URBANA, Ill. — Average cash rental amounts for farmland in Illinois, Indiana and Iowa have increased by more than 100 percent since 2005. “Dramatic” negative returns for those planting corn or soybeans on leased farmland are predicted for 2025, following successive net income losses for farmers in 2023 and 2024. These economic conditions call for necessary adjustments to cash rental amounts, according to University of Illinois agricultural economists Nick Paulson and Gary W. Schnitkey.

“We saw a plateau in lease amounts in the 2015-2020 period, relative to the highs we experienced during the ethanol period. In the past couple of years we’ve seen rents on a higher trajectory reflecting the high incomes we experienced in 2021 and 2022. In 2024 the average cash rent for farmland in Illinois was $269 per acre, with a little higher average in Iowa ($276/acre) and lower ($228/acre) in Indiana,” Paulson said, during an October 24 farmdoc webinar that was aimed to equip both landowners and farmers with knowledge to navigate rent negotiations in a challenging economy. “We’ve basically seen cash rents more than double in the ‘I’ states in the last 20 years.”

Higher production costs that began in 2022-23 and lower commodity prices that are expected to extend into next year are combining to create a scenario of “dramatic” negative returns for cash-rented farmland in 2025, according to the U of I farmdoc team. 

“We did come into this situation with some very high incomes and good financial position, but I think we need to recognize that these are some of the largest negative returns that have been projected in at least the last few decades,” said Paulson. “This is very quickly eating up that additional liquidity and equity that was built up in 2021-22 in just a few years, given the extent of some of these negative returns.”

Schnitkey and Paulson said that due to the current conditions, farmers and landowners should work together to design a variable cash lease that can best benefit both parties, rather than relying on a standard cash or share rent agreement. 

“There has to be a minimum base rent built into that (variable agreement). From the landlord’s perspective, it will still provide a meaningful minimum for what they might receive for their land. It also means that the Farm Service Agency will consider it a cash lease which gets the landowner out of having to deal with farm program payments, signups and paperwork,” Paulson said. 

“There also needs to be a maximum level built in so that even if the formula that determines the rent suggests a higher level, it would be capped on the high side. We suggest these levels be set $100 above and $100 below what the average cash rent might be in your area. This allows for variability while putting those minimum and maximum amounts at realistic and meaningful levels,” he added. 

Variable cash rent determinants can be based solely on crop revenue. In this scenario, the farmdoc team recommends that farmland rent values in northern and central Illinois should be based on approximately 30 percent of corn revenue and-or 40 percent of soybean revenue. For southern Illinois, rent values should be set at 23 percent for corn and 30 percent for soybeans. 

Determining how to measure crop revenue can depend on many factors. Measuring yield can be conducted via scale tickets or yield monitor information, while market price averages can be gleaned from agreed-upon local grain elevators over a period of time. All strategies for evaluating appropriate rent levels should factor in returns, risk, soil quality, operator and landowner preferences and other factors.

“Rent levels will adjust to conditions, increasing in years of higher revenues and decreasing in  years of lower revenues,” said Paulson, before adding an important caveat: barring a dramatic change in current conditions and-or government ad-hoc payment intervention to farmers, likely not even the most well-crafted variable cash lease agreement will boost average farm revenue into the black in 2025. 

“One of the key things we’re seeing this year given the circumstances is that if the variable cash rent is based only on revenues, given the high costs that we are seeing we’d be looking at negative returns on average. That would not have been the case leading up to the year 2023. This highlights the high cost and lower price squeeze that farmers are seeing right now,” said Paulson.

Schnitkey called the scenario a “fundamental or at least one-year change in cost levels relative to revenue levels in such that variable cash rents no longer result in positive returns.”

The farmdoc team offers a free downloadable Farmland Leasing and Rental Form on www.farmdoc.com, where you can also find the archived webinar, “Balancing Act: Negotiating Farmland Rents in Illinois.”