Farm rental rates for 2008 and beyond

By David Bau, University of Minnesota Extension

ST. PAUL, Minn. (6/23/2008) — I receive many calls each day about what is a fair rate for farmland rental. To provide a source of rental rates, the University of Minnesota Center for Farm Financial Management has utilized FINBIN data to report and forecast farmland rental rates. 

The publication is available at the Center’s website at http://www.cffm.umn.edu/Publications/FarmMgtTopics.aspx. The publication is titled “Rental Rates for MN Counties - 07.” The 2008 addition will be available in June. You can find rental information for your county in the publication titled “Crop Rental Rates for Minnesota Counties” by Gary Hachfeld, William Lazarus, Dale Nordquist and Rann Loppnow. The FINBIN database found at www.finbin.umn.edu can also be used to look at crop information for your county and select a crop to look at average rental numbers.

In the 2008 edition of the Farm Resource Guide, there is a form titled “Operator’s Cash Rent Worksheet” that indicates what a farmer can pay for farmland rent after paying for the higher 2008 input costs, paying the farmer a labor charge and assuming constant farm program payments. The example indicates a farmer could pay $151.50 toward rent. This number was determined by a 170-bushel corn yield at $3.00 and 50-bushel soybean yield per acre at $7.50. Current prices offered for 2008 corn and soybeans are $5.00 and $13.00 respectively.

With these prices farmers could afford to pay rental rates of $250 per acre. But that would leave the risk entirely with the farmer. So what is a fair rental rate? In 2008, rental rates have increased dramatically as commodity prices have increased to record levels.

Crop insurance policies protect some of this risk. Coverage levels vary from 65 to 85 percent  and the cost and protection levels increase as the percentages increase. Still, the farmer could experience a loss if rents were set assuming normal yields and current record prices.

So how should a farmer proceed? Share the risk. Set a base rent on a 75 percent production level with a labor charge and input costs covered. A recent example would indicate base farmland rental rates of $125 to $135 per acre. If prices hold and yields are comparable to APH (Actual Production History) averages, a farmer could share the extra 25 percent of the yield and prices offered at harvest equally with the landlord by adding this amount to the 2009 base rent.

Any use of this article must include the byline or following credit line:
David Bau is an agricultural business management educator with University of Minnesota Extension.

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URL: http:// www.extension.umn.edu/extensionnews/2008/farmrentalrates.html  This page was updated June 23, 2008 .
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