Determining what to charge for cash rent can be challenging. Guessing can cost you thousands of potential revenue. Consider hiring a farm manager.
Cash rental rates for farms managed by a licensed farm manager are higher than the USDA published averages. How can a farm manager help the landowner to figure out how much to charge for renting a farm? There are several ways to use a farm manager.
The Illinois Society of Farm Managers and Rural Appraisers publishes a survey each year that provides cash rental rates for the year. The survey is published in the spring of the crop growing year, which is after most all leases are already established. The survey is available for a small cost or later in the season as a free download.
The survey is just that, an informal survey of what farm managers are seeing for current production year leases. Typically, based on the surveys, farm-managed leases are higher than the USDA averages. The survey is based on the Productivity Index (PI) of individual soils from University of Illinois.
Bulletin 811 ratings are updated periodically. The ratings are based on an index rating, not yields. The individual soils on your farm are rated. Using several sources, your farm PI is averaged across all acres. Using this system, your farm can be rated with a PI average: Excellent, Good, Average, or Fair.
The Illinois Society of Farm Managers and Rural Appraisers (ISFMRA) survey provides ranges for your farm depending on the PI rating and compared to other farms in various regions across the state. An Excellent rated farm is going to lease for a higher value than a good farm. A good farm will typically rent at a higher rate than an average farm. To use this survey, the landowner needs to know the average PI from Bulletin 811 for their farm.
The landowner can find the average PI for their farm in several ways:
- Soil test reports often have the average PI of your farm which includes a map and percentage of land in each rated soil type.
- Web Soil Survey from USDA has a tool the owner can use to map their farm (it’s a bit clunky, but usable) for free.
- From the local USDA office. They will help you.
- Use Agri Data - Surety for a fee to map out your farm. The local USDA office or a full soil test report with a soils analysis is a good place to start for most landowners. With PI in hand, the owner can see where their farm rates and find the farm manager leasing rates survey from ISFMRA.
A caution about using soil ratings is that some farms underperform or overperform based on the skill of the farmer and the condition of the underground tile drainage system of your farm. Yield data on the farm compared to county averages can help to determine if your farm is performing properly.
Paid Consulting or Farm Management
Farm managers provide consulting services to farmland owners for a fee. You can inquire if a local farm manager offers such services that provide advice but leaves the management of the farm with the customer. Others offer full farm management services for a fee and will take care of establishing cash rent for the landowner.
Some farm management offices are owned by financial institutions that provide loans for the farmer leasing the land. This could be a conflict of interest. Some banks go out of their way to make sure there is no collaboration between the loan department and the farm management department. Others give some preferential consideration to loan customers. That doesn’t mean there is undue influence, but this is information to consider and ask about.
Always feel comfortable to ask questions of your farm manager. Good communication with a contracted farm manager is very important.
Disclosure: The author is a licensed real estate managing broker in Illinois and manages farmland.