Extension offers tips on determining cash rent on Illinois farmland

URBANA, Ill. — One of the most consistently asked questions to University of Illinois Extension offices across the state is, what is the going rate for cash rent for farmland?

Cash rent rates are a common yet recurring question that is continuously researched. Before discussing averages and costs, dig deeper into the impact of determining cash rent.

Understanding cash rent

Most landowners are seeking an average cash rent amount to charge a farmer per acre for one year of land use. Overall, supply and demand determine cash rent levels for a farm. One reason it is often a question of Extension is that many landowners don’t know whether their farm is below or above average for the area.

Discovering averages

One way to better understand cash rent is by consulting a county average survey. The National Agriculture Statistical Service at the United States Department of Agriculture conducts yearly surveys of landowners and compiles the collected data. The data becomes the cash rent averages for every county in Illinois. Although the survey data is collected voluntarily and not verified, it is one tool to help establish averages for the exact county the land is in, as well as the surrounding area.

The statewide averages are one factor, but that doesn’t solely determine the cash rent total. Other considerations impacting the total include whether a professional farm manager manages a farm, specific average crop yields, supply and demand, soil quality, and overall farm returns.

Calculating cash rent

If averages do not meet expectations, individuals and farm managers often use an alternate formula for calculating cash rent using specific land information. The information needed includes a farm’s yields of at least three years (up to 10 years is best), a revenue factor, and per bushel prices for what is grown on the land.

The factor is the amount the landowner will capture of the estimated revenue the farm will produce using yield times estimated grain price per bushel.

The USDA estimates the average price per bushel expected for the coming crop year or the next year's delivery at the local elevator prices.

Here are two examples of calculating cash rent with corn and soybeans.

Corn example

Assume the landowner and farmer are negotiating cash rent for the coming year in late November after harvest.

2. The local grain elevator is offering $5 per bushel of corn for fall delivery of next year’s crop.

The owner has determined the average yield on the farm is 200 bushels per acre.

3. After consideration, the landowner offers a 38% factor or estimate of generated farm revenue, and the farmer counters with 35%. They reach an agreement at 36%. An example of the calculations (200 bushels per acre x $5 x 36% = $360 per acre cash rent)

Soybean example

Assume an average yield of 70 bushels per acre.

1. The USDA is estimating soybean prices to average $14 per bushel for the year.

2. The negotiated revenue capture factor is 42% (65 bushels per acre x $14 x 42% = $382 per acre cash rent)

In some instances, landowners consider averaging the soybean and corn rents together or prorating the crops by the percentage of the farm in each crop.

“As no method can be perfect, these calculations put a formula behind the numbers for cash rent,” says Kevin Brooks, University of Illinois Extension farm business management and marketing educator. “Being aware of changes in averages and conversations around cash rent is helpful when it comes to determining the amount.”

In spring 2024, the industry is seeing cash rents varied yet holding steady, with few seeing downward trends.

For similar topics, visit Illinois Extension at extension.illinois.edu/farm-management.

Follow along at the Farm Coach — University of Illinois Extension blog for more discussion, and reach out with questions to Kevin Brooks, Extension educator, at kwbrooks@illinois.edu or 309-543-3308. Note: Kevin Brooks is a licensed real estate managing broker in Illinois and manages farms.

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Illinois Extension leads public outreach for University of Illinois by translating research into action plans that allow Illinois families, businesses, and community leaders to solve problems, make informed decisions, and adapt to changes and opportunities. Illinois Extension is part of the University of Illinois Urbana-Champaign College of Agricultural, Consumer and Environmental Sciences.