2013 Risk and Profit Conference

Breakout Session Presenters

2. Kansas Rental Values -- What Cash Rent Information is
Right?

Kevin Dhuyvetter <kcd@ k-state.edu>
Kevin Dhuyvetter assists farmers, landowners, and others throughout Kansas with
risk and return assessment of alternative crop and livestock production and
marketing systems. He works extensively with land-related issues such as buying
and leasing land. Current research projects are looking at factors impacting land
values, crop land cash leases, management factors impacting farm profitability,
economics of crop-related production technologies, factors affecting feeder cattle
and crop basis, and machinery costs. One of Kevins trademarks is his
development of decision tools that can be used by clientele to help them with the
many decisions they face.

Mykel Taylor <mtaylor@k-state.edu>
Mykel Taylor joined the Department of Agricultural Economics as an Assistant
Professor in 2011. Her research and extension programs are focused in the areas
of crop marketing and farm management. She grew up on a cattle ranch in
Montana and attended Montana State University majoring in Agribusiness
Management. Her PhD in Economics is from North Carolina State University.
Mykel has worked in extension positions at both Kansas State University and
Washington State University. Some of her current research areas include
measuring basis risk for commodity grains, understanding the implications of food
safety and country of origin labeling on meat demand, and estimating land values
for crop and pasture land in Kansas.

