What factors affect farmland rental rates, continued…
Last week I started a series of blog posts on what factors affect rental rates. So far, supply and demand was the first factor that can affect what you are paying for cash rent. In much of the Midwest where commodity crops like corn, soybeans, wheat and forages rule the landscape, rental rates change little due to what crop is being planted. For the most part these commodity crops can be grown regardless of what type of soil is in the area. But they do fluctuate based on the price of the commodities being produced at the time. The USDA-NASS has a table which shows the changes in cash rent in Iowa from 1994 to 2016. As the commodity prices moved up or down, the cash rent price did as well. Land value, on the other hand, did not follow the same trend, but instead moved more based on supply and demand of this valuable asset. Click here to view the table from USDA-NASS.
Why Specialty Crop?
But as you get into areas of the country where specialty crops, fruit or nut trees, vegetables and even some organic crops are produced, farmland rental rates can fluctuate based of the value of the crop being produced. These crops still are being influenced by the market, just like the commodities of the Midwest, but as you receive a higher value for these specialty crops, there is a good chance you may be paying higher rental rates for your farmland as well. There are other factors that influence why certain crops are grown in these areas and how this affects rental cost. In some areas, the only way to be productive is to grow a specialty crop that has a higher value to the producer.
We will cover in the weeks ahead but soil quality and availability of water play a big role in these costs and have driven farmers to adapt to growing specialty crops in these areas. Bottom line is that normally there are many reasons why cash rent cost is what it is and it is normally not just a single factor. Make sure you are looking at all the factors as you work with your landlord to negotiate rent. Specialty crops are a great way to add value to your farm and diversify your risk and the uncertainties of the market. If you are looking to add acres Bird Dog can help position you to grow. Give us a call today.