Audio Transcript:

 

Michael Langemeier: Welcome to Purdue Commercial Ag Cast, Purdue University Center for Commercial Agriculture’s podcast featuring farm management news and information. I’m your host, Michael Langemeier, Director of Purdue Center for Commercial Agriculture. And joining me today is Todd Kuethe, the Todd Kuethe, Professor and Schrader Endowed Chair in Farmland Economics.

Today we’re gonna be talking about cash rents coming from the 2025 Purdue Farmland and Cash Rent Survey. And then we’re also going to, at the end, compare trends in cash rents to share lease rents and flex lease rents. The 2025 Purdue Farmland and Cash Rent Survey is on the Center for Commercial Agriculture website, so you can check out more detail there. And we will also have some slides related to this podcast on the website. So Todd, let’s get rolling here.

[00:00:51] Cash Rent Survey Results & Projections
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Michael Langemeier: We’ll start by just looking at some of the cash rent survey results. Before we do that, talk a little bit about the history of this survey and who is surveyed.

Todd Kuethe: Yeah. Thank you. I imagine a lot of our listeners will be familiar with the survey. It’s been around since the mid 1970s here in the department. And the real push for that at the time is there was very little information about land values. That’s really the prime driver. But then also cash rents.

And so we survey every June people who interact with the land market as part of their daily job. So we have a lot of rural appraisers, land brokers, we have some ag lenders in there, professional farm managers, and a few farmers as well. And so one of the things to kind of keep in mind is that that is the population that generally works with like professionally managed land or interacts kind of in the sales market.

We also ask them about cash rents. For the land values, which we’ll discuss in a separate episode, we’re asking about this current June, but we also ask about the previous December what they expect to come. The thing that sort of differentiates our survey from some other sources of information is that we split the state into six regions, and three land quality grades. So at the state level and across those regions, we give a a estimated cash rent for top, average and poor quality land. And that’s just an annual cash rent, sort of your old fashioned cash rent.

We don’t define those land qualities. We allow the survey respondents, so we ask them about the county that they operate in or work in, and they provide what their estimate for top, average and poor quality is. And then they also give what they think the current long-run corn yield expectation would be there. Right. So not necessarily the annual variation, but where do you sort of see, what’s kind of your expected yield. And that allows us to put these things also in a cash rent per bushel yielded. Which is, you know, as we know, you travel across the state of Indiana, there’s a lot of variation in land quality and markets. But generally that rent per bushel is pretty stable across the state and across the Corn Belt in general. Right? So you’re kind of paying the for the ability to produce corn.

Michael Langemeier: That’s a very good point. And when I help people look at this cash rent survey, and when I talk to the ANR educators about using the survey results, I always point to that cash rent per bushel, because you can use it to interpolate.

And so the state average corn yield in this year’s survey was 199. If you have 205 bushel corn, you use that rent per bushel multiplied by 205, and you have an estimate for cash rent. So extremely valuable that we break this into top, average and poor, but also tie that crop yield with it. Typically the average corn yield follows trend. That 199 is slightly above the trend in Indiana, but it’s very similar to the trend yield in Indiana.

So Todd talk a little bit about the history of cash rents from the survey from 2000 all the way to today.

Todd Kuethe: Yeah, so if we look at sort of where we were now, I guess 25 years ago, the cash rents have definitely increased, pretty much linearly, over the last 25 years, where we see an uptick of a couple percent per year. Other than we did have sort of in that post RFS, commodity price boom, where we saw cash rent go up quite a bit. And then they started to come down, post 2012 drought, and then kind of leveled off or increased slowly. And then over the last, couple years, we had another uptick, just right after COVID. And then, over the last two to three years, we’ve seen pretty stable, I would say, modest increases.

Michael Langemeier: And I think that’s somewhat consistent with other Corn Belt states. However, I do think there’s a little bit more weakness in some of the Western Corn Belt states in terms of the 2025 cash rent. But usually they follow very similar trends. And so if you are listing from a different state, you can, you kind of look at our trends and compare to trends of a survey in your state. And then just remember that rent per bushel, as Todd said, is applicable across the Corn Belt.

Todd Kuethe: And the other thing I always point out is that cash rent is incredibly variable. So it’s no matter what you put out as far as number of cash rent, you’re gonna anger at least half your audience, right, that either wants it higher or lower. And part of that is ’cause, you know, commercial operators really are operating to support a household, are dealing with multiple landlords. And each one of those rental contracts will be negotiated a little bit different. And so there’s, there’s a really a wide variation. This is just sort of your sort of central,

Michael Langemeier: Yeah.

Todd Kuethe: central measure to get at where we kind of headed over time.

Michael Langemeier: Wouldn’t necessarily call it a benchmark, but it’s a value to start with.

Todd Kuethe: Yeah.

