Share-rent landowner returns compared to cash rents
Cash rents on professionally managed farmland increased since 2006. Professionally managed cash rents were $183 per acre in 2007, $241 in 2008, $267 in 2009, $268 in 2010, $319 in 2011, and $379 in 2012. These cash rents roughly equal high-productivity share-rent returns. From 2007 through 2012, cash rents on professionally managed farmland averaged $276 per acre compared to $293 per acre returns for share rent returns on high-productivity farmland.
There continues to be a movement away from share-rent leases to cash rental arrangements. While a number of reasons can be given for this switch, one of those should not necessarily be higher returns from cash rental arrangements. Since 2006, during a period of relatively high agricultural returns, share rent landlords received higher returns than the average cash rent as reported by NASS. Share rent landlords had comparable returns to negotiated average cash rents on professionally managed farmland. Of course, many professionally managed acres have higher than average returns, likely following the desires of the owners of that farmland.
Comparison of share-rent returns to cash rents will be of interest in the next several years. Lower agricultural returns likely will lead to lower cash rents. How fast cash rents will come down is an open question. Share rent returns will react to the market; hence, share-rent returns will closely follow changes in market conditions. Just as share-rent returns moved up since 2006 as a reflection of higher agricultural returns, they will move down when agricultural returns are lower. This characteristic of share-rental arrangement may be an advantage, as renegotiations of cash rents do not have to occur during times of changing agricultural returns. It also could cause share-rent returns to be below cash rents in a declining agricultural return environment.