Landowner and farmer returns are calculated under a lease in which the landowner receivers 40% of crop revenue. The 40% represents a fairly common sharing arrangement under crop revenue leases. In addition, cash rent averages 40% of crop revenue in Illinois between 1976 and 2006.

Rents for 40% crop revenue leases are higher than under share rent arrangements. At 2013 projected prices, the 40% gross revenue lease generates $382/acre for central Illinois farmland with high productivity compared to $351/acre for the share rental arrangement, a difference of $31/acre. These differences become wider at lower prices: the long-run prices have a $48 difference ($315 under gross revenue lease - $267 under share rent lease) and low prices have a $66 difference ($248 under the gross revenue lease - $182 under the share rent lease). Given higher returns to the landowner, farmers receive less return under the 40% crop revenue lease as compared to the crop share lease.

Long-run prices present an interesting comparison. For high-productivity farmland, landowner return under the 40% crop revenue lease is $315/acre, close to the average cash rent in several central Illinois counties. At that level, the farmer return is $26/acre, likely unacceptably low to farmers if long-run prices persist over several years. This would suggest downward pressure on returns beyond that suggested by the 40% gross revenue lease if long-run prices persisted over several years.

Summary

Under sharing rental arrangements, landowner and farmer returns will vary considerably under differing prices. If corn and soybean prices decline to their long-run averages, returns will decline from 2013 projected levels.

The above shows landowner returns for rental arrangements that allow returns to vary. Even landowners who cash rent farmland may see cash rents decline when prices lower as a result of renegotiations due to low returns to farmers.

 

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