Abstract/Summary
Beginning in 2009 Kansas Agricultural Statistics (KAS) has surveyed producers
and landowners regarding cash rent for crop land and pasture at the county level.
This provides much more information than has been available historically (values
were only available at the Crop Reporting District level). However, in recent years
with land values increasing significantly, the appropriateness of these survey
values as a reflection of the current cash rent market has been questioned. In
response to this, an alternative method of estimating cash rents for cropland at the
county level has been developed. This session will outline the alternative method
developed and report on values from the two approaches and discuss reasons as
to why they might vary. While a similar type of approach is not currently available
for pasture rents, an alternative approach for estimating pasture rents at the
county level will also be presented and discussed.
KansasState
UNIVERSITY
KansasRentalValues
WhatCashInformationisRight?
Department ofAgriculturalEconomics
KevinDhuyvetter MykelTaylor
7855323527 7855323033
kcd@ksu.edu mtaylor@ksu.edu
DepartmentofAgriculturalEconomics
KansasStateUniversity
www.agmanager.info
Whichbestdescribesthefrequencyofyouruseof
computerspreadsheets(e.g.,Excel)
1 2 3 4
0% 0% 0% 0%
Testtomakesureclickersareworking
1. Regularuser
(e.g.,daily/weekly)
2. Moderateuser
(e.g.,monthly)
3. Limited
(e.g.,12times/year)
4. Whattheheckisa
spreadsheet?
Typesofleasesoncropland
Cropshare(shareincomeandsomeexpenses)
Netshare(shareincomebutnotexpenses)
Fixedcashrent
Fixedcashrentwithbonus
Combination cashrent+share
Cashrent flexonprice(bushelrent)
Cashrent flexonyield(pricerent)
Cashrent flexonrevenue(i.e.,yieldxprice)
Traditional
Hybrid
Theleasearrangementforthemajorityofcropland
acresIrentormanageis
1 2 3 4 5
0% 0% 0% 0% 0%
Whattypeofleasesdoyouuse?
1. Cropshare
(shareinputs)
2. Netsharerent
(noinputsshared)
3. Fixedcashrent
4. Flexiblecashrent
5. Doesnotapply
8
19
30
11.5
10
21.5
0 5 10 15 20 25 30 35
Customfarming
Variable cash rent
Traditional cashrent
Cropshare withother modifications
Cropshare w/supplement rent
Traditional cropshare
Percent
Lease ArrangementsUsedby FarmManagers, 201112
n/a
43.5
56.5
8.6
55.7
35.7
0.8
21.8
77.3
0 20 40 60 80 100
Other
Cropshare
Cashrent
Percent
FarmlandLease Arrangements
Iowa (2007)
Kansas(2010)
Oklahoma (201011)
Sources:IL Schnitkey;IA Duffy,etal.;KS SchlegelandTsoodle
Distributionofcropleasesbytypeoflease
CornBeltgenerallyhasahigherpercentageofcashrent Why?
Trendistowardsmorecashrentmosteverywhere Why?
Theuseofnontraditionalleasesisincreasing Why?
(speedofadoptionvariesconsiderablyregionally)
0
10
20
30
40
50
60
70
80
90
100
1998 2000 2002 2004 2006 2008 2010 2012
P
e
r
c
e
n
t
Trend in use of cash leases by regions in KS
West Central East
CropshareisverycommonleasetypeinKansas,but
thetrendisformorecashrent
AgriculturalResourceManagement
Survey(ARMS)61.3%ofrented
acresin2010wereonacashbasis.
Source: KSUandKSAgStat NonIrrigatedFarmLeaseArrangementSurveys
Oncashleases,rentpaymentsaredue
1 2 3 4 5 6
0% 0% 0% 0% 0% 0%
Timingofcashleasepayments
1. Jan1(approximately)
2. Atplanting
3. Atharvest
4. Dec31(approximately)
5. Multipletimes
6. Other
Lengthofcroplandleasesinyears
Producerstendtoleaselandfromthesame
landownerforarelativelylongtime,butcash
leasestendtobeforfeweryears.
Whyisthis?
Sources:IA Duffy,etal.;KS SchlegelandTsoodle;OK DoyeandSahs
State Share Cash All
Iowa (2007) 18.1 9.5 11.4
Kansas(2010) n/a n/a 18.6
Oklahoma (20102011) 17.0 14.0 15.3
Determiningthetermsofalease...
Tenant
Land
owner
Howarecashleaseratesorthetermsofcrop
shareleasesestablished?
Shortansweristhemarket
Thatis,thetermsofaleasearedeterminedby
Producers(demand)negotiatingwithLandowners(supply)
