This is the second post of a two-part blog series exploring cash rents for 2025. Part One described what a cash rent agreement is, the different types of cash rent agreements, and the trends in cash rent rates across Illinois. This post will analyze the projections for farmer returns in 2025, how returns differ between different types of farmland lease agreements, and tips for negotiating cash rent rates for 2025. As producers wrap up the 2024 growing season and make plans for the 2025 growing season, cash rents and other farmland leases must be a focus for both farmland owners and tenants.
Before farmland owners and tenant operators can begin negotiating cash rents for 2025, they must understand the projections for returns in 2024 and 2025. An article posted in farmdoc daily in September 2024 compared the returns for growing corn and soybeans from 2023 with the predictions for 2024 and 2025. This comparison was made based on an operation in Central Illinois with high-productivity farmland. Total non-land costs, which include fertilizers, seeds, hired labor, and fuel, for corn acres was $871/acre, and the total non-land costs for soybean acres was $515/acre in 2023. The projections for 2024 and 2025 show lower total non-land costs for corn and soybean acres. For 2024, total non-land costs for corn acres are projected to be $772/acre and $512/acre for soybean acres. The projections for 2025 total no-land costs are $747/acre for corn and $490/acre for soybeans.
Farmer returns on these acres can be determined by considering the yield and market price of the crop. Considering this, combined with total non-land costs, farmer returns in 2023 were $195/acre for corn and $338/acre for soybeans. The projections for 2024 and 2025 show an increase in returns for corn acres and a decrease in returns for soybean acres. The 2024 projections for returns on corn acres are $198/acre and $307/acre for soybean acres. The returns for 2025 are projected to be $266/acre for corn and acres and $289/acre for soybean acres. How do cash rents affect these returns? For 2023, using a cash rent rate of $359/acre, returns for corn acres were -$164/acre and -$22/acre for soybean acres. The projections for 2024 use the same cash rent rate as 2023, with returns for corn acres projected at -$161/acre and -$53/acre for soybean acres. For 2025, the cash rent rate is lowered to $339/acre, leading to a slight improvement in returns. The 2025 projections place returns for corn acres at -$73/acre and -$50/acre for soybeans.
As discussed in previous blog posts, farmland owners and tenant operators can utilize different leasing arrangements. The other commonly used lease arrangement in Illinois and the Midwest is a share-rent agreement. Also called a crop share agreement, the landowner and tenant operator split the expenses and revenues during the growing year. The typical split between the landowner and tenant operator is 50/50, meaning that both sides pay the same amount for all expenses (i.e., fuel, fertilizers, and seeds) and receive the same revenue from that crop. Some agreements may use a 2/3-13 split, but these are less common than the typical 50/50 agreements. This factsheet from farmdoc outlines more details of crop share agreements: https://farmdoc.illinois.edu/assets/management/leasing-facts-prices/Crop_Share_Lease_Fact_Sheet_2017.pdf. A survey of farm operations in the Illinois Farm Business Farm Management (FBFM) Association showed that 27% of the acres farmed in Illinois used a crop share agreement, with farms in Central Illinois having the highest rate of usage at 37%.
As previously discussed, farmer returns for corn and soybean acres in 2024 and 2025 are expected to improve from 2023 but still be negative, thus impacting the overall financial position of farms across Illinois. A farmdoc daily article from October 2024 compared the expected returns for fixed cash rent acres with the projected returns for variable cash rent and crop share agreements. As Part One describes, variable cash rent agreements have a minimum rate per acre, specific factors impacting the rate, and a maximum rate. This gives landowners an expectation for the minimum rent received and provides the tenant with operator an idea of the most they could pay. The rate for variable cash rents, like fixed cash rents, is expected to decrease in 2025, and farmer returns are still expected to remain negative. The projected rate for 2024 is $319/acre, and returns are projected at -$67/acre. The projected rate for 2025 is expected to decrease to $318/acre, and overall returns slightly improve to -$41/acre. Projected farmer returns for crop share agreements are expected to be -$12/acre in 2024 and $4/acre in 2025.
With the prospect of negative returns for tenant operators and the continued weakening of the overall farm economy due to low market prices, negotiating farmland leases for 2025 and the future becomes even more challenging. What is the “fair” rate that farmland owners should charge? How do tenant operators consider their financial position? Should a different lease type be utilized? Negotiations of farmland leases are challenging, but there are some tips that both sides can consider when going through the negotiation process. The most important thing to do is never to keep anything secret from the other side. Keeping information secret from the other side does not benefit anyone and can prevent a result that benefits the farmland owner and tenant. The owner should be aware of the costs for next year and other limitations, and the tenant should understand the intentions and desires of the landowner.
Additionally, the discussion regarding rates and other leasing arrangements should not be shied away from. If both sides are honest with each other and clear on their positions, they should also be open to restructuring the rates or even trying a different lease arrangement. Maybe it makes more sense to move from a fixed cash rent to a variable cash rent or to employ a crop share agreement to help spread out the costs and risk between both sides. Communicating and freely discussing ideas can help make the negotiation process smoother and reach an agreement that is reasonable to both the farmland owner and tenant operator.
This two-part blog series has explored the landscape of cash rents and farmland leasing for the 2025 growing season. With projections for negative farmer returns and a weakening in the overall farm economy in the near future, negotiating lease agreements can be one way that tenant operators can reduce their overall production costs. Each operation has unique characteristics and challenges, which must be fully considered when negotiating leases for 2025 and beyond. Farmland owners and tenant operators should be honest and have open lines of communication during the negotiation process to ensure that the outcome benefits both sides.
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.
For additional information on farmland leasing and projections for farmer returns, visit the following links: