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Investment returns from farmland are derived from two sources: annual income and the change in the property’s market value. The annual income return comes from directly growing crops on the land or leasing the parcel to an operator.
Many investors opt to limit their risk by leasing their land to experienced, well-capitalized local operators rather than grow crops themselves, hire custom operators or employ crop-share leases.
Institutional investors typically target a minimum 5% initial gross income yield when investing in U.S. row-crop land, though less informed landowners settle for income yields of 3% and sometimes lower. You can easily calculate the income yield for a tract of land by dividing the annual farm profit or rent revenues by the market value of the land. For example, if a tract with an estimated market value of $9,000/acre is being leased for $270/acre, the annual income yield is $270/$9,000 or 3%.
If you lease your land to a local farm operator, it’s important to gather as much timely lease market intelligence as possible to ensure your lease rate reflects current market conditions. This can be increasingly difficult during volatile farm commodity markets. Gaining access to current lease market data helps put you on a more equal footing with prospective tenants who typically negotiate multiple leases and are more in tune with local market rates and crop production economics.
The Cash Rent Data section offers two resources to increase your lease market knowledge:
Our Cash Rent Survey Reports are customized summaries of average county-level cash rent rates for cropland and pasture presented in an easy-to-read format. Data for these reports comes from USDA’s annual cash rents survey, and Conservation Reserve Enhancement Program rental rates paid to landowners. CREP program lands are typically low lying, productive parcels.
Our Expected Cash Rent Reports, are a novel forward-looking analysis tool to gain insights into expected county-level average rents based on crop production revenues. This exclusive analysis offers unparalleled insights for setting new lease rates, and for comparing your existing lease with expected rents based on local crop yields and grain prices.