S
D
P
Q
Marketestablishedrates...
LandUseValueProjectoftheKSUAgEconDept
annuallyconductsoneoffoursurveys(irrigated,non
irrigated,pasture,inputcosts)
KansasAgriculturalStatistics(KAS)annuallysurveys
landownersandproducersregardinglandvaluesand
cashrents
Localandregionalsurveysofleasingpractices
Withsurveysthereisoftenatradeoffbetween
statisticalvalidityandlevelofaggregation
Examplesofmarketestablishedcropshares
Source:SchlegelandTsoodle 2010KAS/KSUsurvey(availableatwww.agmanager.info)
PercentofLeasesbyCropSharePercentage
Landlord CropReportingDistrict
Share NW10 WC20 SW30 NC40 C50 SC60 NE70 EC80 SE90
20.0% 0.0% 0.0% 0.0% 1.4% 0.0% 0.0% 0.0% 0.0% 0.0%
25.0% 0.0% 3.5% 1.4% 0.0% 0.7% 0.0% 5.3% 1.0% 0.0%
33.3% 96.2% 96.5% 94.5% 62.7% 83.4% 90.8% 22.3% 70.7% 94.4%
40.0% 0.0% 0.0% 1.4% 28.9% 13.1% 6.4% 27.7% 9.1% 0.0%
50.0% 0.0% 0.0% 2.7% 6.3% 0.7% 2.1% 44.7% 17.2% 4.2%
66.7% 0.0% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 1.0% 0.0%
75.0% 1.9% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0% 0.0% 0.0%
Other 1.9% 0.0% 0.0% 0.7% 0.7% 0.7% 0.0% 1.0% 1.4%
Total 100% 100% 100% 100% 100% 100% 100% 100% 100%
Colorcodingscale >80% 5080% 2050% 520% <5%
15
KASdidnotreportvaluesfor24counties valuesforthesecountieswerefilledinwith
multicountyaverages.
Stateaverage=$52.50comparedto$44.00in2011(+19.3%)
Takeacloselookat
yourcounty/region
beforewemoveon!
KansasNonirrigated CashRents,2012*
*CashrentvaluesasreportedbyUSDANASSandKansasAgriculturalStatistics(KAS).2013valueswillbe
releasedonSept6,2013.
Forcashrentsyouareawareof,howdothey
comparewithKASvaluesonmap?
1 2 3 4 5 6 7
0% 0% 0% 0% 0% 0% 0%
KAScashrentsurveyvaluesvs.yourobservations
1. Morethan25%lower
2. 1025%lower
3. Abouteven(+/ 10%)
4. 1025%higher
5. 2550%higher
6. 50100%higher
7. Morethan100%higher
PotentialissueswithKASsurveyedrentalrates
1. Doestheaveragevaluereflectyoursituation?
Notalllandisequal
Notallrelationshipsareequal
2. Missingcounties:2009=4,2010=6,2011=7,2012=24
3. Howwelldoaveragesreflectthecurrentmarket?
0
20
40
60
80
100
120
140
160
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
C
a
s
h
r
e
n
t
,$
/
a
c
r
e
AverageCashRent inKansas byLand Type
Irrigated(7.41%)
Nonirrigated (3.92%)
Pasture(3.18%)
Source: KansasAgricultural StatisticsandKState
2%
8%
26%
35%
19%
7%
3%
0% 10% 20% 30% 40%
Lessthan$100
$100to$60
$60to$20
$20to$20
$20to$60
$60to$100
Greaterthan$100
Percent
Figure1.DistributionofFarmCashRentslessCountyAverage
CashRents,2010.
Widevariabilityinrentsexists
Source:FEFO1121,Schnitkey,DepartmentofAgriculturalandConsumerEconomics,UniversityofIllinois.
Partlyduetolandqualitydifferences
Bigportionduetorelationships
Landownersandtenantsaregenerallyawareofdifferences
thatexistandmuchofthesedifferencesareconsistent
withtheirdesires
Largedifferencesinobserved/reportedrents
Implications
Averagecashrentsarenotagoodindicationofwhatit
takestoacquireland
Highcashrentswehearaboutarenotanindicatorof
averagerents
Source:FEFO1121,Schnitkey,DepartmentofAgriculturalandConsumerEconomics,UniversityofIllinois.
Tenant
Land
owner
Howarecashleaseratesorthetermsofcropshareleases
established?
Shortansweristhemarket
Whenmarketreportedratesarenotsufficientto
answerthequestionathand,whatdowedo?
Whilelandownersandtenants(i.e.,themarket)
ultimatelydeterminetermsofleases,weuse
economictheory andtheequitable concepttoarrive
atastartingpointfornegotiations andtobetter
understandthemarket.
Determiningthetermsofacroplease...
Profitmaximization(MR=MC)
Economicprofits(expectedprofit=0*)
Opportunitycosts
Riskacrossleasetypes
Equalratesofreturnonannualinvestment
(ifeconomicprofit=0,thenreturnonannualinvestment=0)
*Onaverage,inthelongrun
Principlesembodiedinanequitablelease
-100
-50
0
50
100
150
200
R
e
t
u
r
n

