A New Way to Rent Ground Is Gaining Traction — With Cash Rent Bids In Illinois Topping $600 Per Acre
It's been said records are meant to be broken, which was certainly the case for land auctions in 2022. Cash rents are following suit, and a relatively new concept in the auction world is gaining traction among landowners and farmers.
According to Jim Rothermich of Iowa Appraisal, cash rent auctions are exactly as they seem: The landowner places a piece of farm ground up for lease in an open and transparent auction format.
“Rent auctions provide true open market rental valuation and answer the question: What will the market bear for my ground,” Rothermich says. “Farmers bid based on how much they would pay per acre to farm the ground for the specific lease term.”
Related story: 2023 Cash Rent Outlook: Be Ready for Higher Rates
Many landowners like that through a case rent auction they can offer a farm lease to numerous qualified growers in the area, he adds. From a farmer's perspective, a cash rent auction provides an opportunity to grow their operation in a transparent manner.
The cash rent auction concept is drawing interest across the country, he adds, shedding light on the challenging task of keeping track of just how much cash rents have climbed. Traditionally, land-grant universities track cash rental rates. However, with the rapid increase in cash rents, university data isn’t keeping pace with reality. Rothermich says he’s trying to collect as much data as possible, but it’s a market where the data, including prices, aren’t always made public.
$600 Cash Rent?
Just how high are cash rent prices today? Recently, in Christian County, Ill., an area bank took bids on 450 acres up for cash rent. While the process wasn't through a cash rent auction, it still drew high interest, and an eye-popping amount. The highest cash rent offer hasn't been confirmed, but a source who submitted a bid says he knows the final cash rent price tag was more than $660 per acre.
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.
The Growing Trend of Cash Rent Auctions
Considering the number of cash rent auctions currently taking place or being explored, Rothermich says he thinks it’s a trend that will continue to grow.
“The amount of cash rent auctions is increasing exponentially,” he says. “I believe this is in part due to the increase in technology and its ability to reach a broader market of willing tenant farmers.”
Landowners are showing interest, as well, as they see it as a way to find true price discovery in the market and realize the full value of their land.
“Cash rent auctions provide an open, transparent and competitive marketplace, which allows for a true market price equilibrium to be established,” Rothermich adds. “The landowner can also review a farmers’ profile and select a suitable tenant based on specific criteria that is important to him. The landowner can choose whichever farmer meets their specific criteria. The landowner is in the drivers’ seat."
Impact on Farmers
What’s in it for the farmer? Some farmers fear this will only further drive up cash rents, a cost that is slow to come down if commodity prices do crumble. However, Rothermich sees cash rent auctions as a positive for farmers.
“This provides many area farmers a fair shot at an available farm, which gives them the opportunity to grow their operation,” he says. “Growing a farm operation is done by either buying more ground or renting more ground. With farmland inventory low, and sale prices at record highs, renting more ground is becoming a much more desirable option for many growers. Cash rent auctions allow many area farmers to have the same opportunity to grow their operation and operate on an even playing field.”
Like numerous other aspects of farming, cash rent agreements have evolved from word of mouth and a handshake.
“Just as farmers welcomed technology into the cab and in the field, which has provided yields previously unimaginable, they are welcoming technology to help them grow their operation,” Rothermich adds.
Related Stories:
2023 Cash Rent Outlook: Be Ready for Higher Rates
Rental Rally: Don’t Let High Cash Rents Sink The Farm
