Farm landowners: Setting rental rates
Submitted by Sara Berges, Allamakee SWCD
It can be very difficult for landowners to figure a fair rental rate. They need to be able to pay taxes and likely want to make a profit as well. But, landowners also have to consider how the commodity market prices impact the profitability of farming their land. Often, rental rates lag behind crop prices and tend to reflect past years prices more than expected prices for the upcoming year. Cash rental rates have fallen for the fourth consecutive year in Iowa, but have not fallen as dramatically as the commodity prices. However, the rental rates during the peak prices for corn and soybeans of 2012 were also lagging and had not risen at the same rate as the commodity prices.
Rental rates for farms should take into account soil types, productivity, fertility, topography, length of the lease, and additional services provided by the tenant. Also consider the tenant’s conservation ethic and how they manage the land. Maybe you, as a landowner, are willing to reduce rent if you know that your tenant is doing everything they can to reduce soil loss, improve soil health, and protect the value of your land. ISU extension has a publication entitled “Computing a Cropland Cash Rental Rate” that walks through some of the considerations for setting a rental rate.
Rent can be based on what others are charging. One source for information on this is the ISU Extension publication, Cash Rental Rates for Iowa. This reports rental rates in high, medium, and low-quality cropland in each county. To compare the rent rate for your farm, you’d need to know the yield to place it in one of the quality categories. However, this doesn’t take into consideration land management, topography, and soil health. Also, there are often low response rates, so it is difficult to know if these values accurately represent the county.
Rent can be based on average yields. If you choose this method, average 5 or 10 years of yields to account for good and bad years. The ISU Cash Rental Rate Survey also provides an estimate of rent per bushel of yield from the data they have.
Rent can be based on the Corn Suitability Rating System (CSR2). Each soil type in Iowa has a CSR2 value and is not tied to actual productivity or management. Values range from 0 to 100 with higher numbers indicating the potential for higher productivity. CSR values can be obtained from most NRCS offices or you can calculate your own utilizing information from the Web Soil Survey online. Because this value is based solely on the soil type, it does not necessarily provide an accurate representation of what the soil will actually produce based on past management, erosion, organic matter and fertility.
Another option is to calculate the return on investment taking into account the estimated current market value for cropland. ISU extension says cash rents for good cropland in Iowa have averaged 3-4% of current land value.
You may want to try several of the above methods and average out the results. Regardless of whatever method you choose to use when setting a rental rate, we encourage you to have a written lease. Lease templates are available from ISU extension. If you would like more information on the soils on your farm, your conservation plan, or conservation practices, stop by the NRCS office in Waukon at 635 9th St NW or call 563-568-2246 ext. 3.
