This article originally appeared in the Women, Land, & Legacy November 2013 newsletter.
In a previous Women, Land, & Legacy newsletter, the results of the Iowa State University 2013 Cash Rent Survey were discussed, including a statewide record-high average cash rent of $270 per acre!
Each year, the release of this survey generates a surge of questions as Iowa farmers and land owners seek to apply the numbers to their individual situation. Among the more popular questions are:
- How does this survey apply to my farm?
- Is my rent at an equitable level where both I and my farm operator are happy?
- At these rental rates, is my farm being properly cared for to protect my investment in land now and for future generations?
These are all valid questions. Unfortunately, the answer for each is different because each farm is different. In order to provide the best answers, we’d really need to take a closer look at your unique scenario. Please feel free to contact us if that’s something you’d like to consider.
In the meantime, there are some other questions that I hear quite a lot that I can answer in more general terms.
How do I establish a fair rental rate using this survey?
The survey does a nice job of breaking the state into districts and gathering relevant data for each county. The results are based on the quality of a farm and whether it’s above, below, or an average farm.
Referencing the Corn Suitability Rating (CSR) of your farm and comparing it to the county average CSR is also a good indicator when determining the quality of your farm.
Once you’ve determined the quality of your farm land, you can review the range of rental rates and decide where in the spectrum you should be, whether it’s the average price, or somewhere above or below that mark.
We do caution against strictly using this survey to establish a rental rate and encourage land owners to consider other factors, such as drainage tile, fertility, waterways, and other improvements that have been done to increase the productivity of the land. For example, drainage tile improvements made to an average quality farm may have increased the productivity, which would justify asking for a higher rental rate than what the survey shows.
When using this survey, it is always a good idea to fully evaluate your farm and its contents, along with consulting with an unbiased third party, when establishing your rental rate.
What measures do I need to take to ensure that my land is being properly cared for?
As the landowner, you are “The Boss,” and you get to determine how you would like your farm taken care of by the tenant. If conservation and stewardship matter, we always encourage landowners to dictate, in their written lease with the operator, the conservation measures they want applied to their farm. To name a few, we recommend implementing minimum fertility requirements, mowing waterways, spraying fence lines and terraces, just to name a few. Spelling these details out in the lease provides you and the tenant with an understanding of the expectations you have of them when operating your farm from the very beginning.
My farmer takes good care of me by plowing my snow, taking me to the doctor, and so on. I don’t feel I can justify raising the rent on him. How do I handle this matter?
We always ask the landowner to quantify what these extras are worth, and then determine the difference between the rent they are receiving and what the market rate currently is. This allows you to determine if the extra perks you are receiving from the farmer are equal to the income you are giving up by not charging a fair market rental rate.
Most of the time, these extras are not equal to the income forgone and there is a large difference between them. There is nothing wrong in working with a farmer to establish a rental rate that is fair to all parties involved, yet we advise landowners to review their situation to make sure they are not being taken advantage of. Oftentimes In these situations, a third party can be very beneficial in negotiations between landowners and tenants with long-standing relationships.
The Survey is Just a Start
There are many factors that go into establishing a rental rate – it’s much more than just pulling a number from a survey. Please take the time to fully understand what needs to be included in a farm lease, so your interests and the interests of the farm are preserved for future generations.