A common question in the ag community right now is, “What’s a fair land rental price?” If you guessed that the answer is not going to simply be a number, you are correct, and that would have made for a very short article.
Fortunately, we do have a starting point. OSU compiles data annually regarding rental rates through a survey campaign and publishes the results by region. Unfortunately, the region including Wayne County is not published publicly, as few surveys were returned. But first, what factors play into a thoughtful land rent agreement and a fair price?
To start, what are the costs to the landowner? Property taxes must be considered. Are there depreciation costs, interest from rising land prices, or a mortgage payment? Will insurance payments be lost if rented? In addition, the landowner would like to do a little better than break-even.
The second set of factors to consider involve the potential tenant. These include crop input costs, transportation, machinery ownership costs, labor, and management. In addition, this individual would like to make some net profit on crop sales.
Next, what is the land’s historical production record? What were the inputs and methods to produce those yields? A soil test should also be taken before the agreement is made. Are amendments needed? Who will pay for that? How far is the land from the renter’s main operation? The site characteristics are important too. Is the tract of land all adjacent and is the ground flat and convenient for cropping? Is the bordering land commercial, residential, agricultural, or something else? Lastly, what is the supply and demand? Are there other parcels of land available to price shop, or is this the last available tract?
Is the tenant going to provide any other services or improve the land? Are they family, friends, a stranger? How will they treat your property?
There are also several ways to calculate rental rates. A flat cash rate is the simplest and typically relies on data from those OSU rental surveys I mentioned or the USDA’s NASS report. They both provide an average. But, based on all the above questions, do you simply want to use an average from last year? This method will work for some, for others, it may not.
Another option is to decide upon a share percentage of the gross income. In many cases, the tenant will receive somewhere between 50-70 percent of the share. Again, this ratio should be determined by each party’s contributions to land improvement and costs associated in producing a crop.
The yield potential method simply multiplies a value per bushel by the expected yield in bushels. 2019 yield rental prices (reported in western Ohio) averaged $1.08/bushel for corn and then multiplied by the projected yield of an acre.
A fourth method tracks the sale value of land and the average rental rates to find a percentage. That reported percentage can be used in the following year. The 2019 value was 2.7%. So, simply take sale price of one acre and multiply it by 2.7% to determine the rental rate.
Flexible rental agreements provide safety for the tenant in low-yielding seasons and compensation to both parties when yields are good. Payment is finalized based on yield. An example on a per acre basis follows:
- Base rent of $120, with a maximum of $200.
- A base revenue is figured from past yield and projected crop value:
155 bushels multiplied by the expected corn price $3.90 = $604.50
- Excess yield share of 1/3 will go to landowner
- Actual revenue is calculated post-harvest:
180 bushels multiplied by $3.90/bushel = $702
- Revenue above expected yield: $702 - $604.50 = $97.50
- Share to landowner: 1/3 of $97.50 = $32.50
- Final rental price: (Base + excess yield share) $120 + $32.50 = $152.50/acre
*Values are only for example!
The USDA NASS reported an average cash rent of $125/acre in Wayne county. Ohio pasture rates are about $40/acre. The OSU survey’s price range for yields between 166-182 bushels/acre of corn was $95-$177 for the Northcentral region, which includes Wayne county.
Whatever is decided, get in in writing and both parties must sign! This is for everyone’s protection and should not be seen as a judgment of character on either side.
The 2020 Ohio Custom Farming Rates have also been published. Details available by calling our office or searching online.
Hiring Ag Educator
The Wayne County Ag Educator position is posted! Details at wayne.osu.edu or call 614-688-9675. Deadline to apply is October 18th.
Matthew Nussbaum is an OSU Extension Agriculture and Natural Resources Program Assistant and may be reached at 330-264-8722.
CFAES provides research and related educational programs to clientele on a nondiscriminatory basis. For more information, visit cfaesdiversity.osu.edu.