Now is the time dictated by Iowa law to begin negotiating crop land leases for 2022 or at least notify your tenant/landlord, as the case may be, if you wish to change any of the terms in your current lease. (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 or pasture lease ending March 1, 2022, 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, 2021. This statute does not apply to custom farming arrangements, but by tradition, many farm operators have come to expect notice by September 1.
Basing cropland rent on the current CSR2 (updated “corn suitability rating” assessment) 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: https://www.extension.iastate.edu/agdm/wholefarm/pdf/c2-10.pdf]. You can calculate a CSR2 for your farm [http://websoilsurvey.nrcs.usda.gov/app/WebSoilSurvey.aspx] or get it from your assessor information [http://www.iowaassessors.com/]. Below is a table of farmland values and cash rents in counties for which we prepare farmland leases:
The table above is based upon averages from sometimes limited survey results, but it does give a general idea of what the market for Iowa farmland looks like. The predicted annual rental is based on a 3% ROI. Land prices continued their downward slide in 2020 but rebounded sharply in 2021, driven by strong commodity prices and trade resumption, and supported by very low interest rates, anxiety about inflation and a rebounding economy. Farmland appraiser Jim Rothermich (iowaappraisal.com) notes strong non-farmer, investor demand for Iowa farmland and sees an average price for cropland topping $10,000/a in the second half of the year, at an average of $145/CSR2pt. This is bound to put upward pressure on cash rental rates, so we used top third survey averages to compensate for the time lag in the survey results. As this pushes cash rent toward and past $300/acre, there will be renewed interest in flexible rent and custom farming arrangements. A good discussion of the risks and rewards of alternative agreements can be found here: https://www.extension.iastate.edu/agdm/wholefarm/html/c2-01.html
Based on the leases we have seen so far this year, the following table shows where cash rents are shaking out compared to the quality of the soil based on CSR2 ratings.
We will try to update this as we get more information.
Please contact our office if we can be of assistance. Good luck with your negotiations!
Sincerely,
©2021
