by: Barry Ward, Leader, Production Business Management & Director, OSU Income Tax Schools OSU Extension
Ohio cropland values and cash rental rates are projected to decrease in 2017. According to the Western Ohio Cropland Values and Cash Rents Survey, bare cropland values in western Ohio are expected to decrease from 4.4 to 8.2 percent in 2017 depending on the region and land class. Cash rents are expected to decline from 1.4 percent to 4.2 percent depending on the region and land class.
Ohio Cropland Values and Cash Rent
Ohio cropland varies significantly in its production capabilities, and consequently cropland values and cash rents vary widely throughout the state. Generally speaking, western Ohio cropland values and cash rents differ from much of southern and eastern Ohio cropland values and cash rents. The primary factors affecting these values and rates are land productivity and potential crop return and the variability of those crop returns. Soils and drainage capabilities are the two factors that most influence land productivity, crop return and variability of those crop returns.
Other factors impacting land values and cash rents are field size and shape, population density, ease of access, market access, local market prices, potential for wildlife damage, field perimeter characteristics, and competition for rented cropland in a region. This fact sheet summarizes data collected for western Ohio cropland values and cash rents.
2017 Study Results
The Western Ohio Cropland Values and Cash Rents study was conducted from February through April in 2017. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were farm managers, rural appraisers, agricultural lenders, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.
The study results are based on 120 surveys returned, analyzed and summarized. Respondents were asked to group their estimates based on three land quality classes: average, top, and poor. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class. Survey results are summarized for western Ohio with regional summaries (subsets of western Ohio) for northwest Ohio and southwest Ohio.
Factors Affecting Cash Rental Rates
Ultimately, supply and demand of cropland for rent determines the cash rental rate for each parcel. The expected return from producing crops on a farm parcel and the variability of that return are the primary drivers in determining the rental rates. Many of the following factors contribute to the expected crop return and the variability of that return. Secondary factors may exist and could affect potential rental rates. These secondary factors are also listed.
Expected Crop Return
Rent will vary based on expected crop return. The higher the expected return, the higher the rent will tend to be.
Variability of Crop Return
Land that exhibits highly variable returns may have rents discounted for this factor. For example, land that is poorly drained may exhibit variability of returns due to late plantings during wet springs.
Factors Affecting Expected Crop Return and Variability of Crop Return:
Land (Soil) Quality: Higher quality soils translate into higher rents.
Fertility Levels: Higher fertility levels often result in higher cash rents.
Drainage/Irrigation Capabilities: Better surface and sub-surface drainage of a farm often results in better yields and higher potential cash rent. Likewise, irrigation equipment tied to the land will allow for higher yields, profits and rents.
Size of Farm/Fields: Large farms/fields typically command higher average cash rent per acre due to the efficiencies gained by operators.
Shape of Fields: Square fields with fewer “point rows” will generally translate into higher cash rents as operators gain efficiencies from farming fields that are square.
Previous Tillage Systems or Crops: Previous crops and tillage systems that allow for an easy transition for new operators may enhance the cash rent value.
Field Border Characteristics: Fields surrounded by tree-lined fencerows, woodlots or other borders affecting crop growth at the field edge will negatively impact yield and therefore should be considered in rental negotiations.
Wildlife Damage Potential: Fields adjacent to significant wildlife cover including woodlots, tree lined fencerows, creeks, streams, and such may limit production potential to border rows and should be considered in rental negotiations.
Secondary Factors Affecting Rental Rates:
Buildings and Grain Storage Availability: Access to machinery and grain storage may enhance the value of the cropland rental rate.
Location of Farm (Including Road Access): Proximity to prospective operators may determine how much operators are willing to bid for cash rents. Good road access will generally enhance cash rent amounts.
USDA Farm Program Measurables: Farms that participate in the USDA Farm Program and have higher “program yields” may command higher cash rents than non-program farms.
Services Provided by Operator: Operators that provide services such as clearing fence rows, snow removal and other services may be valued by the landowner. This may even be a partial substitute for cash rent compensation.
Conditions of Lease: Conditions placed on the lease by the landowner may result in fewer prospective operators and a lower average cash rent.
Payment Dates: Leases that require part or all of the rent to be paid early in the year (up-front) may result in lower rental rates due to higher borrowing or opportunity costs for the operator.
Reputation of Landowner/Operator: Reputations of the parties may play a part in the cash rental negotiations. A landowner with a reputation of being difficult to work with may see cash rents negatively affected by this reputation. Farmers with a similar negative reputation may have to pay higher rents.
Special Contracts: Farms with special contract commitments may restrict the operator from changing crops based on market conditions. This may negatively impact cash rents. There may also be contracts that positively affect cash rents such as high value crop contracts or contracts for receiving livestock manure.
To access the complete summary go to:
https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents