If either the USDA or the landowner does not renew a contract on Conservation Reserve Program acreage and it becomes available for cash rent, what would be a fair rent for it? It is probably not class A farmland or it would be in corn and soybeans and not CRP. But if it could be row cropped, how much should a land owner reasonably expect and how much should an operator reasonably offer?

When the global financial dilemma is resolved and demand returns to the commodity market, the bidding race will be on for acreage. Some of the land in the CRP will be a target for crop production, but what is it worth, and how is that determined? Iowa State University agricultural economists looked at how the biofuel demand spurred the acreage war and its impact on cash rents, and found that the resulting cash rent trends for pasture and forage land in Iowa would probably predict what would occur if CRP lands came into production. Their analysis notes that cash rents for Iowa farmland rose 18% from 2007 to 2008 because the biofuel demand pushed up commodity prices and created a bidding war for corn and soybean acreage. That was the impact for tillable farmland, but what about pasture and hay ground?

There is a variety of methods for determining the cash rental rate for farmland, including corn yield estimates, a cost-based method, changes in corn prices, and others. The economists used the results from a long-standing survey that Iowa State University takes to determine what farmers are paying for cash rents. However, the survey contains only limited data for land that is not row-cropped. The economists examined the current cash rent data and adjusted the rent levels to compare with an index of farm input costs. They found that between 2007 and 2008, the rental rate for cropland rose 3% in real terms, but in the same period the cash rent rate rose 13% for alfalfa hay fields, 9% for grass hay fields, 13% for improved pasture, and 16% for unimproved pasture. Their question to answer was whether the biofuel movement caused such an increase in cash rents for land that was not going to be involved with biofuel production.

What would cause such an increase?
1) The market for feeder calves improved and that requires more rental demand for pasture.
2) Corn and soybean price movements will have an impact on non row crop land.
3) Cash rents for row crop land are higher around metropolitan areas because of higher land values.
4) Land that is productive enough for row crops is also productive for hay and pasture.
5) Rents will be low in areas where there is an abundance of non-row crop land.

The Iowa State economists conclude that a higher corn price because of ethanol demand will cause some landowners to convert pasture to row crop production, and the demand from feeder cattle production will push up the rental rates for the land that is not producing corn and soybeans. They also found that farmers who buy corn to feed livestock lose because of the ethanol policies and farmers who rent pasture and forage land also lose by having to pay higher cash rental rates. And cow-calf operators who own their pasture land come out even in the end.

The economists forecast that higher returns to corn production because of the biofuel demand will encourage more CRP acreage to be converted to row crop production, or to production of cellulosic ethanol feedstocks, and that might put a greater demand on land that is not in row crop production currently.

Summary:
The rising commodity prices last winter indicated a bidding war for corn and soybean acres, but the process also caused higher cash rents for land that is not even in row crop production. Land that is used for hay and forage production and even pasture is commanding higher levels of cash rent because of the demand for biofuels and cattle production. The trend indicates that land coming out of the Conservation Reserve could draw cash rents that would parallel the higher rents being seen for the non row crop farmland.