2007 Land Rental Guide for the Shenandoah Valley

Farm Business Management Update, April - May2007

By Bill Whittle (wwhittle@vt.edu) and Tom Stanley (stanleyt@vt.edu), Extension Agents, Farm Business Management, Northwest District

During late fall 2006, the Extension's Northwest District Farm Business Management staff surveyed Shenandoah Valley farmers in 14 counties on land rental values. A total of 311 landowners and tenants representing 663 separate lease agreements responded to the survey. Respondents were split almost evenly between landlords and tenants with 56.9% landowners and 46.6% tenants. Several respondents indicated that they were both a landlord and a tenant.

This information is not intended to be a specific recommendation for rental rates but should be used by landowners and tenants as a reference point in determining the fair market rental value for land. Farmers, agricultural lenders, and others can use this information in developing budgets and the viability of expansions. This information is also useful for estate management in a farm transition with using Section 2032A of the IRS code which requires knowledge of lease rates.

Terms of leases vary greatly from contract to contract: 37.7% of those answering the survey said that their lease agreements were written documents while 62.3% said that their leases were oral. In many situations, individuals had both oral and written lease agreements. The percentage of written agreements remained virtually unchanged since the last survey and Guide in 2005. However, many respondents commented that they found it useful to have the terms of the lease spelled out so that neither party would be caught unaware.

The tables summarize results of the 2007 survey. It provides the average rental rate and length of lease for use of land. However, averages tell only part of the story. Knowing the range in lease rates and length of lease that have been negotiated is valuable. These data are also available from the tables.

Averages are reported by county and for the Shenandoah Valley. All averages are weighted averages, meaning that larger tracts of land rented at a given rate have more influence on the overall average rate than a small parcel of land. Rental rates are reported for the following categories: Pasture per acre and Pasture per head; Good Cropland and Average Cropland as determined by soil productivity groupings and farmer management in a typical year (Good Cropland = Class 1 & Class 2 and Average Cropland = Class 3, 4, and 5 land -these categories also include hay land); Whole Farm leases; and Dairy Farm leases.

The reliability of the average figures reported increases as the number of responses increase. The tables show the number of responses providing data for a specific category. To maintain the confidentiality of the survey, no data were reported for a county unless at least three lease agreements were reported. However, these data were used to compile the Shenandoah Valley average. In certain counties, insufficient responses were available to report both Average and Good Cropland. In these circumstances the average and good responses were combined if the average and range of both were similar. This procedure allows for more data to be shown without skewing the information.

Within the rental category, the very high rental rates were generally for smaller parcels of land, and the very low rental rates often had other circumstances involved such as the desire by landowner to maintain Land Use Valuation on the parcel or a family relationship between landowner and tenant. There were also what appeared to be unique circumstances for a parcel of land that met very specific needs of the tenant.

Cash lease agreements were the predominant form of lease, but in several cases, landlords and tenants participated in Crop-Share Leases. 11.3 % of the lease agreements reported were based on the Landlord and Tenant sharing in the expenses, risk of production, and harvest of the crop. Hay was the primary cost-share lease crop but a few leases involved grain and silage. The percentage share was quite variable. In most of the reported leases, the Crop-share was between family members with both parties farming or between non-related parties where the landlord receive a portion of the hay for his livestock.

Barter agreements are complex and difficult to compile as an average and range because each barter situation is different. Past surveys have indicated that a notable number of leases use barter. In the 2006 survey, 48 individuals or 15.4 % of the landowners and tenants reported being involved in a barter situation. Though difficult to determine averages because of their complexity, most barter rentals involved hay and pasture on small acreages, i.e. under 30 acres. Generally, the tenant has to keep the land mowed and cleared of brush and often provides feed and sometimes care for a few horses or other livestock. In several instances, year round caretaking responsibilities such as mowing the lawn, snow removal, and lane maintenance are involved while other tenants provided beef to the landowner. In some situations hunting rights on other land were part of the arrangement. The two primary reasons given for participating in a barter agreement were to keep the land maintained in a productive state and to be eligible for land-use taxation rates.

Over the past several years and surveys, land rental rates in the Shenandoah Valley and any specific county have trended up. This up-trend, though, has not been steady for a specific county as noted by decrease in average rates in some situations. The Shenandoah Valley, as a whole, shows slow increases, but again, specific counties may have had substantial increases in certain categories.

Table 2: Pasture Rates Per Head

Visit Virginia Cooperative Extension