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Determining Land Rental Rates

Ag, corn, fieldRental rates for farmland in Dane County have increased dramatically over the past several years. The increasing demand for farmland in the county has been driven by higher commodity prices, larger livestock farms seeking more land for both manure disposal and feed, and larger equipment allowing grain producers to run more acres. The high cost and limited availability of land in the surrounding counties has also driven our land rental rates higher here as more operators seeking more land.

The most common questions that we receive are “How much should I pay to rent land?” and “How much should I charge for land rent?”. Unfortunately, there is no easy answer to these questions since there are many factors that influence land rental rates. These factors begin with the quality of the land and its soil type(s). Obviously, a deep prairie soil is more valuable than a shallow sloping hillside soil. Other factors that impact the value of renting bare land include the following:

Location, Location, Location:  For example, land parcels situated near large livestock farms will demand higher rent and similarly, land that adjoins other parcels that are already being farmed by another party will be more valuable.

Fertility:  Land value will be strongly influenced by soil fertility levels. Soil tests should always be requested when renting new farmland. Low soil fertility should equal lower rent.

Size of Parcel:  Smaller parcels will generally bring lower rental rates than larger parcels due to the costs associated with transporting large equipment from field to field.

Accessibility:  Fields with narrow, steep or poor road access for large farm equipment and tractor trailers will bring less rent than those fields bordering a paved road.

Contract Length and Payment:  The number of years that the land lease lasts and the timing of the required payments will impact the rental rate. The increased demand for renting land has led some landlords to require 100% of the payment up-front. There is usually a discount given on this kind of contract due to the time value of money. However, most contracts require half of the rental payment up-front and the other half at the end of the year.

Conservation Plan:  A farm that requires hay in the rotation and/or containing contour strips may bring lower rental rates since many grain producers consider these soil conservation requirements a disadvantage. As a result, fewer crop producers will find that land desirable to rent.

Personal Factors:  Factors such as personal friendship, snow plowing, timeliness of payment, and how the rented land has been managed by the operator often will impact rental rates.

 

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