Varley Law Office PLC

Varley Law Office PLC
201 NE 2nd ST, Stuart, Iowa 50250; (515) 523-2456

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Sunday, August 14, 2011

2011 Farm Cash Rent Update

© _ _ _ Now is the time dictated by Iowa law to begin negotiating crop land leases for 2012 or at least notify your tenant/landlord, as the case may be, if you wish to change any of the terms in your current leas. (Remember that mutual consent is required if you want to make changes in the middle of a multi-year lease.)
_ _ _ If you wish to terminate a cropland lease ending March 1, 2012, and have not already done so, you must serve notice in the manner set out in Iowa Code §562.7 on or before September 1, 2010. This statute does not apply to forage land leases (pasture and hay) or custom farming arrangements, but by tradition, many farm operators have come to expect notice by September 1 and may become surly or even confrontational if notice is delayed past that date.
_ _ _ Basing cropland rent on the CSR (“corn suitability rating” or in some regions “crop suitability rating”) of the soil in question is the most accurate and fair way to arrive at a comparable rent [See Computing a Cropland Cash Rental Rate: http://www.extension.iastate.edu/Publications/FM1801.pdf]. As Hertz Farm Management, Inc., has noted, cash rental rates have tended to lag behind the run up in farm land prices [http://www.hfmgt.com/newsletter/pdf/2011summer.pdf]. Below is a table of farmland values and cash rents from last year's ISU surveys in counties for which I prepare farm land leases:

_ _ _ There is considerable variation, because the quality of the farmland sold does not necessarily correlate with farm leases that were surveyed, either of which might vary from the county's average CSR. In addition, these figures do not reflect the sharp increase in farm land values since last year. Below is a table of farmland sales for Adair County in the spring of this year:

_ _ _ If you throw out the bargain sales and the “through the roof” sales, you see a floor of about $66.66/CSR pt for middling 50 CSR ground and a median range of $73 to $110 / CSR pt for better quality farmland which would predict rent in the $160 to $400/acre range (assuming the historic 4-5% return on investment on farmland). That coincides with the negotiated farmland leases I have written this year, which fall in the following table:

CSR RANGE * * * * * * * MEDIAN RENT/CSR pt
_ 45-55 . . . . . . . . . . . . . $2.20 - 2.80
_ 56-65 . . . . . . . . . . . . . $2.75 - 3.25
_ 66-75 . . . . . . . . . . . . . $3.20 - 3.50
_ 76-85 . . . . . . . . . . . . . $3.30 - 3.60
_ 86-99 . . . . . . . . . . . . . $3.50 - 3.80

_ _ _ This is a considerable jump from the $3/pt that predominated the rents on good quality farm land in this area for the last couple of years. This has sparked considerable interest in flexible or variable rent leases, including hybrid share leases, bushel leases, and net share leases. These types of leases are more complex than cash rent leases, but allow the landlord to share in the returns (as well as the risks) of production and if properly structured afford the landlord the opportunity to take advantage of special use valuation in the event federal estate tax is a concern (current exemption is $5 million per individual or $10 million per married couple).
_ _ _ Good luck with your negotiations! _ _ _ ©2011