Michael Langemeier: I think it’s a good value to start with negotiations, and as Todd said, you know, in some areas there’s really strong demand for cash rent and ground. Other areas it’s not quite as strong, and so there’s gonna be a lot of variability.

Let’s just briefly look at the 2025 state averages the values and the percentage increases.

Todd Kuethe: Yeah. So, I guess one of the things that this year that kind of jumped out, we had sort of a small increase, one and a half, slightly less than 2% for top, average, and poor quality lands. And so relatively modest changes.

Also, the other thing kind of jumps out to me, we didn’t cross any sort of threshold. It seems like there’s always sort of like a 25 to $50 threshold that when you cross that, like if you go from 295 to 305, somehow that feels very different ’cause you’ve moved up across that 25 threshold. So we’re still kind of within those ranges where we were last year. When we look at a lot of other expenses changing, in a lot of ways this looks relatively modest compared to some of the other prices that the farmers are paying for production.

Michael Langemeier: Yeah, definitely. And this would be below inflation. At least slightly. You know, so that’s important to point out. What was the 2025 average for top productivity, for example?

Todd Kuethe: So for top productivity, we average at $318. Average, we were at $264. And then at the poor quality land about $207.

Michael Langemeier: Yeah. And in the yields for that, the top was 230. Average 199 and poor 170. We don’t actually survey for irrigated cash rents in this survey simply because there’s just not as much irrigation as there is non irrigated land in Indiana, so that it would be really thin. It would be hard to come up with the numbers, but I always tell people, you can still use this rent per bushel and use that for the irrigated. So if you had 250 bushel yield, you could use the average rent per bushel, which for the top, if I remember right, was about 1.4 , 250 times 1.4, and come up with a starting value at least. And so that’s the kind of way I would approach information that’s not in the survey.

In addition to the state, we also. Look at this in a regional basis. We’re not going to talk a lot about this, but I did want to note that this is available for people to take a look at.

Todd Kuethe: Yeah, and it, again, it follows the pattern that we’d expect, right? The more productive regions of the state tend to have higher cash rents. We did see more movement at the regional level, right? So we did see places that were growing by, you know, five to 6% or even falling by sort of similar, you know, five to 10% throughout the state.

Michael Langemeier: One of the things that kind of stood out again, I’m not gonna go into detail here, but I encourage people to take a look at the report on the Center’s website. One of the things that did stand out in the northern part of Indiana and in central the top quality ground increased quite a bit. Anywheres from 5.5% all the way up to 7.4 in the central. And so when we talk about this one point a half percent you know, there was, there was differences across the state. That’s definitely the case. And so take a look at that.

Now, on the regional basis, the data is a little thinner by definition, so I always encourage people because of that, to maybe look at the last two or three year reports and see what kind of the average value was and, and so use more than one starting point for your negotiations. Particularly if there’s a lot of variability in your region, like there sometimes is in the south.

Todd Kuethe: Well, and the other thing I always have to kind of point out, I get people that send me an email or call me and ask for like their county. Right. And I said, well, I really don’t have that kind of coverage. And there is like the USDA cash rent survey that give another sort of idea, at least how yours fits in with that region. And those regions were established a long time ago. And so I often have people sort of say like, oh, I think this county should be in this region. I’m like, yeah, we can’t change it now. Right. Without a time machine.

Michael Langemeier: Yeah. I hear the same thing. I wanna talk a little bit about how this compares to the Ag Economy Barometer I’ll talk about the July results. We asked the following question compared to 2025, what are your expectations for cash rents in your area in 2026?

Remember, this is a U.S. survey and this was specifically for people that grew corn, soybeans, wheat or cotton in 2025. 73% said about the same. And only 11% said lower. And so I was a little surprised at these results. And so stable, I think is the key word, both looking at the Indiana survey and nationally.

Todd Kuethe: Yeah, I tend to agree. Again, these categories aren’t like tightly defined. And so I think of about the same personally as sort of around 2% up or down. And looking at the economy in general, if you asked me what I think next year, I would say, yeah, I think we’re gonna kind of hold steady. We’re not gonna go up or down more than 2%, in either direction. So to me I think it makes sense. It makes me a little bit, I don’t have the right word for it, not excited, but relieved maybe, that we’re sort of thinking of next year to be kind of like a status quo year. Used to the last several years where, people are either thinking things are gonna be great or things are gonna be terrible. I think brings a lot more confidence into the sector.

Michael Langemeier: Definitely. And we did have some years, examples of those is, ‘ 14 to ’17. There was quite a bit of downward pressure during those years because of some low net returns. And then in ’21, ’22, as you said, there was a lot of upward pressure on cash, rent and land values. And so I agree. Negative 2% to 2% I think is a very realistic range where cash rents may end up.

