Trends in cash rents and leasing terms for farmland and pasture

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Nationally, cropland rents rose an average of 11 percent for 2012 to $158 per acre. But there is a huge range. California still holds the crown for highest state-average cash rent at $340 per acre. But that’s up just 1 percent from last year, among the smallest year-to-year increases in the country on a percentage basis. Rich soils, abundant rain, near-perfect temps, a very long growing season, high value fruit and vegetable crops and proximity to Pacific export destinations all contribute to the high rent. Meanwhile, Oklahoma has the lowest state-average cash rent at just $55 per acre, and that’s unchanged from last year.

The Lake States region edged out the Corn Belt in gains over 2011 in both dollars per acre and percentage gain. Average rents for the three states shown gained $30 per acre and 18 percent over last year versus an average gain of $29 per acre and 16 percent for the five key Corn Belt states. In percentage terms, Virginia rents took the biggest leap at 36 percent higher for 2012. In dollars per acre, the crown for biggest year-to-year jump goes to Arizona, where average cash rent jumped $45 per acre. Two factors were involved: First, virtually all cropland in Arizona is irrigated and access to subsidized-water is increasingly valuable; Second, population influx continues to grow for Arizona, as even Californians flee soaring taxes and costs-of-living to a state where there are real estate bargains second only to Nevada.

Rents are rising slowest in the Southern Plains, Delta and Northeast. In fact, the only states showing cash rents actually declining year-to-year were New York and Massachusetts. The region with the widest inter-region variation is the Appalachians, where Tennessee rents increased only 1 percent vs. 36 percent for Virginia.

Helpful perspective on pasture rents: At Doane, we thought it might be interesting to divide average cropland rents by average pasture rents for each state to see if there were much difference in these “multiples.” There was! Nationally, this multiple was 5.7, meaning the average acre of cropland rented for 5.7 times the rent for an average acre of pastureland. But there was a huge range among the states. This multiple was 100-fold for Arizona, where cropland is productive when well fertilized and irrigated, while rangeland is very cheap because the stocking rate is so low and the grazing season so short. In contrast, this cropland rent-to-pasture rent multiple is only 3.0 for Pennsylvania, where crop returns have to compete against high pasture value to dairy farms and lots of well-heeled folks who want “a scenic place in the country” for home sites or recreational use.

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.

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