Friday, June 3, 2016

Iowa Farmland Cash Rent Trends

The latest information from Iowa State on cash rents shows a downward trend since 2013.

The next graph shows the rate of return for investors on farmland held in Iowa (doesn't factor in real estate taxes).

(A) major factor affecting cash rents is the return on investment for landowners. Figure 4 shows the evolution of the ratio of average cash rents to average land values in Iowa. It suggests that the average return on investment for landowners who cash rent their land to operators has followed a declining trend since the early 1990s, and it has stabilized at around 3 percent after 2010. Note that this ratio does not measure net returns because ownership costs, such as real estate taxes, are not taken into account in its calculation. However, it is indicative that landowners (whose goal is to obtain a reasonable rate of return on their real estate assets) will likely be reticent to accept lower cash rents in the future. If land values continue to decline and the rate of return to comparable assets remains stable, then a stable ratio might be consistent with lower cash rents.

Source: Iowa State Ag Decision Maker by Alejandro Plastina.

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