LANDOWNER RESOURCES_Land Value Surveys

Expected Rent Reports

We calculate Expected Rent Rates® based on established historical relationships between rents and crop revenues. This concept is now gaining currency among agricultural economists.[2]

In many regions of the country, corn and soybean production are now often the highest value annual row crops for grain and oilseed production. As a result, our 2017 Expected Rent® analysis can be ordered by specifying either corn or soybeans as the base revenue crop to calculate Expected Rents®.

To calculate Expected Rents®, we begin by calculating expected revenue. This is derived by multiplying the average expected crop yield times the expected crop price. For expected crop yield, we obtain 10 years of historical county-level yield data. We remove the high and low yields and calculate the average yield of the remaining eight years. This is commonly called an "Olympic Average."

To calculate the expected crop price, we use the current price of the December 2017 corn future contract for rents based on corn production. For soybeans, we use the current price of the November 2017 soybean futures contract. If you order this report after February 2017, we will use the Projected Harvest Price as calculated by the Risk Management Agency, which oversees the government subsidized federal crop insurance program. For corn, this is the February average price of the December 2017 corn futures contract. For soybeans, this the February average price of the November 2017 soybean futures contract.

To calculate Expected Rents®, we multiply the expected revenue times a rent factor that represents the historical relationship of cash rents to gross crop revenue. For corn and soybean production, our research indicates that on average, farmers pay cash rent equal to 35% of gross crop revenue. In less competitive farming regions, or fields that are cut up with creeks, waterways or otherwise inefficient to farm, this rent factor can range as low as 25% of expected revenue.

Conversely, in highly competitive farming regions, or situations where farmers actively compete in lease auctions for the right to lease productive land, cash rents range up to 45% and higher of expected county average revenue. Farm operators who are above average in terms of their production skills or cost efficiencies may also bid cash rents up relative to what the average producer can pay over the long run. In addition, if a landowner is concerned that a tenant may not maintain the quality of land with regards to fertility or weed control, the landowner should require a cash rent above the 35% average historical relationship.

Our Expected Rents® reports include county-level Average Expected Rents® based on a 35% landowner share of expected revenues, as well as a high and low range of Expected Rents®, based on 45% and 25%, respective landowner shares of expected crop revenue.

Our Expected Rents® report is a valuable companion tool to our Cash Rent Survey Reports, which include county-level estimates of cash rental rates for non-irrigated and irrigated cropland and pasture for the last four years from USDA's annual cash rent survey.

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[2] Mykel R. Taylor and Kevin C. Dhuyvetter, "2012 Kansas County-Level Cash Rental Rates for Non-Irrigated Cropland", Department of Agricultural Economics, January 2013 http://bit.ly/KS2013 [^]


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