Cash Rent Questions
Cash rent questions continue to be the primary question I receive and it’s been hard for me to keep sharing numbers based on the UNL or USDA surveys as I question how useful the surveys alone really are. I caught up with Al Vyhnalek, Extension Educator in Platte Co. during the crop production clinics. Al’s specialty is risk management. He shared the following with me which may be helpful to you as well. This isn’t research-based or based on surveys; it’s based on land productivity and yield potential. But it’s another potential tool to reach a starting point for cash rent considerations. The numbers discussed below assume the landlord owns the irrigation equipment.
“Farmers and landowners alike want to know what they should offer or charge for farmland next year. The question is simple, while the answer is more complicated. There is no formula or equation available that will definitively provide an objective value for farm or pasture land. The caller wants to know what the UNL or USDA survey of cash rental rates says to help them determine the correct starting point for discussing cash rent for the following year. While I am glad to provide that information and do provide that information, I am more uncomfortable than ever in providing that information. Why am I not feeling good about that? Because the price of cash rent for a piece of farm ground should be based on the productivity of the ground. It is important to think about the value being tied to yield potential.
One quick way to do the calculation of productivity is to take the last 5 year average corn and/ or soybean yields for the farm you are renting times the local elevator price for 2012. This calculation equals the estimated gross income per acre. Take that number multiplied by 25-30% for corn or 30-33% for soybeans with the lower percentages for dry land crops and the higher ones for irrigated acres. It gets you to a starting point for that cash rent negotiation. Many want to set rent based on the 2011 high price of about $7.00 per bushel, but that price has never been available for the 2012 crop. Using the 2012 fall elevator price is more realistic of what might happen next year. Using this information as a starting point and combining it with the information from the surveys will help with fair negotiations of the cash lease. The example percentages were determined by working through UNL budgets when determining cost/acre.
As an example – 200 bushel irrigated corn times $5 per bushel (2012 harvest price) is $1,000 gross per acre. 30% of 1000 is $300 per acre (corn acres). Soybeans: 60 bushel beans times $11 per bushel is $660 times 33% is $220 per acre – landlord’s share. If we have 1/2 acres beans and 1/2 acres corn then average the two rent numbers – or $260 per acre average for the farm. That is how I think we should arrive at a discussion point for cash rents in the upcoming year based on productivity.” For more information, please contact Allan Vyhnalek, 402-563-4901 or e-mail AVYHNALEK2@unl.edu.