2021 Iowa Farm Leases

Varley Law Office, PLC

Now is the time dictated by Iowa law to begin negotiating crop land leases for 2020 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, 2020, 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, 2020. 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]. In addition, you can calculate a CSR2 for your farm. 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 3.25% ROI.  Land prices have risen this year, driven by low interest rates and favorable commodity programs. To a lesser extent, rental rates followed land prices as they rose. Currently, there is a strong demand for land, but a limited supply. In addition, there has been an increase in the number of landowners engaging in custom farming. Ag commodity programs such as subsidized crop insurance and the market facilitation program have reduced risk, encouraging land owners to engage farm management companies such as Hertz Farm Management and Peoples Company, rather than opt for cash rentals, so they can take advantage of tax incentives available to operators. Things to keep an eye on include whether interest rates will remain low, the global response to the pandemic, and our trade policy with China.

Finally, with its growing popularity, it is important to know a little information regarding Hemp production in the State of Iowa. In May 2019, the Iowa Hemp Act was signed and this year the Iowa Department of Agriculture & Land Stewardship began issuing licenses to grow hemp. However, it is important that landowners know who they are leasing their land to if they plan on growing hemp on their land. If the hemp licensee grows hemp that fails the THC test, the entire crop will have to be destroyed. If the licensee fails to destroy the crop, the State of Iowa will come onto the land to do it. Moreover, if the operator cannot be found, the landowner will be assessed the costs of destroying the crop grown on their land.

Please contact our office if you have questions. Good luck with your negotiations!

Sincerely,                                  

VARLEY LAW OFFICE, PLC     

Warren A. Varley • Attorneys-at-Law • Karen K. Varley

201 NE Second Street

P. O. Box 235 

Stuart, Iowa 50250-0235

(515) 523-2456

FAX 866-297-7985

varleylaw@iabar.org

©2020

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

CASH RENT FARM LEASES

Now is the time dictated by Iowa law to begin negotiating crop land leases for 2010 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.)

Rents this year are leveling off or declining, in general. Rent on one farm I am involved with that always has competition among renters, went from $250/acre to $230/acre, this year. On the other hand, rent for a farm with a CSR in the low 60’s went from $175/acre to $200. [See also Cash Rental Rates for Iowa 2009]. The huge corn acreage, rising input costs and the slow economy are causing farm operators to bid more conservatively. Nevertheless, low interest rates and fear of inflation continue to keep land values high, which directly impacts farm rental rates.

This does not mean rent for your particular farm should go down, if the rent you charge has been stagnant or lagged behind the run up in recent years. At a minimum, you want to keep up with inflation. Not doing so is like putting your money in a savings account and paying the bank interest to keep it there. Though low, inflation as measured by the CPI was 3.8% last year and had been hanging around 3% for the four years previous. If you only raise your rent every 3 or 4 years, you should consider raising your ask by 10-12.5% just to catch up with inflation.

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]. As was the case last year, I think $3/pt will catch most of the rents on good quality farm land in this area.

If you wish to terminate a cropland lease ending March 1, 2010, 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, 2009. 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.

Speaking of pasture, the increase in corn acreage in recent years has resulted in a tighter supply of pasture land and correspondingly higher prices.

Good luck with your negotiations!

Cash Rent Leases

Now is the time dictated by Iowa law to begin negotiating crop land leases for 2009 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. (That requires mutual consent in the case of multi-year leases.)

Rents on the whole will rise this year. Aside from high grain prices, cash rents are at a historically low level in terms of their percentage of land value. (See William Edwards' excellent analysis for ISU extension.) As interest rates rise, land values will decline and with them, so will cash rental rates but at a slower rate as the return on investment moves back toward historic levels.

In the meantime, we are dealing with the current environment. Based on recent sales, land prices in the Adair and Guthrie County areas seemed to have topped out in the $60 to $65 per CSR point range. Using a 5% ROI on $60 per CSR yields a $3 per CSR point cash rent. I have seen cash rent as high as $4.75 per CSR point, but I think $3/pt will catch most of the rents on good quality farm land in this area.

A number of landlord/tenant negotiators are switching from cash rent to a hybrid lease in which the rent is paid in whole or in part in bushels of grain. The production decisions and production risk remain with the tenant (and its crop insurer) but the landlord assumes some of the market risk and relieves the tenant of some cash flow requirement, which is attractive to the tenant in this period of rapidly escalating input prices.

Good luck with your negotiations!

Cash Rent per CSR pt

CSR . . . . . . . $ Rent/CSR pt . . . . . . . Rent/acre

85-100 . . . . . . $2.75 . . . . . . . . . . . . . . $240-275

75-85 . . . . . . . $2.60 . . . . . . . . . . . . . . $195-240

60-75 . . . . . . . $2.50 . . . . . . . . . . . . . . $150-195

45-60 . . . . . . . . $2.40 . . . . . . . . . . . . . . $110-150

This is a rough guideline only: Tenants have to take into consideration factors like the lay of the ground, the area of point rows (which result in higher inputs and less yield), propensity to flood, proximity to other operations and grain storage, etc. These figures are for actual crop acres planted; tenants will not be able to pay this amount for the total acres on which landlords are taxed, which includes waterways, headlands, field borders, fencelines, and waste.