o
v
e
r

T
C
,

$
/
a
c
r
e
NC KFMA Enterprise Analysis
Corn ($46.45 / $-3.82)
Milo ($50.12 / $-8.28)
Soybean ($55.98 / $3.65)
Wheat ($6.49 / $7.10)
Alfalfa ($88.46 / $36.25)
Onaverage,weseldomcovertotalcosts.Why?
(Average for 2007-12 / 1991-06)
Source: KFMAEnterpriseAnalysisReport
3.00
2.50
2.00
1.50
1.00
0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
$
/
b
u
AverageManagementMarginforCornandSoybeansinIL
Corn(199106=0.29;200712=0.55)
Soybeans(199106=0.92;200712=1.20)
Onaverage,weseldomcovertotalcosts.Why?
Source: IllinoisFarmBusinessFarmManagementAssociation
Methodsofestablishingcashrentvalues
Marketgoingrate(ifavailableandbelievable)
Cropshareequivalent(adjustedforrisk)
Landownerscost
Amounttenantcanaffordtopay
Thelastthreerequireyield,price,andgovernment
paymentprojections(aswellascostinformation
usedforcropshare).
Itypically
focuson
thesetwo
Landowner/producer riskreturntradeoff
x
s
x
Cashrent
Cropshare
Cashrent
Cropshare
Risk,$/ac
R
e
t
u
r
n
,

