How to Know if Your Cash Rent is Sustainable for Your Operation

Cash rent may not be your biggest expense each year. But it’s still an important piece of the puzzle at a profitable farming operation. 

Overall cash rent prices can vary from year to year, across regions, and even by county. So how can you be sure your cash rent agreement is in line with today’s standards? Or that you’re paying an amount that makes sense for your specific operation? Or that you’re collecting an appropriate amount, if you decide to rent out your acres?

You need to understand the data: both your own financial data and local cash rent benchmarks.  

How to know if your cash rent is financially sustainable 

Before evaluating anything at your operation, you need good financial records. This is the case for everything from input decisions and transition planning to adding new acres or reworking a lease agreement. 

With a good recordkeeping foundation, you’ll have the tools to accurately evaluate cash flow. How does renting a piece of ground fit into that overall story? When you look at your cash rent costs side by side with other expenses, do they align with revenue projections? 

For example, at FBFM, we help our farmer cooperators run economic analyses to truly understand their costs over time. If they’re thinking about leasing additional acres (or renewing an existing arrangement), we run projections to understand exactly how much they can afford.

Here are a few other things to think about to determine whether a cash rent arrangement is sustainable for your operation:  

• Crop budgets: The University of Illinois, Purdue University and other land-grant universities will usually publish annual crop budgets to help farmers understand costs per acre over time. This isn’t an end-all, be-all resource. But these budgets can be a good starting point to help you see average numbers in your region and build out your own yearly budget.

• Expected/historical returns: Similarly, it’s helpful to look at a piece of land’s average returns over the past few years. You can estimate your expected yield on that ground, then the expected price you would receive based on recent averages. These numbers, paired with a crop budget estimate, can give you a rough idea of how much profitability to anticipate from a tract. Your cash rent price can be anchored against these estimates.

• How to market yourself: If you’re negotiating to rent additional acres, don’t be afraid to voice what you bring to the table. It helps to have up-to-date, accurate data from your operation during any conversation with the landowner. For example, showing your recent returns on your farm can show a landlord you’ve already had success in the area and are financially viable.

• Lease expectations: Your cash rent may vary depending on lease length. A landowner may prefer to rent at a higher rate for a one-year lease, or drop payments lower for a three-year agreement. 

• Local cash rent averages: Above anything, you need to understand how cash rent impacts your specific operation’s cash flow. Understand first what you can afford internally. But after that, it’s helpful to look externally and see how your cash rent compares to other similar farms. Regional benchmarking data — like FBFM’s farm-specific benchmarking reports, certified for accuracy — is an important tool for this.

  
  

How to know where your cash rent stands compared to others 

In today’s farm economy, it’s important to benchmark your rent against similar operations. If you feel like your cash rent is too high, these comparisons help you understand whether that price is high solely because of market trends and regional averages — or if you potentially have room to negotiate. 

But not all data is created equal.

If you want to benchmark your cash rent numbers against your peers, you need to know: 

1. Who you’re benchmarking against, and 

2. How the data was collected 

Traditionally, the United States Department of Agriculture’s (USDA) National Agricultural Statistics Service has collected county-specific cash rent data. But this data is collected entirely based on self-reported surveys. And with fewer farmers responding in recent years, the data has become sparser and less reliable. 

At FBFM, we collect whole farm-specific cash rent data to help our cooperators understand the norms for their region. Not only do we gather this data, but we also go through a certification process to ensure its accuracy. Only farms that we’re certain have complete, accurate information are included in our regional benchmarks. 

These numbers are farm-specific, not field-specific. Still, they help paint the picture of what farmers in your area pay, on average, for cash rent. 

This benchmarking data is an effective tool to have in your toolbox to understand the long-term viability of a cash rent agreement. But it’s not the only one. 

Once you compare your numbers to local benchmarks, your FBFM consultant can help you dig into why your cash rent is either above or below average. From historical yields and crop budgets to farm-by-farm geographical variations (like waterways or tile), many factors play a role in cash rent fluctuation. 

Understanding these individual factors, alongside big-picture cash flow and regional benchmarks, will help you make better, data-backed decisions about what ground to rent — and for how much.

If you’re curious how your cash rent compares to others in your area, or if you want to better understand how your rental costs impact your operation’s profitability, connect with your local FBFM office.