Is $620 Per Acre Cash Rent an Anomaly or the New Norm?

If cash rent leases are negotiated via auction, Jim Rothermich is seeing prices drawing double – even triple digit gains. In Illinois, prices are up 90% to 120% compared to the previous year.
If cash rent leases are negotiated via auction, Jim Rothermich is seeing prices drawing double – even triple digit gains. In Illinois, prices are up 90% to 120% compared to the previous year.
(Farm Journal )

As farmers making planting preparations, cash rent negotiations are also underway in some areas. 

Jim Rothermich, a land appraiser for Iowa Appraisal, is working to crunch the cash rent numbers available today. He says cash rent prices vary this year, with the largest increases in the cash rent auction market. If leases are negotiated via auction, Rothermich is seeing prices drawing double-, even triple-digit gains.

“The year-to-year leases that are privately negotiated have stable prices,” says Rothermich. “The three-year leases that are privately negotiated, are 5% to 10% higher. And then if it goes to cash or in auction, I’m seeing in Iowa anywhere from 25% to 70% increase in cash rents from the previous rent. In Illinois, I’m seeing 90% to 120% increase from the previous rent.”

 

As Rothermich watches the cash rent market explode, he says it’s all driven by fundamentals, supply and demand, but also a new online avenue to cash rent.   

“What we're finding out is the demand far exceeds the supplies, and the rent goes up exponentially when it's exposed to the market,” says Rothermich.

However, it's also key to note the number of cash rent leases is very small today. While there's no data that can give an exact percent, Rothermich says it's very small. Which is another reason why land that is negotiated on the auction market is drawing such eye-popping prices. 


Related Story: A New Way to Rent Ground Is Gaining Traction — With Cash Rent Bids In Illinois Topping $600 Per Acre


Cash Rent Auctions

Chris Baumann is the CEO and founder of CommonGround, which was formerly known as Cashrent.com, a company that facilitates cash rent auctions online. 

“Before it was word-of-mouth or coffee-shop talk, asking how do I find a different farmer?” he says, “Now, every farmer in our database, as soon as the farm is listed, it is pushed out to every tenant farmer that's registered with us within a 60-mile radius.”

Only a small percentage of leases are currently facilitated via an auction. However, Baumann is seeing more and more interest every day.

“Over the last two and a half years, our average landowner experiences roughly 39.5% increase in ROI,” says Baumann. “We've seen some contracts that haven't been negotiated in years, and they've gone from 60% all the way up to 120% increase in ROI.

record cash rent

Cash Rent Prices Shoot Higher

The highest cash rent auction price with CommonGround happened this month in Illinois. A landowner, who lives in Arkansas, listed a portion of the ground he owns in Fulton County, Ill. 

“Previously, I think he was getting around $260 an acre, and he put it up online, and he wound up getting $495 as a high bid,” says Baumann.

Impressed with the price, the landowner decided to try again with another piece of ground also located in Fulton County, Ill.

“Immediately the next day, he put his next piece up, and that wound up getting $620 an acre, which was absolutely unheard of in the area,” says Baumann.

In comparison, the National Agricultural Statistics Service (NASS) reports the average cash rent for Illinois in 2022 was $243 per acre, up $16 from 2021. That's a record for Illinois, surpassing the previous high of $234 set in 2013, according to University of Illinois’ farmdoc Daily.

University of Illinois data

Highest Bid Doesn't Always Win

Even with record prices and large increase in the price, Rothermich points out it’s not always the highest bidder who wins. 

“Landlords are in the driver's seat on a on a cash rent auction, and they decide the terms,” says Rothermich. “They might require the tenant to use cover crops or use certain farming practices.”

In fact, according to Baumann, many times, the landowner cares more about how the land is prepped and cared for, than they do final price.

“It is not solely based on price,” he says. “I would say more often it is not the highest bid that wins. Our landowners make a decision on a myriad of reasons. Maybe somebody wants to give a young farmer a shot at growing his operation to keep him on the farm. That happens quite often.”

Rothermich points out an auction is true price discovery, but not all landowners will win in this new cash rent environment.

“If you are a high-cost renter, if your breakeven points are high compared to the average farmer, and you're not a good steward of the land, you are going to lose in this environment," he says. "There's no question about it.”

Who's Driving Up Cash Rent Prices? 

The concept of cash rent auctions is becoming a hot button topic for farmers, with fear of what it will do to cash rents overall. Some farmers say there’s little upside for farmers, and as information flows more freely, it actually removes the last few bits of security for renters.

“I would say we're not driving up cash rental rates, it's your fellow farmers that are actually being more competitive, more aggressive,” says Baumann.

Rothermich understands farmers’ concerns, but on the flip side, record farmland sales have sparked more interest from landowners questioning what’s fair market price if they’re currently getting enough for cash rent. 

“This is what I hear the most from landowners, they say two years ago, my tenant told me that they couldn't pay any more rent because the input prices went up so much. They’re also telling me this year they can't pay more because input prices are going up so much. And landowners are saying they don’t know if they believe the farmer’s not making any money,” he says. "That’s really what is getting the questions going; they're seeing these high land prices and their income on their farm for cash rent has not changed.”

Illinois Posting the Record Cash Rent Prices 

While Iowa has been the hotspot for record farmland prices, Rothermich points out Illinois is leading the way for record cash rent.

“With the information I get from Illinois, that's even a hotter market in Illinois, and there are farms that have went from the $300 acre range to $600 an acre rent for a three-year term,” says Rothermich.

As more landowners opt to privately negotiate terms, but both Baumann and Rothermich think cash rent auctions could continue to gain traction across the U.S. 

Related Stories:

A New Way to Rent Ground Is Gaining Traction — With Cash Rent Bids In Illinois Topping $600 Per Acre

 2023 Cash Rent Outlook: Be Ready for Higher Rates

Rental Rally: Don’t Let High Cash Rents Sink The Farm
 

 

 

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