2009 Land Rental Guide for the Shenandoah Valley

Farm Business Management Update, April - May 2009

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

During late fall 2008, Cooperative Extension's Northwest District Farm Business Management staff surveyed Shenandoah Valley farmers in 14 counties on land rental values. This survey was taken during the time that farming inputs were still at record highs but commodity prices had fallen substantially. 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 and agricultural lenders can use this information in developing budgets and to determine the viability of expanding the operation. This information is also beneficial when using Section 2032A of the IRS code in planning the farm transition to the next generation.

A total of 436 landowners and tenants representing 605 separate usable lease agreements responded to the survey. Respondents were split almost evenly between landlords and tenants, with some respondents indicating they were both a landlord and a tenant. Terms of leases vary greatly from contract to contract. Written lease agreements constituted 30.2% of those answering the survey, while 69.3% said that their lease was oral. In many situations individuals had both oral and written lease agreements. The percentage of written agreements is similar to that found in past surveys. However, many respondents commented that they found it useful to have the terms of the lease spelled out so neither party would be caught unaware.

The tables summarize the results of the 2009 survey. The most looked-at value is average rental rate for the various uses of agriculture land within a county. However, averages tell only part of the story. It is valuable to know the high-low range of these lease rates and the rates and ranges for the surrounding counties.

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. The latter categories 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 was reported for a county unless at least three lease agreements were reported. However, this data was used to compile the Shenandoah Valley average. In certain counties there were not enough responses 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 allows for more data to be shown without skewing the information.

Within a 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.

Cash lease agreements are the predominant form of lease and the only information reported in the tables. However, many landlords and tenants participate in Crop-Share Leases. Approximately 10% 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 there were a few leases involving grain and silage. The percentage share was quite variable. In a majority of the reported leases the crop-share was either between family members with both parties farming or between non-related parties where the landlord receives 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 and this survey was no exception. 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 provide beef to the landowner. There are situations where hunting rights on other land was part of the arrangement. The two primary reasons that were 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.

A new category on the 2008 Land Lease Survey dealt with leasing the hunting rights on land. Only 14.2% of over 200 respondents who answered the questions responded that they had some type of Hunting Lease. Many of these agreements appeared to be separate from the farm land lease agreements, though it may cover the same land. Rate per acre ranged from $2.66/acre to $16.40/acre. Species allowed to be taken ranged from deer only to all species when in season. In addition to cash, the tenant often agreed to post the property, to protect the property from trespassers and help keep the land productive for wildlife.

Over the past several years the land rental surveys have shown that land rental rates in the Shenandoah Valley have trended up. The Shenandoah Valley as a whole shows slow increases over time, but specific counties may have a substantial increase in certain categories.

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