An authoritative annual survey of cash rental rates for Iowa farmland, a bellwether for the national market, shows cost per acre have increased, but by no more than the rate of inflation. However, farmland rental prices for the lower quality land are up the fastest, suggesting someone has found a way to make use of low-grade farmland.
This is the fourth successive year of relatively stable rates at levels around 18% lower than the historical peak reached in 2013 at $270 per acre. The survey was carried out in early spring so the effect of the lockdown may yet change results later in the year.
In comparison, corn and soybean prices received by farmers in Iowa declined by 49% and 45%, respectively, since mid-2013. So the underlying value of the land could be said to have increased, while yields per acre are falling in cash terms.
The 2020 Iowa cash rental rate survey was conducted this spring by Iowa State University. Iowans supplied 1,592 responses, reporting typical cash rental rates in their counties for land producing corn, soybeans, hay, oats and pasture. Of these responses, 43% came from farmers, 32% from landowners, 13% from professional farm managers and real estate agents, 6% from agricultural lenders, and 6% from other professions and respondents who chose not to report their status. Respondents indicated being familiar with a total of 1.6 million cash-rented acres across the state.
Different regions experienced different changes in cash rents: from a 4.6% increase in Crop Reporting District (CRD) 3 to a 2.4% drop in CRD 9. Northern and central Iowa (CRD 1 to 6) have, on average, 21% higher cash rents than southern Iowa (CRD 7 to 9). The chart accompanying this article compares the results for 2020.
Results available by county
The survey compares farmland rental prices for each district by the quality of land — high, medium and low. Not all land qualities have seen their average cash rents increase proportionately. Looking at statewide averages, high-quality land experienced a 0.4% increase, from $256 per acre in 2019 to $257 in 2020. Medium-quality land experienced a 1.4% increase, from $220 per acre in 2019 to $223 in 2020. Low-quality land experienced a 2.7% increase, from $183 per acre in 2018 to $188 in 2020.
Average cash rents in Iowa, in $ per acre (nominal)
Detailed results by county and crop are provided on the ISU Ag Decision Maker article Cash Rental Rates for Iowa 2020 Survey, C2-10. There was considerable variability across counties in year-to-year changes, as is typical of survey data, but 59 counties experienced increases in average rents for corn and soybeans. The report also shows typical rents for alfalfa, grass hay, oats, pasture, cornstalk grazing and hunting rights in each district.
Some renegotiations expected
Federal government payments from the Market Facilitation Program and expectations of higher soybean exports to China by the time most cash rents were set (last September) were major factors supporting slightly higher cash rents for 2020, amid stable to declining crop prices. However, as of May:
* The implementation of the Phase 1 agreement between the U.S. and China is still under discussion.
* The coronavirus pandemic has brought worldwide economic activity to the brink of a protracted recession.
* Plummeting oil prices have slashed the demand for biofuels.
The resulting economic damage for Iowa in 2020 from this perfect storm has been estimated at $788 million for corn, $213 million for soybeans, over $2.5 billion for ethanol production losses and $347 million in losses due to falling ethanol prices. For livestock producers, estimated losses are $658 million for fed cattle, $34 million for calves and feeder cattle, and $2.1 billion for hogs. For a report on this study, read the CARD Policy Brief 20-PB, The Impact of COVID-19 on Iowa’s Corn, Soybean, Ethanol, Pork and Sectors.
Average cash rents by Crop Reporting District, in $ per acre
The federal government has implemented multiple efforts to provide a temporary lifeline to the farm sector through the Coronavirus Food Assistance Program, the Paycheck Protection Program, the Economic Injury Disaster Loan and the Economic Impact Payment, and other programs authorized by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). For more information on these programs, see COVID-19 Resources compiled by the ISU Center for Ag Law and Taxation.
However, these valuable programs are not expected to make corn and soybean farmers whole, and the current outlook suggests that some farmers would likely struggle to honor the 2020 cash rental rates agreed upon back in September. As a result, some renegotiations are to be expected.
Setting rents for next year
Survey information can serve as a reference point for negotiating an appropriate rental rate for next year. However, farmland rental prices should be based on productivity, ease of farming, fertility, drainage, local price patterns, longevity of the lease and possible services performed by the tenant.
Due to current and projected low crop prices, profit margins in corn and soybean production on cash-rented acres are expected to remain very tight to negative for a seventh consecutive year, putting downward pressure on rents for 2021.
The average return on investment for landowners who cash-rent their land to operators has followed a declining trend since the early 1990s, and it has stabilized at around 3% after 2010. This ratio is indicative of the expected rate of return on farmland rental prices by landowners. If land values continue to hold, then landowners might be reticent to negotiate lower cash rents for 2021. However, in a scenario of historically low and possibly declining interest rates, the opportunity cost for landowners would decrease and lower rates of return on farmland might become acceptable.