October 9, 2001
PERSPECTIVES ON LEASING FARMLAND IN ILLINOIS
Alternative sources suggest that Illinois farmers own somewhere between 20
to 40 percent of the land they farm. Therefore, Illinois farmers rent the majority
of land they farm. They rent this farmland from retired farmers, non-farm investors,
and institutional and government agencies. This paper reviews the agreements governing
the relationships between farmers as tenants on farmland and landowners as lessors
of farmland. This information is useful as farmers and landowners review the leasing
arrangements for the coming year.
Data from the Illinois Farm Business Farm Management (FBFM) Association provides
insights into leasing arrangements in Illinois. Table 1 contains data summarized
from Illinois grain farms enrolled in FBFM. These farms receive the majority of
their farming income from grain operations and farm at least 260 acres. This data
is representative of commercial grain farms in Illinois.
For the year 2000, farm operators enrolled in FBFM owned 23 percent of the
land they farmed, crop shared 47 percent, and cash rented 29 percent (Table 1).
For crop share arrangements, farmers and landowners share in the revenue and expenses
associated with farming. For cash rent arrangements, farmers pay landowners a
cash payment and receive all the revenue and pay all the operating expenses from
farming the land.
While there sometimes seems to be the perception that the majority of land
leased in Illinois is on a cash rent basis, this data indicates that more farmland
is share rented. In Illinois, 47 percent of the farmland is share rented. Over
the past five years, however, there has been a slight trend toward cash rental
arrangements, with the percentage of farmland cash rented increasing from 25 percent
in 1996 to 29 percent in 2000.
The amount of land leased under a crop share or cash rent basis varies by geographic
region in the state. In 2000, farmers in northern Illinois cash rented 43 percent
of their land and crop shared 36 percent while central Illinois farmers cash rented
only 21 percent and crop shared 65 percent. Farmers in the southern part of the
state cash rented 22 percent of their land and crop shared 53 percent.
The amount of land owned by farm operators also varies by geographic region
in the state. Southern Illinois farm operators own 25 percent of their land while
central Illinois operators own only 14 percent. Operators in northern Illinois
own 21 percent. There seems to be a slight trend in farm operators owning less
of the land they farm. On a statewide basis, operators owned 25 percent of their
land in 1996 and 1997, 24 percent in 1998 and 1999 and 23 percent in 2000. This
is probably due to the fact that farms are increasing in size and most of the
additional land being farmed is leased rather than purchased.
Table 1. Rental Characteristics of Illinois Farms.
Table 1 provides
some benchmark cash rent amounts. For northern Illinois grain
farms, cash rents have averaged from $114 to $123 per acre during
the last 5 years. Central Illinois grain farms have averaged $127
to $136 on the higher productive soils while southern Illinois
grain farms have averaged from $77 to $85 per acre. The statewide
average has ranged from $110 to $117 over the same time frame.
rent paid for a particular parcel of farmland is influenced by
many factors including productivity of the land, improvements
to the property (e.g., grain bins and machinery storage facilities),
goals of the landowner, relationship between the operator and
landowner, timing of cash rent payments, local market conditions
and additional services provided to the landowner by the farm
operator. The value the farm operator and landowner place on these
factors is an integral part of the negotiation process in determining
the level of cash rent for a particular tract of land.
One way of
determining whether cash rents should be increasing or decreasing
is to analyze equivalent cash rents. An equivalent cash rent is
the payment a landowner would have received under a traditional
crop share arrangement. Over time, a share rent landowner is receiving
a higher return from farmland if the equivalent cash rent is increasing.
This may indicate that cash rents also should increase. In contrast,
decreases in equivalent cash rents may indicate that cash rents
also should decrease.
2. Equivalent Cash Rents from FBFM Records.
Table 2 shows
equivalent cash rents for two soil productivity levels. The landlord
net return is the estimated net return (after all costs) to landlords
based on a traditional crop share lease. Landlord expenses are
the expenses a landlord would generally be responsible to pay
with a cash rent lease. This is primarily the real estate tax
on the land. Equivalent gross cash rent is the sum of the landlord
net return and expenses. Receiving a cash rent similar to the
equivalent gross cash rent would yield the same return to the
landowner as a share rent arrangement.
For the higher
productive soils in northern and central Illinois, the 1996 through
2000 equivalent gross cash rent amount is $143.71 per acre. The
1991 through 2000 average is $138.04 per acre. For the lower productive
soils, the 1996 through 2000 equivalent gross cash rent amount
is $126.28 per acre. The 10-year average is $120.72. While these
figures should only be used as guidelines, it provides a starting
point for cash rent negotiations based on actual returns and costs
for farm operators and landlords.
In many cases,
the last day of October will be the last day to give notice to
terminate an Illinois farm lease. In the absence of notice by
the landlord or tenant, the current lease terms are automatically
renewed. Absent of a written lease and language otherwise outlining
the termination procedure, termination of leases are governed
by Illinois law.
Compiled Statutes provide as follows: "In order to terminate
tenancies from year to year of farm lands . . . the notice to
quit shall be given in writing not less than 4 months prior to
the end of the year of letting. Such notice may not be waived
in a verbal lease. . . ." This provision applies only to
a year-to-year lease of farmland. A "year to year" lease
can be a written lease, which expressly states that it continues
from year to year unless notice is given to terminate the lease,
or it can be a verbal lease where the tenant has been in possession
for several years without a clear understanding about when the
lease will end. More information about terminating farmland leases
can be found in the agricultural law section of the farmdoc website:
about leasing farmland can be found in the management section
of the University of Illinois farmdoc website: http://www.farmdoc.uiuc.edu/manage/index.html.
Lattz, Department of
Agricultural and Consumer Economics