Volatility in grain prices, changes in input costs and now the increased variability in Iowa crop yields due to this summer's abnormally dry weather could make setting 2013 cash rental rates even more challenging. Steve Johnson, Iowa State University Extension farm management specialist in central Iowa, says flexible cash rent leases are something to consider as a way for both landlords and tenants to cope with the increased risk involved in renting cropland.
In this article, Johnson explains flexible cash rent leases and takes a look at the performance of a flex cash lease for the past five years using a central Iowa farm lease as an example.
Will cash rental rates for cropland continue to rise in 2013?
The Iowa State University Extension cash rental rate survey released in May with 1,419 respondents indicated the average market value for cash rent in the state for 2012 is $252 per acre, an increase of nearly 18% over 2011. That's a jump of $38 per acre following a $30 per-acre increase the previous year. Cash rental rates have risen throughout Iowa, especially since 2010 with the higher grain prices.
So, will cash rental rates continue to rise in 2013? The rate of cash rental rate increases will likely slow, says Johnson. That's because drought conditions have cut into the 2012 yields of most Iowa farms. Despite the higher crop prices, most operators will have fewer bushels to sell. That means lower gross revenue per acre in order to pay cash rent. Some operators might have to use crop insurance loss proceeds to make final 2012 cash rent payments.
* Flexible cash lease use to increase. Another way to share the risk between landlord and tenant is to use a crop share rental arrangement such as a traditional 50-50 crop share lease. "Crop share arrangements were probably more fair to both parties in 2012 than many fixed cash rental arrangements," notes Johnson. "Since yields varied statewide, at least the yields on those particular farms are reflected in the amount the landlord receives in rent."