Ag Update: Difficult Land Rental Negotiations For 2025

​Arriving at equitable land rental rates is always an ongoing challenge for farm operators and landlords alike, which will likely be an even bigger challenge for the 2025 growing season. Many times, land rental rates for a coming crop year are based on the profitability in crop production in the previous year or two before. In some cases, this can present profitability challenges for farm operators, if grain prices drop or there are yield challenges. On the other hand, there can be extra profit for farm operators in years with above average yields and higher levels of crop prices. Many landlords have been gradually increasing cash rental rates in the past few years (2019-2024). With the advent of much lower grain prices late in the past 12-plus months, along with reduced 2024 crop yields in portions of the Upper Midwest, one wonders if it will have an impact on 2025 cash rental rates. However, from a landlord perspective, it should be noted that property taxes have increased substantially in many areas.
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Approximately two-thirds of the farmland in the Upper Midwest is under some type of cash rental agreement. Based on farm business management land rental data compiled by the University of Minnesota, average rental rates from 2015 to 2019 in Minnesota declined by 10-20 percent. Based on the U of M data, average land rental rates in Minnesota increased by 6 percent from 2022 to 2023, and increased by over 25 percent from 2019 to 2023. According to USDA Cash Rental Summary released in late August of 2024, average cash rental rates in Minnesota were nearly the same in 2024 as the average rental rates in 2023. Farm management analysts expect 2025 cash rental rates in most areas to stay fairly steady or maybe decline slightly in most areas, given the projected continuation lower corn and soybean prices and tight profit margins for 2025.
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The commodity prices for corn and soybeans in 2022 and early 2023 reached the highest levels since 2012-13, due to increased domestic usage and higher export levels of U.S. corn and soybeans and the associated decreases in the nation’s grain supplies. The final USDA national market year average (MYA) crop prices for the 2023-2024 marketing year were $4.65 per bushel for corn and $12.50 per bushel for soybeans. The MYA prices are the average farm-level prices, calculated from September 1 in the year of harvest, until August 31 of the following year. The MYA corn prices in other recent years were $6.54 per bushel in 2022-23, $6.00 per bushel in 2021-22, $4.53 per bushel in 2020-21, and $3.56 per bushel in 2019-20. Recent MYA soybean prices were $14.20 per bushel in 2022-23, $13.30 per bushel in 2021-22, and $10.80 per bushel for 2020-21, and $8.57/bu. in 2019-20.
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USDA is estimating the MYA average prices for the 2024-25 marketing year at $4.10/bu. for corn and $10.80/bu. for soybeans (as of 10-01-24). Current forward cash prices for Fall delivery of the 2025 crop year are near $4.00-$4.25 per bushel for corn and $10.00-$10.50 per bushel for soybeans at many locations in the Upper Midwest. Many ag lenders are using $4.50 per bushel for corn and $10.50 per bushel for soybeans as 2025 planning prices for 2025 crop budgets. The USDA long-range price projections for the next 5 years for average on-farm commodity prices are near $4.00 per bushel for corn and $10.50 per bushel for soybeans.
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Many farm operators had significantly higher crop input costs in 2023 and 2024, as compared to 2022 or 2021. Fertilizer costs eased somewhat in 2024; however most other crop input costs for seed, chemicals, fuel, labor and repairs are expected to remain relatively high in the coming year compared to recent years. Based on Southern Minnesota Farm Business Management (FBM) records, the average total direct cost in 2023 for seed, fertilizer, chemicals, fuel, etc. on cash rental acres, excluding land rents, was near $631 per acre for corn and near $316 per acre for soybeans. The 2023 FBM records showed an average of $120 per acre on corn acres and $75 per acre on soybean acres for overhead expenses, which includes machinery costs, hired labor, insurance, and other ongoing expenses, but does not include any net return to the farm operator. In addition, short-term interest rates for farm operating loans have doubled in many instances in the past two years, which further adds to the cost of production. Most experts project input costs for 2025 to remain fairly high, with possibly a slight decrease in short-term interest rates.  The combination of relatively high crop input costs and continued lower commodity prices could result in some challenging breakeven price levels for 2025, especially if land rental rates are at quite high levels.