$
/
a
c
???
[Producer]
[Landowner]
Howshouldcashrentfornonirrigated landcompare
withexpectedreturnsfromequitablecropshare
1 2 3 4 5 6 7 8
0% 0% 0% 0% 0% 0% 0% 0%
Riskpremium
1. 510%higher
2. Roughlyequal
3. 510%less
4. 1015%less
5. 1520%less
6. 2030%less
7. 3040%less
8. >40%less
MethodofcalculatingKSUrentalrates
1. UsedKSULease.xlsandregionalcropbudgetstoestimate
equitablenetshare percentagesforeachregion
UsedaverageyieldscenariofromFMGuides
Longrunpriceprojections(~5yearaverage)
Customratemachinerycostsincreased20%
Setlandvaluesuchthatreturns=totalnonlandcostsx10%
(i.e.,profit>$0 resultedinprofitsof~$14$30/acre)
2. Appliedequitablepercentagetoincomeateachcounty
Yield=8yraverage(wheat,sorghum,corn,andsoybeans)
Price=201317priceforecast
Cropmixbasedonaveragevaluesin2002&2007census
3. Multipliedlandownerincomeby80%toaccountforrisk
35
KASsurveyvaluesofKansasNonirrigated CashRents,2012
36
KSUEstimatedKansasNonirrigated CashRents,2012*
*Estimatedinthefallof2012basedoncountyaverageyieldsandregionalpricesandusinganequitable
netsharelease(adjustedforrisk)approach.
37
RatioofKSUtoKASEstimatedCashRents,2012*
ValuesreflecttheamounttheKASvaluewouldneedtobemultipliedbytoequaltheKSUestimated
value.Forexample,avalueof1.5wouldimplytheKSUestimatewas50%higherthanKASvalue.
Averageratio=1.63(min=1.03andmax=3.17)
KASversusKSUestimatedrentalrates
Whythebigdiscrepancy?
1. Dothevaluesrepresentthesamething?
2. Multiyearfixedrateleases?
3. Ratesthathavenotbeenrenegotiatedforyears?
4. Productivityofland/producermaynotbethesame?
5. WedontknowthetermsoftheleaseforKASvalues
(e.g.,arebonusesincluded?)
6. Landowner/tenantrelationship?
7. Other?
Landvalueandcashrentinformation
MAJOR changefromwhatwas
reportedinthispaperpreviously
1.KASsurvey dataforlandvalues
andcashrents(sameasinthepast)
and
2.KSUestimates ofcountylevel
landvaluesandrents(newstuff)
KSUestimatesofbothlandvalues
(basedonmarkettransactions) andrents
(basedoncropshare) aresignificantly
higherthanKASreportedvalues
Workinprogresstodosomething
similarwithpasturerents.
Somerandomthings
tothinkabout
Department ofAgriculturalEconomics
KansasState
UNIVERSITY
Whoseresponsibilityisittoseetoitthatalandowners
cashrentalrateisequitableconsideringcurrent
conditions?
1 2
0% 0%
Responsibilityforrentalrates
1. Landowner
2. Tenant
Whotypicallyhas
betterinformation?
Whetheryouhaveparticipatedinthemornot,what
isyouropinionofcashrentauctions?
1 2 3 4 5
0% 0% 0% 0% 0%
Cashrentauctions
1. Ilovethem
2. Theyareokay
3. Imindifferent
4. Dontcareforthem
5. Ihatethem
Cashrentauctions asolutiontoasymmetricinformation?
CashRentAuctions inIowaFeb24, 2012
2Year lease(2012 and2013)Moneyupfront for 2012
Acwtdavg $486 3347.7 71.0 $6.72
Average $476 139.5 73.5 $6.52
Min $325 52.1 51.8 $5.57
Max $530 421.1 92.5 $8.15
Corr with$/acre 0.362 0.748 0.072
Tract County $/acre Acres CSR $/CSR
1 Cass $475 132.6 79 $6.01
2 Guthrie $525 153.4 81.5 $6.44
3 Guthrie $525 167.0 76.3 $6.88
4 Hardin $520 78.1 77.9 $6.68
5 Hardin $460 59.6 78.6 $5.85
6 Hardin $510 101.3 83 $6.14
7 Hardin $530 113.3 92.5 $5.73
8 Franklin $520 108.4 76 $6.84
9 Franklin $425 102.1 67.8 $6.27
10 Franklin $425 199.4 59.6 $7.13
11 Franklin $490 170.3 70.7 $6.93
12 Franklin $475 53.9 73.1 $6.50
13 Franklin $495 139.7 81.1 $6.10
14 Franklin $490 252.7 68.9 $7.11
15 Franklin $445 60.2 77 $5.78
16 Franklin $460 52.1 82.6 $5.57
17 Franklin $325 62.1 51.8 $6.27
18 Butler $435 121.7 67.7 $6.43
19 Butler $520 421.1 71.6 $7.26
20 CerroGordo $490 145.0 72 $6.81
21 CerroGordo $500 148.0 71.4 $7.00
22 Hancock $450 214.3 55.2 $8.15
23 Mitchell $530 221.0 86.1 $6.16
24 Mitchell $400 70.4 62 $6.45
$267 $277
$266
$279 $275
$252
$246 $193 $217
Source: Edwards, Cash RentalRatesfor Iowa, 2012Survey
CashrentauctioninNWKS
CashrentauctioninNWKS
Cropland $/acre Annual Wheat Corn Milo Govt Govtpymt Avg% PPM
Tract acres(FSA) rent dollars stubblea stalksa stalksa payments per acre orgmatter soiltestP
1 214.0 $110 $23,540 108.0 106.0 $3,255 $15.21 2.00 37.50
2 79.7 $90 $7,173 79.7 $586 $7.35 1.50 15.00
3 153.1 $105 $16,076 153.1 $597 $3.90 1.80 17.00
4 160.9 $135 $21,722 160.9 $1,776 $11.04 1.70 15.00
5 314.6 $140 $44,044 226.4 88.2 $3,638 $11.56 1.60 23.00
6 156.0 $140 $21,840 156.0 $1,747 $11.20 1.70 21.00
7 308.7 $130 $40,131 240.0 68.7 $3,441 $11.15 1.74 24.55
8 305.9 $125 $38,238 305.9 $3,847 $12.58 1.80 24.00
9 299.0 $135 $40,365 299.0 $5,465 $18.28 2.00 20.00
10 156.3 $120 $18,756 78.2 78.2 $1,709 $10.93 1.65 21.00
Total 2,148.2 $271,884 735.3 729.9 683.1 $26,061
Overallper acrevalues $126.56 $12.13 1.75 21.80
Correlationofcashrentwithabovecolumns> 0.51 0.14 0.04
Munkres cashrentauction,January15,2011
Onl ymargi nal di fferencesi nfarmabi l i tyandl andqual i tyacrosstracts, except that tract 2hadseveral acresi nal agoon.
Al l l andi snoni rri gated, fai rl yfl at, l i ttl e erosi on, andhasgoodroadandgrai nmarket access.
Al l l andi sopen, i .e., nogrowi ng wheat.
Landl easedfor5yearsandtenant must ensure nol ossofsoi l ferti l i tyduri ng l ease term, i .e., must rei mburse
Preaucti onexpectati onsl i kel ywere centeredaround$80/acre.
Landl ocatednearRexfordandGemi nbothThomasandSheri dancounti es, Kansas.
l andownerat endofl ease foranyreducedferti l i ty(bothN andP), asjudgedbybefore &aftersoi l tests.
* 2010 Cash rentvalues as reported by USDANASSand Kansas Agricultural Statistics (KAS).
Kansascountylevelnonirrigated
cropcashrents
So,whatisthe
marketvalue?
SD
$36.00
($37.50 2011)
TH
$38.00
($37.50 2011)
NOSECRETS.Farmlandtenants
generallydislikepublicleaseauctions
fortworeasons:1)Theyremovethe
traditional,personalrelationship
bondbetweentheowner/tenantand
reduceittoanumbersgame;and2)
Itpublicizesactualcashrentssoall
thelandlordsintheareacancompare
howtheirleasesstackup.
ArticleaboutlandcashrentauctionsinIowa
(TheProgressiveFarmer/April2012)
Howwouldyoufeelaboutyourtypicalrental
arrangementifyouwereontheothersideofit?
1 2 3 4
0% 0% 0% 0%
Yourleasingarrangement
1. Imgettingagooddeal
2. IthinkImgettingtaken
advantageof
3. Seemsaboutright
4. Notsurewhattothink
1.Arelandowners(especiallyabsentee)treated
similartootherinputsuppliers?
Doyoudotherightthing?
2. Arefamilymemberstreatedsimilartoother
nonrelativebusinesspartners?
3. Regardlessofthesizeofyouroperation,treatit
likeabusiness.
Themoreyoutreatyourfamilyfarmlikeabusiness,
andlesslikeafamilyoperation,themorelikelyyoull
haveafamilyfarmtopassontofuturegenerations.
www.agmanager.info/mast
Formoreinformationanddecision
toolsrelatedtofarmmanagement,
marketing,andriskmanagementgo
towww.AgManager.info
IfinterestedinreceivingweeklyAgManager.infoUpdate oranyofourotherAgEcon
newslettersviaemail,pleasecontactKevinDhuyvetterorRichLlewelyn.
(Kevin:kcd@ksu.edu 7855323527orRich:rvl@ksu.edu 785.532.1504).