This is a common time of the year for landowners and agricultural producers to talk about land rental rates and contracts.
One reason is that Dec. 31 is when agricultural land rent nonrenewal notices need to be given, if the land was rented on a one-year contract in 2015. Another reason is for budgeting and planning purposes.
“How much is my farmland worth to rent?” My response to this very common question always starts with: “There are key factors that affect your land’s value. They are location, size (acres), soil type, drainage problems, restrictions on practices and length of contract.” For the coming year, we also have to add economic reality.
Rental rates have increased significantly in recent years, directly related to land sale values. In 2012-15, the average Wisconsin acre rented for 2.6 percent of its sale value. Using these ratios and 2014 land sale values, one would expect the average Oconto County land rent to be about $131 per acre.
Calculations and reality are fairly close, but many local parcels rent well outside this expected range, and the difference from top to bottom of the range is very significant. However, economics may dictate that land rental rates be lower in 2016 due to poor economic opportunities in all sectors of agriculture in our area.
Grain and milk prices are expected to be significantly lower than recent years, to the point that the average acre of land will be farmed at a loss, whether you are selling grain or feeding forage to dairy cattle.
Location is the most important factor, as location dictates how much competition there will be. Simply put, the more farms interested in a parcel, the more rent a landowner will receive. A 60-acre parcel of the exact same soil located near Townsend is simply not worth as much as if it were located near Gillett, as fewer farms can profitably travel to the Townsend parcel.
Parcel size is mostly an issue on the smaller end. Small fields (less than 15 acres) are less likely to be profitable than larger fields, thus smaller parcels or parcels with all small fields will bring less competition.
The same will be true if there are restrictions on the land such as no manure spreading, no planting of certain crops or no pesticide use.
Sandy soils or fields with erodible land are lower yielding on average and significantly riskier in a given year due to drought potential. Soil types which do not drain well can also create low-yield conditions including delayed planting, loss of acres due to temporary flooding or higher disease and nutrient problem risks. A landowner can install drainage tile systems in such fields or work with a farm in a longer term renting arrangement and share the costs of tile systems.
The final factor is contract length. If a farm knows it will rent a parcel for five years rather one, it can do more with crop rotation, nutrient management and other factors that affect profitability. This may lead a farm to offer a slight premium or a guaranteed annual increase over the length of the contract.
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