|
 Cash
rent rates are a common yet recurring question that is
continuously researched. Before discussing averages and costs,
dig deeper into the impact of determining cash rent.
Understanding Cash Rent
Most landowners are seeking an average cash rent amount to
charge a farmer per acre for one year of land use. Overall,
supply and demand determine cash rent levels for a farm. One
reason it is often a question of Extension is that many
landowners don’t know whether their farm is below or above
average for the area.
Discovering Averages
One way to better understand cash rent is by consulting a county
average survey. The National Agriculture Statistical Service at
the United States Department of Agriculture conducts yearly
surveys of landowners and compiles the collected data. The data
becomes the cash rent averages for every county in Illinois.
Although the survey data is collected voluntarily and not
verified, it is one tool to help establish averages for the
exact county the land is in, as well as the surrounding area.
The statewide averages are one factor, but that doesn’t solely
determine the cash rent total. Other considerations impacting
the total include whether a professional farm manager manages a
farm, specific average crop yields, supply and demand, soil
quality, and overall farm returns.
Calculating Cash Rent
If averages do not meet expectations, individuals and farm
managers often use an alternate formula for calculating cash
rent using specific land information. The information needed
includes a farm’s yields of at least three years (up to 10 years
is best), a revenue factor, and per bushel prices for what is
grown on the land. The factor is the amount the landowner will
capture of the estimated revenue the farm will produce using
yield times estimated grain price per bushel. The USDA estimates
the average price per bushel expected for the coming crop year
or the next year's delivery at the local elevator prices.
Here are two examples of calculating cash rent with corn and
soybeans.
Corn Example
Assume the landowner and farmer are negotiating cash rent for
the coming year in late November after harvest.
The local grain elevator is offering $5 per bushel of corn for
fall delivery of next year’s crop.
The owner has determined the average yield on the farm is 200
bushels per acre.
After consideration, the landowner offers a 38% factor or
estimate of generated farm revenue, and the farmer counters with
35%. They reach an agreement at 36%.
Below are the calculations:
200 bushels per acre x $5 x 36% = $360 per acre cash rent
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Soybean Example
Assume an average yield of 70 bushels per acre.
The USDA is estimating soybean prices to average $14 per bushel for
the year.
The negotiated revenue capture factor is 42%.
65 bushels per acre x $14 x 42% = $382 per acre cash rent
In some instances, landowners consider averaging the soybean and
corn rents together or prorating the crops by the percentage of the
farm in each crop.
“As no method can be perfect, these calculations put a formula
behind the numbers for cash rent,” says Kevin Brooks, University of
Illinois Extension farm business management and marketing educator.
“Being aware of changes in averages and conversations around cash
rent is helpful when it comes to determining the amount.”
In spring 2024, the industry is seeing cash rents varied yet holding
steady, with few seeing downward trends.
For similar topics, visit Illinois Extension at
extension.illinois.edu/farm-management.
Follow along at the Farm Coach - University of Illinois Extension
blog for more discussion, and reach out with questions to Kevin
Brooks, Extension educator, at
kwbrooks@illinois.edu or
309-543-3308. Disclosure: Kevin Brooks is a licensed real estate
managing broker in Illinois and manages farms.
ABOUT THE BLOG: Illinois Extension's
Farm Coach blog helps farmers and landowners navigate the
rapidly changing farm management environment of today’s world. Farm
Coach is managed and written by Kevin Brooks, Extension educator for
farm business management and marketing, with Illinois Extension
serving Fulton, Mason, Peoria, and Tazewell counties. Disclosure:
The author is a licensed real estate managing broker in Illinois and
manages farms.
ABOUT ILLINOIS EXTENSION: Illinois Extension leads public
outreach for University of Illinois by translating research into
action plans that allow Illinois families, businesses, and community
leaders to solve problems, make informed decisions, and adapt to
changes and opportunities. Illinois Extension is part of the
University of Illinois Urbana-Champaign College of Agricultural,
Consumer and Environmental Sciences.
[SOURCE/WRITER: Kevin Brooks,
Extension educator, farm business management and marketing,
Illinois Extension
EDITOR: Jenna Braasch,
media communications coordinator,
Illinois Extension]
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