There are two difficulties, surfacing, however. First, it’s known what documentation will be acceptable to both landlord and tenant. Second, it’s often difficult for a farmer to provide acceptable documentation to the landlord, particularly if a farmer co-mingles grain from multiple farms and different landlords in on-farm storage.