Calendar | Logan County Extension Unit | Ag News Elsewhere [fresh daily from the Web]

 Special feature from the 2013 Farm Outlook magazine

What do the trends tell about cash rent vs. share rent?

By Derek Hurley

Send a link to a friend 

[October 31, 2013]  With the advent of tough economic times, it is becoming more common for people to rent a property or rent-to-own their possessions. The practices of rental agreements extend into the farming community. Those farmers who do not own the land that they work, or the equipment they use, turn to rental agreements such as cash rent or share rent in order to keep their farming business running more smoothly.

The questions before us now are: How much success comes with these agreements? Is there a trend between the two?

In order to find answers, we have to start with an established definition for these types of land agreements.

Cash rent involves property rental in which the farmer pays the property owner a lump sum per year for use of the farmland. In addition, the landowner may supply extra resources along with the use of the land. Crop marketing and the timing of input purchases fall as the responsibility of the tenant, along with the management of tasks associated with federal aid.

Share rent, or sharecropping as it is also called, is similar to cash rent, save that the landowner gets a share of the resulting crop. Under this type of agreement, the farmer and landowner share crop revenues and production costs; however, both parties also share the financial risk.

With these definitions in mind, we turn to experts such as economist Nick Paulson and Professor Gary Schnitkey. Paulson and Schnitkey both provide findings on these agreements via the University of Illinois Agricultural Extension and their farmdoc project.

In 2011, the University of Illinois Agricultural Extension began looking for a trend concerning these practices. According to those findings, cash-rent levels increased by 70 percent between 1990 and 2010. Increasing cash-rent levels represented a concern for farmers in Illinois. Between 1990 and 2010, the average cash rent in Illinois increased from $100 per acre to $169 per acre, according to the USDA.

In addition, the findings stated that over the past decade there has been a shift away from share-rental agreements to cash-rent arrangements in Illinois. The average ratio of acreage that operated under a share-rent agreement fell from about 48 percent in 1997 to 37 percent in 2009. Acreage under cash-rent agreements, on the other hand, increased from just over 25 percent to around 40 percent.

In essence, from those decades we can see a trend of farmers turning away from sharecropping and moving to cash-rent agreements.

In the years that have followed this earlier study, has that trend continued?

In August of this year, data from Illinois Farm Business Farm Management was used to calculate returns to share-rent landowners during the period from 2000 through 2012. Share-rent landowners' returns increased after 2006. Returns for high-productivity farmland averaged $343 per acre in 2011 and $371 in 2012. These returns were above those of average cash rents.

Average cash rents were $179 per acre in 2008, $183 in 2009, $189 in 2010, $203 in 2011 and $231 in 2012. From 2008 through 2012, cash rents averaged $197 per acre, while share-rent returns averaged $298 and $272 per acre for high- and low-productivity farmland, respectively.

The data for share rent in 2013 is not yet available.

[to top of second column]

On the other hand, the data for cash rent in 2013 has been released by the Illinois Society of Professional Farm Managers and Rural Appraisers. In addition, the organization was able to create some predictions for 2014.

  • For excellent-quality farmland, the 2013 cash rent averaged $388 per acre and the 2014 cash rent is expected to be $374 per acre, a decline of $14 per acre.

  • For good-quality farmland, the 2013 cash rent averaged $332 and the 2014 cash rent is expected to be $318, a decline of $14.

  • For average-quality farmland, the 2013 cash rent averaged $278 and the 2014 cash rent is expected to be $263, a decline of $15.

  • For fair-quality farmland, the 2013 cash rent averaged $224 and the 2014 cash rent is expected to be $212, a decline of $12.

Lower commodity prices have occurred in recent months, and this has led to lower projections of 2014 agricultural returns. Lower returns will have an effect on expectations of 2014 cash rents. Overall, 2014 cash rents are expected to be slightly below 2013 levels.

The continuing movement away from share-rent leases to cash-rental arrangements is likely not because of financial returns. On the contrary, share-rent returns on average continue to remain higher than those of cash-rent operations. Looking at the data released by official organizations, it seems that farmers are likely moving toward cash-rent agreements in order to retain more of the return generated by the land they work.

In addition, it is suggested by researchers at the University of Illinois Agricultural Department that a simpler cause may be an aging farming population that prefers the simpler bookkeeping that comes with cash-rent agreements.

Comparison of share-rent returns with cash rents will continue to be of interest in the future. If the current data provides any indication, it is likely that in an effort to find success, farmers renting land will continue to move to cash-rent practices.


Articles cited:

< Recent articles

Back to top