In the last blog series, I highlighted different farmland leasing arrangements commonly used across Illinois and much of the Midwest. This post explores cash rents further to understand the dynamic between farmland owners and tenant operators. Land is perhaps the most crucial asset in agricultural production, and determining who has access to land and what can be done with it is a vital role for farmland owners. 

Cash rent agreements generally take one of two forms: fixed-rate or variable-rate. A fixed-rate agreement is straightforward: the tenant operator pays a set rate per acre. This is the most common type of cash rent agreement that is used in Illinois. The other type, a variable-rate agreement, is slightly more complex. Under this type of agreement, the rate per acre can fluctuate based on various factors, including yields, market prices, or input prices. Each type of agreement has its advantages and disadvantages. Fixed-rate agreements offer clarity since both parties know exactly how much will be paid, and landowners can assume less risk since the rate is not subject to volatility and fluctuations. Variable-rate agreements can benefit the tenant by offering a “fairer” rate based on the economic conditions, and operators may experience less risk since there is usually a minimum rate per acre, which can be beneficial in difficult financial situations. The disadvantages of a fixed-rate agreement include the challenge of determining the “fair” rate per acre and potentially having to renegotiate leases every year based on changing economic conditions. The disadvantages of a variable-rate agreement include the need for more negotiation between the owner and tenant to figure out the exact rates per acre, and more risk is passed on to the farmland owner. 

With the knowledge of the advantages and disadvantages of fixed-rate and variable-rate agreements, it is fair to analyze how many operations in Illinois use a cash rent agreement. An article posted on farmdoc daily in July 2024 outlined the tenure characteristics of farmland in Illinois based on data from farms enrolled in Illinois Farm Business Farm Management (FBFM). Across the state in 2023, 48% of agricultural land was operated under a cash rent agreement, and 24% of acres were operated by a landowner. These figures are higher than in 2019, when 45% of acres were operated under a cash-rent agreement, and 23% were operated by a landowner. Among grain farms in Central Illinois, 48% of acres were operated under a cash-rent agreement, and 15% were operated by a landowner. 

The 2024 Land Values Report from the Illinois Society of Professional Farm Managers and Rural Appraisers offers valuable insights into the usage of the two types of cash rent agreements among farm managers in Illinois. The report found that cash rent agreements accounted for approximately 64% of agreements, with 30% being traditional cash rent agreements and 34% being variable rate agreements. The report also found that 88% of the cash rent agreements were only for one year and that 21% of the agreements for 2024 had different rates than in 2023. 

The United States Department of Agriculture National Agricultural Statistics Service (USDA NASS) reported that the average cash rent per acre in Illinois for 2024 was $269/acre, which is $10/acre higher than the 2023 state average ($259/acre) and higher than the 2022 state average of $243/acre. The ten counties with the highest average rates are Piatt ($377/acre), Moultrie and Sangamon ($369/acre), Macon ($352/acre), DeWitt ($340/acre), Coles ($332/acre), Douglas ($330/acre), Edgar ($327/acre), Logan ($326/acre), and Christian ($324/acre). 

The 2024 Land Values Report reports cash rent rates based on land quality. The report found that average cash rents decreased across all levels of land quality from 2024 to 2023. The 2024 average rate for excellent productivity land was $400, $12 less than the 2023 average of $412. The average rate for good productivity land in 2024 was $340, $13 less than the 2023 average of $353. For average productivity land, the average rate in 2024 was $275, a $10 decrease from the 2023 average of $285. The report also surveyed farm managers in Illinois on their expectations for cash rent rates for the 2025 growing year. Of the respondents to the survey, 80% expected that cash rent rates for 2025 would be lower than in 2024, 20% expected rates to be the same, and no respondents expected an increase in cash rents. This is driven by an expectation of worse agricultural economic conditions in Illinois and across the United States. 

This blog post begins a two-part series exploring cash rents for farmland in Illinois for 2025. This post describes cash rent agreements, the two primary types of agreements, the number of operations using those agreements in Illinois, and the average cash rent rates across Illinois. The second part of this series will look at expectations for farm returns and cash rent rates in 2025, how alternative leasing arrangements compare, and tips for negotiating leases for next year. 

If you are a farmland owner in Illinois, Illinois Extension is proud to present the Farmland Owners Conference on November 25, 2024, at Illinois Valley Community College in Oglesby. This one-day event will empower current and future farmland owners and features presentations on negotiating cash rents, soil fertility, and estate planning. The registration fee is $65, which covers all presentations, refreshments, and lunch. Registration closes on November 20. You can register for this event by visiting https://extension.illinois.edu/events/2024-11-25-farmland-owners-conference. 

To read the 2024 Land Values Report, visit https://ispfmra.org/download/2024-land-values-report/. 

For more information on cash rents and other leasing arrangements, visit https://farmdoc.illinois.edu/management#handbook-farmland-leasing.