Typically, Southern Minnesota farm operators use average yields near 200 bushels per acre for corn and 60 bushels per acre for soybeans for cash flow planning purposes. If the direct expenses for corn are $635 per acre, with overhead expenses of $125 per acre, and a land rental rate at $275 per acre, the total expenses, before any allocation for labor and management would be $1,030 per acre. With a corn yield of 200 bushels per acre, the breakeven price to cover the cost of production and land rent would be approximately $5.15 per bushel, which would increase to $5.73 per bushel if the corn yield drops to 180 bushels per acre. If a $60 per acre allocation for labor and management (family living expenses) is included, the corn price breakeven levels would rise to $5.45 per bushel with a 200 bushel per acre yield, and $6.06 per bushel with a 180 bushel per acre yield. If the cash rental rate or other expenses are $50 per acre higher than estimates, breakeven levels increase to $5.70 per bushel at 200 bushels per acre and to $6.34 per bushel at 180 bushels per acre.
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Similarly, with soybeans, using direct expenses of $320 per acre, overhead expenses of $80 per acre, land rent of $275 per acre, and a management fee of $60 per acre, the total costs would be $735 per acre. The breakeven soybean price to cover the cost of production and land rent would be about $12.25 per bushel with a yield of 60 bushels per acre, which would increase to approximately $14.70 per bushel with a yield of 50 bushels per acre. There can be big differences in crop yields and expenses from farm-to-farm, which can cause breakeven prices to vary compared to the average. Based on 2023 FBM records for Southern Minnesota, the average breakeven prices on cash rented land to cover direct expenses and overhead costs, plus about $55 per acre return to management was $4.96 per bushel for corn and $11.71 per bushel for soybeans. The 2023 FBM average yields in the same region were 203 bushels per acre for corn and 57 bushels per acre for soybeans.
Considerations for
Flexible  Cash Leases
An alternative to a flat cash rental rate that may be difficult to “cash flow” would be for a farm operator and landlord to consider using a “flexible cash lease” agreement that allows the final cash rental rate to vary as crop prices and/or yields vary or exceed established targets. The use of a flexible cash rental lease is potentially fairer to both the landlord and the farm operator, depending on the situation and how the lease is set up. Most flexible leases have been modified in recent years into a “bonus rent” agreement that uses a reasonable “base rental rate” that can “flex” upward with an added rental payment to the landlord, if the “base” crop yield and/or base crop prices (or the base crop revenue per acre) are exceeded; however, the final rental rate does not drop below the base rental rate. The big key, regardless of the flexible lease agreement, is that both the landlord and tenant fully understand the rental agreement, and the calculations that are used to determine the final rental rate.
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Utilizing “flexible cash lease agreements” between farm operators and landlords can be a good management strategy as an alternative to extremely high straight cash rental rates; however, these agreements need to be fair and equitable to all parties. Landlords also need to be willing to adjust the “base” cash rental rates lower as necessary if crop margins become quite tight in future years. It is extremely important that all aspects of a flexible land rental lease agreement be detailed in a signed written rental contract that includes the base rent, yield, and price determination, as well as other provisions of a flex lease. Successful “flexible cash lease agreements”, just as any other long-term cash rental agreement, have always involved cooperation, trust, and good communication between the farm operator and the landlord.
Resources for Land Rental Agreements and Flexible Leases
For additional information on flexible rental leases, land rental rates, and 2025 crop budgets, as well as sample lease contracts, please forward an e-mail to: [email protected]. Some other good resources on
flexible cash leases, including sample cash rental contracts, are available on the Iowa State University “Ag Decision Maker” web site at: http://www.extension.iastate.edu/agdm/, as well as through University of Minnesota Extension at: https://extension.umn.edu/business/farmland-rent-and-economics.
Note - For additional information contact Kent Thiesse, Farm Management Analyst, Green Solutions Phone - (507) 381-7960; E-mail - [email protected]