Todd Kuethe: And I feel like when I talk about cash rents if I ever say they should be going down, then all the farmers tell me like, there’s no way my landlord would accept anything lower. Or if I say like, well, there’s some room for them to go up. Then all the landlords come to me and like, I couldn’t get my tenant to pay more. Right. So no matter which side, there’s this real bargaining process.

Michael Langemeier: Yes.

Todd Kuethe: Right? That really shakes out, I think, where things will move

Michael Langemeier: And I’ve got a slide in here, in the slides. If you wanna take a look at this, what I’ve done is I’ve taken a look at net return to land for a case farm in West Central Indiana and compared that to cash rent, cash rents are much more stable than net return to land because we’re not gonna negotiate 50 to a hundred dollar changes, in cash rents from one year to the next. We’re gonna gradually change those.

And this graph really illustrates how flat cash rents have really been, since really ’22. They’ve, up and down a little bit, but they’ve been in a pretty tight range. And they’re probably gonna be in that tight range unless we continue to see low net returns.

The last time we had a downward adjustment in, cash rents. We had about a five or six year period, where the net return to land was below cash rent. Well, right now we got three years. And so if this continues, I do think we’ll have quite a bit of downward pressure. Maybe if not in ’26, maybe ’27.

One of the things that’s really helped the forecast for net returns in ’25 and ’26, even though we won’t receive this money for quite a while yet, is the safety net in terms of the ARC County program in particular, but also the PLC program is gonna have some pretty good payouts for the ’25 crop and expected for the ’26 crop. That’s really helped stabilize the cash rents. Without those payments, I think we’d be looking at some rather large declines in ’26 cash rents.

And so when you’re looking at net returns, make sure that you’re looking at both crop revenue and also at any possible government payments, that we might have.

Todd Kuethe: Well, and I think one of the reasons we see cash rents so stable over, I mean, really kind of the last, you know, 10 to 15 years is that we have those periods where the net returns to land is so much higher than cash rent. And we think about this as an annual decision. But I think when people are out there negotiating, there’s often a little bit of like, well, I don’t wanna walk away from this yet, and I still have some money kind of saved over. Right.

Michael Langemeier: Another way to think that when in ’21 and ’22 when we had very high net returns, people didn’t think those were gonna continue indefinitely. And now when we have these really low net returns, people don’t think they’re gonna remain low indefinitely. And so we think kind of, even though it’s a year to year negotiation, I think we think longer term in terms of the net return when we’re negotiating cash rents. And that makes a lot of sense to me.

[00:13:17] Alternative Crop Lease Comparisons
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Michael Langemeier: I’m just gonna briefly talk about, a case farm example that I have that compares crop share lease, fixed cash lease and flexible cash lease. And it estimates landowner net returns from 2007 to 2025. So again, it’s landowner net returns. It’s not tenant, net returns.

And the reason why I do this is for people, that may be wanting to look at flex cash leases, to see what would’ve happened, historically, if I would’ve used a flex cash lease. I’ve got a very specific flex cash lease Example, in these slides, there is a lot of different flex leases out there. I’ve got a fairly high base rate in this, flex lease, 90%. I’ve seen that as low as 75%. As you lower that base cash rent, you increase the possible bonus because you need to. Because you got a low base there. And so to get back up to something that’s close to the market cash rent over a period of time, you gotta have larger bonuses. And so this is just one out of many, possible flex leases, just to give you some idea of what’s going on.

The crop share that’s very typical in the Eastern corn belt landowner pays 50% of seed, fertilizer, chemical, and crop insurance and a hundred percent of land ownership costs, of course, and then receives 50% of all revenue. The keyword is all revenue, crop revenue, government payments, and crop insurance indemnity payments. And so this example assumes that the landlord does have crop insurance, just like the tenant. Of course they purchase that separately with a share lease, and then they get a share of the government payments.

And then the fixed cash lease is just using the survey results. The flex lease is a 90% of a base rent of 90%. That means that you set the base rent at 90% of whatever the market cash rent is in a particular year. And landowner receives a bonus, 50% of gross revenue above non land cost plus base revenue. I do have a couple example years in here, so you can see how I calculated the bonus for a year that has a bonus in a year that does not have a bonus. And, if gross revenue is not above this trigger you just, the landlord just gets 90% of the base rent. But what this flex lease really allows for is, let’s say heading into the year, we are expecting trend yield in ’26, and we’re expecting a relatively low corn price. The forecast for, USDA marketing year average, forecast for, the next, ‘ 25, ’26, year is only 3.90. So let’s say we had $4 corn price. That’s not a real high gross revenue, but let’s say you enter one of these flex leases and if the price does increase substantially, and or you have above trend yields, you would receive a bonus. And so you get additional, money, besides that 90% based rent. And so that’s the idea here.

