URBANA, Ill. — A University of Illinois Extension educator, farm manager and licensed real estate managing broker says he has determined a method for determining the “true value” of cash rent for farmland. Kevin Brooks is encouraging landowners to look beyond county cash rent averages that can be lower than the actual marketplace value for farmlands that consistently produce higher than average crop yields. Landowners who can prove higher than average yearly crop harvests of their farmland should not hesitate to seek a rental amount greater than their county’s average, according to Brooks.  

“The landowner can, to some degree, account for how their farm compares to average by comparing the average yields on the farm to the average county yield. The average (county) yield for each year is released in February following harvest. The average cash rent per year is released in August during the production year. If your farm constantly outperforms the county average, then your cash rent could then be established above the county average,” Brooks noted, in an Extension news release, Using the USDA Cash Rent Surveys for Determining the Going Rate.

“As an example, assume if the county average cash rent is $300 per acre on the USDA survey, and the average yield is 200 bushels per acre. Also in the example, your average yield is 220 bushels per acre for the past four years. You can deduce that your rent should be higher than $300 per acre. If your farm is ‘on the market’ and available for all farmers to offer a price for rent, the landowner can assume a higher rent can be attained.”

Brooks advises landowners to utilize the past 3-10 years of land yield data in determining the true going rate for their farmland. Next, a multiplication factor must be determined.

“The factor is the amount the landowner will capture of the estimated revenue that the farm will produce using yield times estimated grain price per bushel. This factor can be less for relatives or other special relationships between the farmer and the landowner. Some lease arrangements are higher but not common. The top end is sometimes 40 percent on corn and 45 percent on soybeans but is not common,” according to Brooks. “For normal arm’s-length transactions, this factor ranges from 35 to 38 percent on corn and 40 to 44 percent on soybeans.”

Next, a per bushel price needs to be determined. 

“The USDA estimates the average price expected for the coming crop year. Price estimates on fall-delivered grain prices for the coming year that can be contracted for while still in the current prior year at your local elevator. In other words, prices are already being offered at harvest time for this year’s crop for harvested grain in the coming year’s crop. At the end of February each year, Federal Crop Insurance minimum price guarantees are determined based on the grain market if the landowner wants to wait that long,” said Brooks. 

The average farm real estate value for Illinois in 2023 was $9,300 per acre, according to the most recent USDA survey, including the value of all land and buildings. Gary Schnitkey, U of I farm economist, determined that in a normal year, excellent quality farmland in Illinois averages over 220 bushels of corn per acre with a soil productivity index of 133 or higher. Good quality farmland averages between 200 and 220 bushels per acre, with a soil productivity index of 117-132. Average quality farmland averages between 180 and 200 bushels per acre with a soil productivity index of 100-116 and no irrigation, while fair quality farmland averages below 180 bushels per acre with a soil productivity index under 100.

An annual survey by the Illinois Society of Professional Farm Managers and Rural Appraisers found that cash rents for good quality land increased by $31 per acre from $322 in 2022 to $353 per acre in 2023. Average quality farmland increased from $275 per acre in 2022 to $285 per acre in 2023, an increase of $10 per acre. Fair quality farmland increased $8 from $215 per acre in 2022 to $223 per acre in 2023.

Looking ahead in determining 2024 cash rent amounts, the 2024 survey will be conducted in December 2023- January 2024, and reported during the 2024 Illinois Land Values and Lease Trends Conference set for March 21 in Bloomington, Illinois.

According to the Society, most farm managers expect 2024 cash rents to remain the same or decline from 2023 levels. Average declines are -$7 for Excellent farmland, -$5 for Good farmland, -$5 for Average farmland, and -$3 for Fair Quality land.

These factors and more should be taken into consideration when considering and negotiating 2024 cash rent amounts. Brooks advises that when entering into negotiations, landowners may want to consider averaging the soybean and corn rents together or prorating the crops by the percentage of your farm in each crop.