Western Pa. Farmland Rental Rates on the Rise

10/12/2013 7:00 AM
By Ken Gulick Western Pa. Correspondent

It’s no secret that cropland rental rates have been on the rise the past several years, but people may not realize just how much rates have risen recently.

In western Pennsylvania, cropland that just a few years ago would rent for $25 per acre with little to no competition, today routinely brings upward of $100 an acre with sometimes intense competition.

The upward spiral of commodity prices that began in 2007 and culminated with last year’s record crop prices has been a major factor in the escalation of land rental rates.

According to a recent University of Iowa survey, rental rates across the Corn Belt have surpassed $250 per acre, with some areas bringing as much as $350 to $400.

Historically, many landowners simply wanted to make enough from land rents to pay for property taxes and other costs. Producers who rented the land sought a balance between rental rates and crop prices.

In today’s era of higher commodity prices, that traditional relationship between landowner and farmer appears to be changing.

A report compiled by Rabobank’s Food and Agriculture Division that was released in September shows a direct correlation between strong year-over-year commodity prices and farm rental and sales rates.

Although this trend is more pronounced in Western and Midwestern states, it has rippled into western Pennsylvania as well.

This year’s commodity prices may not be as high as last year’s, but according to the report they remain high enough to generate strong interest by producers across the country in obtaining more cropland.

The report goes on to theorize that although producers are on average in expansion mode, looming interest rate increases as well as lower commodity prices could unwind some of the recent uptick in land rental values.

According to Bill Goldscheitter a southern Butler County dairyman with around 200 milking cows and a total herd size approaching 400 head, local competition has risen dramatically the past several years.

“We strive to rent around 600 acres for corn and soybean production, and it’s definitely gotten harder to find crop ground,” Goldscheitter said.

Big operators routinely get into bidding wars over choice tracts of western Pennsylvania cropland, often driving the price to well over $100 an acre.

That represents a four-fold increase in cash rents in the last several years. Still, it’s hard for many western Pennsylvania crop and forage producers to envision paying upward of $250 to $300 an acre for rented ground although it’s a common Midwestern reality these days.

Recent high commodity prices have only served to amplify competition as dairy and livestock producers vie with cash grain and commodity producers to obtain cropland.

In addition to increased competition, crop and forage producers are now having to travel longer distances to obtain necessary acreages.

“We’re also traveling more road miles than ever before, and as our herd size has increased, so has our needed forage acreage base,” Goldscheitter said. “We routinely have to haul forage wagons several miles from rented ground back to the home place. We’re spread out pretty far these days.”

More miles between far-flung fields translates into increased cycle times, greater fuel consumption and increased maintenance requirements on tractors, forage harvesters and forage wagons.

The upward trend in rental ground rates is confirmed by Luke Fritz, executive director of USDA’s Farm Service Agency for Butler, Allegheny and Beaver counties

“We have seen an escalation of rental rates, particularly in regards to high-grade crop ground,” he said.

In his counties, Fritz said, the upward trend actually began five or six years ago and is tied to the market trend of rising commodity prices in general.

“We have seen some real competition, especially in southern Butler County along the Allegheny County line,” he said. “In this area, there are some large producers who definitely are aggressive when it comes to increasing their acreage base.”

While southern Butler County is primarily rural in nature, northern Allegheny County is more urban with large tracts broken by residential housing because of its proximity to Pittsburgh.

One would think land rental rates would skyrocket here, but Fritz said, “We see large operators leasing tracts in northern Allegheny County at really reasonable rates, in the neighborhood of $20 to $35 per acre, sometimes even for really nothing at all.”

Fritz said that because of the limited number of producers who will operate in a more urban environment, the pool of potential renters is greatly reduced, resulting in a niche area of less competition for available acreage.

In Armstrong County, the story is much the same, but with an interesting twist, according to Ed Houston, FSA director there.

Houston explained that Armstrong County has recently accepted new and decidedly higher Clean and Green agricultural land values from Harrisburg.

The Clean and Green program has long given Pennsylvania farms lower assessment values on land used for agricultural production. These values are then used by counties to calculate real-estate taxes.

Historically, many landowners were happy with renting cropland at a rate that would cover the real-estate taxes, Houston said. But with a higher Clean and Green value resulting in higher tax bills, some landowners have also bumped up their rental rates.

“We have not seen a dramatic rise in most of the county, but today’s trend is definitely rising rental rates across across Armstrong County,” he said.

Although commodity prices this year have been off last year’s highs, few people if any in western Pennsylvania believe that cash rents will fall in the near future.

According to Goldscheitter, “It’s obvious simply driving through southern Butler County, one will notice fields that were fallow for years are now planted fence row to fence row with crops.”

In this part of western Pennsylvania, he said, few operators have alternative land rental agreements such as flex rates based on the prices of each commodity, which are more common in the larger grain states.

In such cases, rental rates are tied to the commodity price, so that as the commodity price rises or drops at harvest, so does the per-acre rental rates paid by commodity producers.

“Around here, it’s still simply price per acre,” Goldscheitter said, and he’s still optimistic about the future of agriculture, particularly dairy and forage production.

“Although we’re paying more for good ground,” he said, “the higher crop prices have also breathed a lot of fresh air and new interest in agriculture in general.”

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