Determining a fair cropland rent for 2023?
With the end of the growing season, the next question is what is a fair cropland rent for 2023? It is a legitimate question and many people do not always like my first response, depends. I must ask a number of questions first; was the rent paid last year? Where are you located in the state, which county? What are typical yields on your farm? What is the demand for cropland in your area? Are you happy with your current renter? Is your renter a good steward of your cropland? Who will pay for lime, if needed? Who will receive any USDA payments? How many years is the rental agreement?
National Agriculture Statistics Service (NASS) gather cropland rental rates and this is a good source to begin a conversation. Here is a link: http://bit.ly/3UYuLWa. Now there will be an “on the street” rental rate and it may or may not be accurate. So, what should be involved to determine a cropland rental rate?
A method to consider is to know your market and then set a price in your market area. If you are happy with the relationship with your current renter, is it worth increasing or decreasing rent to continue working with this renter?
Can the landowner and/or cropland renter think in a different manner to determine a fair rental rate? The landowner has an investment in land and that land has a monetary value. If you had money to invest in a low risk investment, what would you like for a minimum return on your investment?
Now let us look at cropland as the landowner’s investment and the cropland renter as the financial company paying on that investment. From the NASS link from above, you may also find the value for cropland sold in Wisconsin in each county. Both parties may use an average sale price for negotiations to determine a rental price/rate. If both parties agree that cropland is worth $4,000.00 per acre and a desired return on investment for cropland is between 3% - 5% this would give a range of $120.00 - $200.00 per acre for a rental rate. Remember there may be other considerations (lime, conservation practices, USDA payments, etc.) not just a price per acre.
These numbers would provide a guideline in which both parties can negotiate a cropland rent price. Understand every situation will be different. So, who pays to apply lime to correct pH? Who pays for soil testing? If a landowner agrees to pay for lime then the rental price will be greater versus the cropland renter paying for the lime, which may result in a longer-term contract at a lower rate allowing the renter some reward for their purchased inputs.
Next many only want a verbal agreement. Understand verbal agreements are only enforceable for one growing season. It is wise to write things down, even if it is just the renter and landowner writing down their thoughts, dating, and then signing a hand written notebook paper. Once written it eliminates any he/she said situations. There are examples of crop rental agreements online, here is a link https://clark.extension.wisc.edu/agreements-leases/ . What is nice about these examples is they are word documents and you can download them and enter in terms you would like included in the agreement. One is a very simple agreement and the other has more details.
- Crop rent leases should be written, dated, and signed. Write out terms of the agreement. There are forms online or contact your local extension office for some help.
- Verbal agreements are enforceable, but can only be in force for one growing season, and many times people forgot what was verbally agreed on a year later.
- Rental rates are negotiations; there is no one price fits all.
- To determine rental rates knowing current land values is beneficial and may help in determining a return on investment of cropland.
Richard Halopka is a Senior Outreach Specialist and UW-Madison Division of Extension Clark County Crops & Soils Educator