Rental rates, variable cash rent agreements on the rise
Cash rent rates could be up by as much as 20 percent next year, according to an ag real estate expert.
Randy Dickhut, Senior Vice President of Real Estate Operations with Farmers National Company, says the increase is driven by high commodity prices and yield expectations.
But, he tells Brownfield rising input costs are decreasing net farm income are leading to lower-than-expected rates. “We’re thinking that the rents would be up fairly significantly and then as the past few months went along, we saw some input costs specifically fertilizer increase pretty dramatically,” Dickhut says.
Dickhut says the cost to fertilize a soybean and corn rotation could be up 50-60% in some cases.
He says cash rent rates will vary across the Corn Belt. For example, “the Northern Plains being very dry, crop yields being down, how much crop insurance will make up for that and then other areas in the corn and soybean belt that are drier yields won’t be quite as good.”
Farmers and landowners who enter variable cash rent agreements have less pressure to reach a deal, according to the University of Illinois.
Dickhut says the agreements become more popular when commodity prices are high. “Where there’s base rent plus based on yield and prices or gross revenue. In other words, there’s an additional that could be due if that gross revenue would be higher than the base rent would allocate.”
He says landowners and tenants should have their agreement in writing and consider these questions: “Clear on the term of the lease. Is it one a year? Is it automatically renewable? Is it not? Is it multi, 2- or 3-year lease and what those rental rates are?”
Dickhut says the final language should include who shares the cost and risk of adding conservation measures to the land.
Randy Dickhut, Senior Vice President of Real Estate Operations with Farmers National Company: