By Jack B. Davis, CPA
SDSU Extension Crops Business Management Field Specialist
Cash rents are under pressure as farm incomes continue to decrease. This leads to the question, “How do I determine a fair cash rent for my farm?” The expected return from producing crops on a farm parcel is the overriding factor in determining the demand for a farm and is the primary driver in establishing an equitable rental rate.
Factors to Consider
Ultimately, supply and demand of cropland for rent will determine the cash rental rate for each parcel. Local supply and demand of cropland will affect rental rates in any given community. Listed below are some factors that influence the cash rental rate for a specific farm parcel.
Rent will vary based on expected crop return. The higher the expected return the higher the rent will tend to be.
- Variability of Crop Return
Land that exhibits highly variable returns may have rents discounted for this quality. For example, land that is poorly drained may exhibit variability of returns due to late plantings from wet springs.
Higher quality soils translate into higher rents.
Higher fertility levels often result in higher cash rents.
Better surface and sub-surface drainage of a farm often results in better yields and higher potential cash rent.
Larger parcels typically command higher average cash rent per acre due to the efficiencies gained by operators.
- Ease of farming including:
- Location of Farm (Including Road Access): Good road access will generally enhance cash rent amounts.
- Shape of Fields: Square fields with fewer “point rows” will generally translate into higher cash rents as operators gain efficiencies from farming fields that are square.
Additional factors that may influence rental rates include, tillage or crop rotation, FSA Base acres, services provided by tenant, and reputation of landowner or operator.
The Big Picture
The current land rental environment is much different than it was 3 to 4 years past. There has been a large decrease in crop prices with limited adjustment in crop input costs. It is important that tenant and landlord communicate in order to continue a profitable option for both parties. If cash rents are held too high in the current commodity cycle the long term productivity of specific parcels may decrease. Ag lease 101 has valuable guides to aid in determining a fair lease.Click here to see more...