Iowa's farmland rental market witnessed a significant milestone in 2023 as the average cash rental rate soared to a record-breaking $279 per acre, marking a 9% increase compared to the previous year. The findings were revealed in an annual survey conducted by Iowa State University Extension, which involved input from farmers, landowners, bankers, farm managers, and industry professionals across the state.
Out of the 99 counties in Iowa, 91 experienced an upswing in average rents for corn and soybeans, with only a handful observing slight declines. High-quality land commanded an 11.1% surge to reach $297 per acre, while medium-quality land increased by 8.6% to $255 per acre, and low-quality land saw a 6% rise to $217 per acre.
The escalation in cash rental rates has closely mirrored the upward trend in land values witnessed in recent years. However, potential headwinds could impact the growth trajectory in 2024. Lower projected crop prices, combined with persistent input inflation, may lead to reduced net farm income, subsequently exerting downward pressure on cash rents.
Landowners, who take into account the return on their farmland investment, have historically experienced declining returns. The average return dropped from about 3% in the 1990s to approximately 2% between 2010 and 2020. This trend suggests that landowners may be hesitant to accept lower cash rents unless land values decrease or stabilize.
While Iowa farmland values witnessed a modest increase of less than 1% from September 2022 to March 2023, which could potentially temper cash rent growth in 2024, the viability of farmland as an investment vehicle remains elevated, particularly in the face of high-interest rates aimed at curbing inflationary risks.
The comprehensive survey report, including district-wise average cash rental rates, can be accessed here: https://www.extension.iastate.edu/agdm/articles/plastina/PlaMay23.html
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Categories: Iowa, General