In the U.S., owning property is often thought to be a better option than renting, but with agricultural land, that might not be so.
For most farmers, unless you inherit farmland, renting or going into debt are the only options.
Brice Custer, of Hays, fits into this category. As Custer did not grow up on a farm, he had to acquire or rent his land in Graham and Trego counties.
“We haven’t had the right opportunity to buy,” said Custer, who runs Custer Farms. “Renting is a lot easier.”
According to a USDA March 2020 report, for the past half-century, the national share of farmland that is owner-operated remains stable.
In 2018, the value of U.S. farm real estate totaled $2.51 trillion. As of 2016, according to the USDA, about 40% of the 911 million acres of farmland on the U.S. mainland was rented, with the majority being leased for crop land.
“We tend to have 45% of our (Kansas) ground rented,” said Mykel Taylor, agricultural economics professor at Kansas State University. “Southwest and south central Kansas have slightly more (rental properties); southeast Kansas has a bit less.”
In a report produced by Taylor, aside from Sedgwick County and the Kansas City Metropolitan Area, the least expensive non-irrigated land in Kansas is in the southwestern counties, with higher-priced land in the far eastern and north central part of the state. These prices range from just under $1,000 per acre in the southwest to about $3,500 per acre in the far eastern part of Kansas.
“The higher the land prices,” Custer said, “you’re way better off renting.”
The recent COVID-19 pandemic has brought more city dwellers thinking about country living.
“My calls have increased,” said Jim Elliott, a Kansas-based Realtor with Hayden Outdoors, a national real estate company that sells and manages farm and ranch land in 16 states. “Prior to the pandemic, it was slow. Now, people in the metropolitan areas are literally stating they want to get out and find rural homes.”
Elliott said his calls are coming from Wichita, Kansas City, Hutchinson and out-of-state — particularly the East and West Coast.
“Investors, with the stock market going down, are looking to buy farmland or recreational land,” he said. “Something they can put their money in.”
“Income potential is not there for farmland,” said Dan O’Brien, a K-State agricultural economics professor in Colby. “Low commodity price is affecting the estimated bottom line for producers.”
For this reason, many farmers statewide are choosing to rent. Once they own the property, if prices go lower, or an emergency occurs, they are stuck with the payments.
“In Kansas we think owning is better, but a lot of the big or medium operations are renting,” said Frank Choriego, associate director of Kansas SBDC at Wichita State University. “Bigger farmers are renting a lot of land and farming 8,9,10 thousand acres. Once you get bigger, the cost goes down.”
Crop shares versus cash lease
There are two ways to rent farmland: crop sharing or cash leasing. With crop sharing, the farmer and landowner share a percentage of production costs and reap the benefits — or losses — proportionally.
If the landlord is either generationally or geographically removed from the land, it is usually easier for the farmer to lease. According to Taylor, 40% of rented farmland in Kansas is crop shared, the rest is leased.
“Western Kansas still has purportedly more crop share than eastern Kansas,” Taylor said. “If you’re renting from a retired farmer, they understand the expenses. Otherwise, you have to explain item by item.”
Custer cash leases about 60% of his land.
“We purchase the surface rights,” he said. “It’s no risk for them.”
Custer is a no-till farmer who utilizes cover crops. Each year, through his farming methods, he adds more and more nutrition into the soil. But because he rents, even though it is helping the property, he does not have to explain his methods.
For Michael Thompson who uses cover crops and no-till methods on his farm in Almena, Kansas in Norton County, crop sharing is the right approach. He crop shares two of his parcels and rents one. Because Thompson crop shares from a retired farmer, he said the relationship works well.
“It gets the landowner a little more involved,” he said. “But if they are four or five generations removed, it makes it harder. It makes them a little more apprehensive. As you improve the soil and do a better job, they understand it more.”
Taylor said 17 to 18 years in a leasing relationship is average in Kansas.
“Some farms, in order to get bigger can grow through renting ground,” she said. “It becomes costly to try to keep track of crop share for multiple landlords.”
In addition, it is much easier to acquire rented land. Often farm and pasture land are not sold but passed down.
“There’s upsides and downsides to both renting and owning,” Thompson said. “Whether you rent or own, if you take care of the land, it takes care of you.”