|Rent on the rise for prime Rock County farmland|
|Written by RIck West/Janesville Messenger|
|Thursday, 22 March 2012 00:00|
JANESVILLE — Farming is big business in Wisconsin, and when it comes to crop farming, that business can be very volatile. With higher prices for corn and soybeans, crop farmers are seeking more land to rent to raise their corn and soybeans.
“But there’s only so much land to go around, so we’ve developed some bidding wars in some places for prime farmland,” said Peg Reedy, agribusiness agent with the University of Wisconsin-Extension in Walworth County.
(Read this story and more from the March 11, 2012 Janesville Messenger HERE.)
That’s due in part to an increase in the value of farmland. According to the U.S. Department of Agriculture’s statistics service, the value of farmland in Wisconsin rose 6.7 percent in 2011, with the south central and southeastern districts seeing the largest increases.
“Owners looking at these increased land values and increased commodity prices are thinking they can — and in a lot of cases, probably should — raise their rent,” Reedy said.
Farmland rental rates in southern Wisconsin are still on the low side, according to Reedy, who said she’s seen rental rates in Walworth County anywhere from $80 to $280 per acre.
“But with the high demand for land, the commodity prices, increased exports and all these ‘perfect storm’ factors, I know people are getting a lot more than that for rent,” Reedy said.
The cost of farm equipment also has made it necessary for crop farmers to find more land in an effort to increase yields.
“The typical crop grain farmer in Wisconsin farms four to five times more land — that’s rented — than what he owns,” said Ken Bolton of the UW Center for Dairy Profitability. “And quite significantly, on the landowners’ side … the bulk of that land is held by retired farmers, many of whom are dependent on that income for their livelihood.”
Jim Stute, crops and soils agent for the UW-Extension in Rock County, said that’s a common scenario on farms in Rock County.
“We’re seeing more land leases as farmers get older and rent the land out,” Stute said. “In general, we have an aging population that owns the land in Rock County and that’s true across most of Wisconsin.”
It’s much the same in Illinois, where it’s estimated that 60 percent of the state’s agricultural land is leased.
Colleen and Larry Gill of Rockton are far removed from the farm life they knew as children, but the Gills inherited 39 acres of Colleen’s 100-year-old family farm in Joe Davies County in far northwestern Illinois and 18 acres of Larry’s boyhood farm in Stephenson County, Ill.
Like many second- and third-generation farm owners, the Gills lease out the productive portions of the land — on a cash-rental basis — for corn and soybean production.
“I’m far enough removed from farming that I pretty much take what (the renter) offers,” Colleen Gill said, adding that she’s known the renter since he was a boy growing up on a nearby farm. “I think he’s been very fair and is a good steward of the land. I think it’s a win-win situation.”
Not only have farmland values gone up, the amount of land being sold has increased. In Wisconsin, 13 percent more transactions were reported and 4 percent more acres sold in 2011 than 2010.
Bob Johnson, of Badger State Auction in Milton, said his company has sold more than 2,500 acres of farmland in Rock, Green and Walworth counties since November.
“We’re seeing farmers buying it for production purposes and people that are buying (agricultural land) as an investment,” Johnson said, adding that depending on quality of soil, production records and location, the land he’s sold has ranged in price from $4,000 per acre to $13,000 per acre.
Reedy said the typical return on farmland is somewhere between 2.6 percent and 2.8 percent per acre, so if agricultural land sells for $10,000 an acre, that would equate to $280 an acre for rent.
“And we know some of it’s going for more than that,” Reedy said.
According to the National Agricultural Statistics Service, in 2004, agricultural land being diverted to non-agricultural use was selling for about $10,700 an acre in Wisconsin compared to $3,400 an acre for land continuing as farmland. The latest statistics, for 2010, show that gap closing. Land remaining in agricultural use sold for about $3,900 an acre and land to be diverted sold at about $5,900 an acre.
“A few years ago everyone wanted land with woods on it for potential subdivisions,” Johnson said. “Now you’re seeing the pendulum reverse, with everyone wanting productive farmland due to the (rising) commodity prices.”
Gary Schnitkey, farm management specialist with the University of Illinois Extension, agreed that farmland is a good investment.
“As an investment, (farmland) has outperformed the stock market in terms of returns,” Schnitkey said. “That makes it attractive to some people.”
Schnitkey said the percentage of land being leased in northern Illinois hasn’t changed much in recent years.
“What we have seen is a change in the way it’s leased,” he said. “We’re seeing more use of cash rent leases, and cash rents have gone up quite a lot.”
In response to the issues surrounding equitable land and asset leases, the Walworth County UW-Extension office held a one-day workshop Feb. 29 to discuss leases, land contracts, profit margins, land values and rental rates.
Bolton was one of the presenters at the workshop.
“The objective was not to determine the value of every individual landowner’s land rental, and the object was not to recommend one or two rental arrangements, but to increase understanding across the board … to reach the best decision to benefit both parties in their unique situation,” Bolton said. “If you look at both persons perspective, the volatility of the market and the options for sharing risk, we can come out with an arrangement that’s advantageous for both parties.”
About 50 farmers attended the workshop.
Lease arrangements discussed at the workshop included flexible leases, or crop sharing, which was popular a generation ago on Wisconsin farms.
“If the price goes up, everyone wins, but if the price goes down, it’s not the producer that gets stuck because they have a higher rental rate,” Stute said. “It spreads the risk.”
On the other hand, there is no risk sharing with cash rentals, Bolton said.
“The landlord’s only risk assumption is whether the check will clear, and the renter takes on all the production and market risk,” Bolton said.
Phil Harris, UW-Extension farm law specialist, also provided information at the workshop and said there are very few Wisconsin statutes specifically aimed at farm-lease agreements.
“They can negotiate just about anything they want,” Harris said. “But in order to be enforceable, a lease for more than a year has to be in writing.”
Harris said he has a rule of thumb to follow when determining whether agreements, of any length, should be in writing.
“If it’s an agreement that’s important enough to you that you would go to court to enforce it, then it’s a real good idea to put it in writing,” Harris said.
Without a written agreement, state law requires 90 days’ notice for the termination of a lease agreement.
For now, the Gills, and many farm owners like them, are content with their rental agreements, and even with higher land values and better commodity prices, have no intention of selling their farmland.
Colleen Gill said the reason is twofold.
“It’s partly financial because it gets me several thousand dollars every year,” she said. “And I like to go out to the farm and walk around. It brings back memories and keeps me connected to back home.”
|Last Updated on Thursday, 22 March 2012 13:14|