The tenant likes this because, it kind of sets the downside, which we don’t do with the share lease necessarily. And so, you know that, if the gross revenue’s low, you only have to pay 90% of the base. And years when the gross revenue’s high, you do have to give up some of your revenue. But that’s the trade off. You do have some protection on the downside. In low income years, you have to pay less rent.

And so I’ve got an example for 2022 where there’s actually a relatively large bonus because, revenue is really good because of high corn prices. And then, you can take a look at these slides later if you want. I’ve also got an article on the website that goes through the same example. And then I have also have an example of 2024, where the revenue was below, the trigger and you did not have a bonus.

Think about slightly over half the years, since 2007, if you backcast would’ve had a bonus. And with the 90% base, you’re not looking at real large bonuses. A hundred dollars would be a relatively large bonus. But a hundred dollars on top of base rent would be pretty, pretty sizable adjustment, to rent. And then I’ve got some diagrams in there that compare, fixed cash lease to crop share lease, and flex cash lease to fixed cash lease. And what you see with the crop share lease, for example, is a lot more variability. Essentially you hit home runs, in years where the corn price is really good, like, 2010, 2011, ‘ 12 and, 2021 and 2022. And then in the other years, you do not hit a home run. In fact, you strike out sometimes like ‘ 25. In 25, the revenue is projected to be fairly low. So the return for share lease would be relatively low in ’25.

If you’re looking from a tenant’s perspective, they kind of like these crop share because you’re sharing a risk. But from a landowner’s perspective, this is more risky, than the fixed cash rent. And so I understand why some landlord shy away from the crop share lease. There’s been a general trend away from the crop share lease in the Eastern Corn Belt.

And I’ve also got a comparison with the fixed cash lease and the flex lease. This looks a little bit like the crop share lease, however, because of that 90% base, you don’t drop down near as much in terms of your revenue in the low corn price years. And so ’25, you’re still gonna get 90% of the market cash rent. You’re not gonna drop way below that because you’re sharing all the revenue. And so there’s a lot less downside risk from the landowner’s perspective, from the flex lease. But it also allows you to hit a home run, if you will, in the high corn price years. And so that’s why there’s more discussion of this type of lease, because of that, protection on the downside, possibility of getting some rather large rents in the good income years.

And you know, this is west central Indiana where average productivity soil, you’re looking at, cash rents around 290. That would be the recent cash rents. And there was a couple years here where the flex rent was over 350. So that gives you an idea how much increase in rent you possibly could get if prices and yields are really good.

And then I do a comparison between the crop share and the flexible cash leases. And it just shows you, that the flexible cash leases, does have a little more variability in the cash rent. But it does protect us on the downside. And at the same time, give us a higher rent when crop prices are relatively strong.

And so just food for thought. Those that might be looking at Flex Cash leases, I encourage you to take a look at the example in these slides, in the publication called, Comparisons of Leasing Arrangements. That’s all on the website.

Todd Kuethe: So, question for you about, it seems like 10, 15 years ago there was a lot of discussion about people switching to flex. Are you still seeing as much sort of movement towards flex or is it kind of stabilized?

Michael Langemeier: It always dies down when the prices are a little lower.

Todd Kuethe: Oh, okay.

Michael Langemeier: So there was actually, I was looking at the, we don’t actually do a survey on this, but Illinois does. The Illinois Farm Management Rural Appraisers, they do an annual survey, as you know.

Todd Kuethe: Yep.

Michael Langemeier: You work there for a while. They do an annual survey and Gary Schnitkey and Nick Paulson summarized that. And this last year in 2025, the percentage that were interested in flex rent was lower than it had been, two or three years ago. And so I think when prices are high, people say, yeah, I want some of that revenue associated with those high crop prices. They don’t get so excited, particularly landowners when prices are relatively low.

Now, tenants do, operators do because it’s a mechanism to share risk. Now you don’t share as much risk as the crop share, but you certainly, share more of the risk than you would do with a fixed cash. And so the operators really like this. And so, you know, I’m talking from the landowner perspective, but I do have a publication on the website that looks at this from the operators or the tenant’s perspective. And, they like flex leases in this current environment.

But no, I don’t think there’s gonna be as much interest in this, until we see higher prices and we see those higher prices again, and they see those, revenues are going up a little bit and or stronger government payments than, the landowners get more interest in these flex leases. So very logical, I think.

So that concludes this podcast focused on cash rents. As we said, there’s, a lot more information on the, Center for Commercial Agriculture website. I encourage you to take a look at that. Also, as Todd noted earlier, we’re gonna have a separate podcast related to land values, so that these podcasts didn’t get quite so long. So I encourage you to also watch, listen, check out the slides, check out the written material, related to land values.

Thank you for joining us.

Todd Kuethe: Thank you.