A Farmer’s Guide to Cash Rent Calculations and Negotiations

If you are considering a new rental agreement or looking to renegotiate an existing lease, there are several factors to take into account when it comes to negotiating the rental rate. 

How Is Rent Being Calculated? 

A fixed cash rent agreement is the simplest rental arrangement there is. But it is not as simple as it first seems.

“Determining a fair rate is not easy,” said William Edwards, Iowa State University (ISU) retired Extension economist. “Cash rents are likely to be too low during periods of rising prices and high yields, and too high during periods of declining prices and low yields.”

Here is the crux of the problem: “Rates often reflect the results of the past few years more than the upcoming year,” Edwards said.

Here are eight different methods of computing a cash rent to consider. 

1. What Others Are Charging/Paying

Edwards said the most common way to establish the amount of cash rent is to base it on what other people in the area are charging. However, he said there are potential pitfalls with this approach, such as: 

• Simply charging what others are charging may not be appropriate for a particular farm. 
• Rumors about cash rental rates may be quite different from the actual rates, especially in a rapidly changing market.

“Differences in the quality of land should be taken into account when comparing your rental rate to those of others. Landlords who are unfamiliar with farming often assume that all land is of equal productivity,” Edwards said. An ISU article authored by Edwards and Extension Program Specialist Ann Johanns notes conservation practices and land stewardship are other factors to consider. 

Former Kansas State University ag economist Kevin Dhuyvetter said: “In areas where there is sufficient cash renting, the prevailing cash rent should provide an approximation of the appropriate measure of fair rent. In some situations, however, there is no established rental rate. Or if there is one, the rate has extenuating circumstances that preclude it from being appropriate.” Those circumstances are things such as buildings on the land or rent between family members.

“Furthermore,” he added, “publicly reported cash rental rates often represent a relatively wide geographical region and, thus, may not reflect local conditions.”

2. Average Yields

With this approach, a farm’s average yields over five or 10 years are used to compute the cash rent.

For example: Say rent is $1.39 per bushel of corn and $4.67 per bushel of soybeans and yield is 211 bushels per acre for corn and 63 bushels per acre for soybeans (ISU survey data). This equates to a rental rate of $293.29 per corn acre and $294.21 per soybean acre. 

This type of information is usually available at websites for the ag economics departments of land-grant universities.

3. Soil Ratings 

The state you farm in may have its own ranking system for cropland. Iowa, for example, has the Corn Suitability Rating Index (CSR2), which ranks soil types on a scale of 5-100. 

Your local Extension office may be able to provide you with an average rental rate per point of your state’s ranking system. In Iowa, according to the latest survey data from ISU, average rent per CSR2 point is $3.38. A tract of land with a CRS2 of 80 would equate to $270.40 per acre. 

4. Share of Gross Crop Value

According to Edwards, “Rental rates tend to follow the gross value of crops.”

ISU data shows between 2015-2024, Iowa’s average cash rent ranged from 19-36% of gross corn crop value (most years 30% or higher) and 30-51% of gross soybean crop value (most years 40% or higher). 

“These percentages and estimated yields and prices for the coming year can be used to estimate a fair cash rental rate,” Edwards said.

5. Return on Investment

This method involves multiplying the estimated current market value of cropland by an expected rate of return. 

Edwards was quick to point out, however, that this method is “rather imprecise, especially during periods of rapidly changing land values.”

Furthermore, cash rent values may not increase at the same rate as land values. In 2024, USDA estimated cropland values increased 4.7% year-over-year. The average cropland rental rate was only up 3.2%. 

6. Crop Share Equivalent

This approach is a little more complicated, and that could be a deal breaker for people who like cash rents because of their simplicity.

The approach is to calculate cash rent by comparing it to the potential return of a crop-share lease. (A crop-share lease automatically adjusts for changes in grain prices, yields, and input costs.)

“However,” Edwards said, “to compute a cash rental rate using this method, estimates of yields, selling prices, and input costs must be made for the coming year, which is sometimes difficult to do.”

7. Tenant’s Residual

This method of computing cash rent is to calculate the amount of income left for rent after the tenant has paid all the costs incurred raising the crop.

Similar to the previous method, you first need to estimate yields and selling prices.

8. Flexible Cash Rent

This method adds flexibility to cash rental rates. The year-end rate can flex according to changes in price and yield. A flex lease may reduce gross revenue for the producer in years of windfall yields and prices, but it also offers a way for both producer and landowner to share risk. 

“Landowners typically would like to receive a base rent paid up front in the spring,” said Dale Nordquist, Extension economist with the University of Minnesota’s Center for Farm Financial Management. “The second half paid in the fall would be the amount that flexes. Some landowners are very receptive to these kinds of arrangements and are willing to support their renters by giving them flexibility.”

How to determine the flexible lease triggers for both corn and soybean crops needs to be established in your rental agreement. If crop production costs appear to be too high or too low annually, then changes could be made to the base rent, maximum rent, and the flexible cash lease triggers that more accurately reflect cost of production.

Tips for Negotiating 

1. Fair Is Relative 

“Recognize that there really is no such thing as a fair rental rate,” Nordquist said. “The producer and landowner typically have differing rates each thinks is fair. The goal should be to arrive at a negotiated rate that farmers can afford to pay and that landowners can accept.”

2. Cost Transparency

When calculating a rate to present to landowners, all input costs and projected yields provide the backdrop. “I also encourage producers to include an opportunity cost of $35 to $50 an acre to cover time and management,” Nordquist said.

3. Consider the Landowner’s Background

Negotiating a rental rate boils down to finding ways to communicate that inspire landowners to share some of the risk that is historically embodied in agriculture. It might go without saying that anyone involved in farming – whether producer or landowner – must be a risk-taker at heart. Landowners with firsthand experience as producers understand this. 

“A lot of landowners are second- or third-generation owners who don’t have a close relationship with the land and don’t understand the forces at play,” Nordquist said. “It can be particularly difficult when families are involved in the ownership, and siblings, for instance, expect a significant return from the land.”

4. Have Information Prepared

The content of your informational package might be determined by the landowner’s background, level of vested interest in the land, and understanding of the economic issues involved. 

“Provide the landowner with anything that documents your story,” Nordquist said. “It could be helpful to provide information about yields and the positive or negative net return generated in the past year. You might even share yield maps from various fields.”

5. Consider a Calculator

The University of Minnesota’s Center for Farm Financial Management developed FairRent. By inputting budgets for crop production, farmers can determine a break-even rental rate at various yields and prices for different rental arrangements.

The app evaluates cash, share, and flexible rental agreements. By inputting prices and yields, farmers can look at rate structures that flex with price and yield, either solely or in combination with each other.