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Farmland rental markets: trends in contract type, rates, and risk

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  • Nicholas D. Paulson
  • Gary D. Schnitkey

Abstract

Purpose - This article aims to explore recent trends in farmland rental markets using data for the state of Illinois. Trends in the types of rental agreements used and the relationship between the rental rate for those contracts, land values, crop revenues, production costs, and farm returns are examined. Design/methodology/approach - Data from various sources and at different levels of aggregation for the state of Illinois are used to provide illustrations of historical trends in farmland rental agreements and rental rates, and how they are related to various market and industry factors. Focus is placed on the more recent period since 2005 characterized by high commodity price levels and volatility. Findings - The majority of farmland in the Midwest is controlled under rental agreements which are increasingly of the fixed cash rent type. Rental rates have increased, but at a slower rate than farm returns. Average rental and interest rates imply that land values are consistent with the current market environment. Aggregate rental rates mask considerable variation in farm‐level rents, only a portion of which can be explained by differences in soil productivity. Given the current level of price volatility, the tenure position of a farm operation has a significant effect on downside risk exposure. Originality/value - The illustrations provided in this paper should be of interest to researchers working in the area of farmland values and rental agreements, as well as to practitioners including farmers, landowners, and professional farm managers. The findings should motivate additional research and recognition of the importance of tenure position to the performance and risk exposure of grain farms.

Suggested Citation

  • Nicholas D. Paulson & Gary D. Schnitkey, 2013. "Farmland rental markets: trends in contract type, rates, and risk," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 73(1), pages 32-44, May.
    • Handle: RePEc:eme:afrpps:v:73:y:2013:i:1:p:32-44
    DOI: 10.1108/00021461311321294
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    Citations

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    Cited by:

    1. Kuethe, Todd H. & Bigelow, Daniel P., 2018. "Bargaining Power in Farmland Rental Markets," 2018 Annual Meeting, August 5-7, Washington, D.C. 274113, Agricultural and Applied Economics Association.
    2. Burnett, J. Wesley & Szmurlo, Daniel & Callahan, Scott, 2024. "Farmland Rental and Conservation Practice Adoption," Economic Information Bulletin 341821, United States Department of Agriculture, Economic Research Service.
    3. Robert Dinterman & Ani L Katchova, 2020. "Property Tax Incidence on Cropland Cash Rent," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 42(4), pages 739-758, December.
    4. Buchholz, Matthias & Danne, Michael & Musshoff, Oliver, 2022. "An experimental analysis of German farmers’ decisions to buy or rent farmland," Land Use Policy, Elsevier, vol. 120(C).
    5. Zhang, Hongliang & Mu, Jianhong E. & McCarl, Bruce A., 2018. "Adaptation to climate change via adjustment in land leasing: Evidence from dryland wheat farms in the U.S. Pacific Northwest," Land Use Policy, Elsevier, vol. 79(C), pages 424-432.
    6. Burnett, Wesley & Szmurlo, Daniel & Callahan, Scott, 2022. "Land tenure and conservation adoption: An analysis of contracts and incentives," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322244, Agricultural and Applied Economics Association.
    7. Bigelow, Daniel & Borchers, Allison & Hubbs, Todd, 2016. "U.S. Farmland Ownership, Tenure, and Transfer," Economic Information Bulletin 262138, United States Department of Agriculture, Economic Research Service.
    8. Kuethe, Todd H. & Paulson, Nick, 2014. "Crop Insurance Use and Land Rental Agreements," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170528, Agricultural and Applied Economics Association.
    9. Yueming Cao & Yunli Bai & Linxiu Zhang, 2022. "Plot Size, Adjacency, and Farmland Rental Contract Choice," Land, MDPI, vol. 11(4), pages 1-21, April.
    10. Si, Ruishi & Lu, Qian & Aziz, Noshaba, 2021. "Does the stability of farmland rental contract & conservation tillage adoption improve family welfare? Empirical insights from Zhangye, China," Land Use Policy, Elsevier, vol. 107(C).
    11. Jun Yeong Lee & Grant Durbahn & Peter F. Orazem & Wendong Zhang, 2023. "The roles of risk preferences, selection, and uncertain returns on land contracts," Agricultural Economics, International Association of Agricultural Economists, vol. 54(2), pages 220-233, March.
    12. Cao, Yueming & Bai, Yunli & Zhang, Linxiu, 2021. "Plot Size, Adjacency, and Farmland Rental Contract Choice," 2021 Conference, August 17-31, 2021, Virtual 315378, International Association of Agricultural Economists.
    13. Cord-Friedrich von Hobe & Marius Michels & Oliver Musshoff, 2021. "German Farmers’ Perspectives on Price Drivers in Agricultural Land Rental Markets—A Combination of a Systematic Literature Review and Survey Results," Land, MDPI, vol. 10(2), pages 1-22, February.
    14. Baoling Zou & Biliang Luo, 2018. "Why the Uncertain Term Occurs in the Farmland Lease Market: Evidence from Rural China," Sustainability, MDPI, vol. 10(8), pages 1-15, August.
    15. Williams, John & McSweeney, Peter & Salmon, Robert, 2014. "Australian Farm Investment: Domestic and Overseas Issues," Papers 234408, University of Melbourne, Melbourne School of Land and Environment.

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