Illinois State University ISU ReD: Research and eData Theses and Dissertations 3-16-2020 Increased Usage Of Cash Rent: Factors Influencing Illinois Farmland Leases Over The Past Two Decades Jacob Styan Illinois State University, jacobstyan13@gmail.com Follow this and additional works at: https://ir.edu/etd Part of the Agriculture Commons Recommended Citation Styan, Jacob, "Increased Usage Of Cash Rent: Factors Influencing Illinois Farmland Leases Over The Past Two Decades" (2020). Theses and Dissertations.edu/etd/1212 This Thesis is brought to you for free and open access by ISU ReD: Research and eData. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of ISU ReD: Research and eData. For more information, please contact ISUReD@ilstu.
INCREASED USAGE OF CASH RENT: FACTORS INFLUENCING ILLINOIS FARMLAND LEASES OVER THE PAST TWO DECADES JACOB STYAN 50 Pages In recent decades, cash rent leases have become increasingly popular amongst farm landowners in Illinois. Since 1995, a 44 percent rise has been seen in cash rent lease usage in Northern Illinois, a 105 percent increase in Southern Illinois, and a 117 percent increase in Central Illinois for acres enrolled in the Illinois Farm Business Farm Management Association. The rise in cash rent lease usage has been attributed to many factors such as crop yields, commodity prices, commodity payments, and crop insurance. This study aims to examine the potential factors driving the shift in use of cash rent leases in Illinois.
Using data from the USDA National Agricultural Statistics Service (USDA-NASS), the Environmental Working Group (EWG), and University of Illinois farmdoc, factors influencing cash rent leases in Illinois were examined. Data was collected from all 102 counties in Illinois over a 21-year period. Comparisons were made across three regions in Illinois (Northern, Central, and Southern) using a fixed effects regression model. Results indicate that crop insurance payments (p < 0.05), and commodity payments (p < 0.05) have all influenced the increasing use of cash rent leases in Illinois.
Corn and soybean yield were found to have no influence on increasing cash rent usage in Illinois. While only 5,500 Illinois farms were examined in this study, the findings can be viewed as a starting point for why the usage of cash rent leases are increasing in Illinois. With agriculture consistently changing, any variations that occur to the variables examined in this study could potentially have major ramifications on the leasing market in the years to come. KEYWORDS: Cash Rent Usage; Farmland Leasing; Fixed Effects Model INCREASED USAGE OF CASH RENT: FACTORS INFLUENCING ILLINOIS FARMLAND LEASES OVER THE PAST TWO DECADES JACOB STYAN A Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of MASTER OF SCIENCE Department of Agriculture ILLINOIS STATE UNIVERSITY 2020 Copyright 2020 Jacob Styan INCREASED USAGE OF CASH RENT: FACTORS INFLUENCING ILLINOIS FARMLAND LEASES OVER THE PAST TWO DECADES JACOB STYAN COMMITTEE MEMBERS: Maria A.
Boerngen, Chair Michael J. Rickard ACKNOWLEDGMENTS First and foremost, I would like to thank my advisor and committee chair Dr. Without the help and support of Dr. Boerngen, this project would not have been possible.
Boerngen has always pushed me to step outside my comfort zone and challenge myself, which has helped me become a better person, and for that, I am extremely grateful. I would also like to thank the other members of my committee, Dr. Michael Barrowclough and Dr. Justin Rickard, for all the help and support they provided me with my thesis.
I would like to thank Dr. Barrowclough for all the assistance he gave with SPSS and statistics. Without your help, I would not have been able to run my fixed effects model. I would also like to thank the faculty and staff of the Department of Agriculture at Illinois State University for nurturing an exceptional learning environment and allowing students to pursue their passions.
After spending the last 6 years at Illinois State University, I could not imagine going anywhere else. To my officemates, George Hoselton, Samuel Johnson, Josh McWilliams, and Brianna Messman, thank you for all the help, support, and good times we shared together. Additionally, to Aidan Walton and Frederick Adomako, thanks for all the guidance and advice you provided me with. Thanks to all of you for the friendships that we have formed over my time here.
Finally, I would like to thank my family for all the support they have given me throughout my life. I am forever grateful to them for all they have done for me. i CONTENTS Page ACKNOWLEDGMENTS i TABLES iii FIGURES iv CHAPTER I: GENERAL INTRODUCTION 1 Thesis Organization 3 CHAPTER II: MANUSCRIPT 4 Abstract 4 Introduction and Background 4 Literature Review 5 Data 10 Analysis 11 Models 13 Results 15 Model 1 15 Model 2 16 Model 3 17 Model 4 18 Implications/Conclusions 19 Tables and Figures 21 CHAPTER III: REVIEW OF THE LITERATURE 37 REFERENCES 45 ii TABLES Table Page 1. Average Crop Yield and Commodity Prices Per Year 21 2.
Average Commodity Payments Received Per Year 22 3. Average Crop Insurance Payments Received Per Year 23 4. Farmland Tenure by Year 24 5. Descriptive Statistics of Illinois for all Counties, 1995-2015 25 6.
Descriptive Statistics of the Counties in the Northern Region, 1995-2015 26 7. Descriptive Statistics of the Counties in the Central Region, 1995-2015 27 8. Descriptive Statistics of the Counties in the Southern Region, 1995-2015 28 9. Fixed Effects Regression Model 1 29 10.
Fixed Effects Regression Model 2 30 11. Fixed Effects Regression Model 3 31 12. Fixed Effects Regression Model 4 32 iii FIGURES Figure Page 1. Map of Illinois Regions 33 2.
Land Tenure in Northern Illinois 34 3. Land Tenure in Southern Illinois 35 4. Land Tenure in Central Illinois 36 iv CHAPTER I: GENERAL INTRODUCTION This research study aims to better understand why cash rent leases have been increasingly used in recent years in Illinois. From 1995 to 2015, cash rent usage saw an increase from 41 to 59 percent (a 44 percent rise) in Northern Illinois, 20 to 41 percent (a 105 percent rise) in Southern Illinois, and 18 to 39 percent (a 117 percent rise) in Central Illinois, among farms enrolled in the Illinois Farm Business Farm Management Association (FBFM) (Lattz, 2016; Lattz and Zwilling, 2020; Schnitkey, 2002; Zwilling, Krapf, and Raab, 2013).
Following trends toward more cash rent lease usage, cash rent prices have also been increasing. In Illinois, from 1987 to 2014, cash rent prices increased, on average, 3. Since 2006, cash rent prices have increased annually by 7. A high proportion of Illinois farmland falls under rental agreements.
According to the 2017 Census of Agriculture, just over 58 percent of farmland in Illinois was leased, while nearly 42 percent was owner-operated. Nationally, it was found that 39 percent of all farmland acres in the U. were rented, with the remaining 61 percent being owner operated (USDA-NASS, 2017). Bigelow, Borchers, and Hubbs (2016) found that of the 911 million acres of farmland currently being used in the contiguous 48 states, nearly thirty-nine percent of that farmland was being rented.
Twenty percent of the rented land, or 70 million acres, was found to be rented by “operator landlords” (Bigelow, Borchers, and Hubbs, 2016, p. These are landowners who currently farm but also rent out a portion of their land. The other eighty percent of rented land, or 283 million acres, came from landowners who do not participate in farming. Bigelow, Borchers, and Hubbs (2016) found that over seventy percent of the rented acres in the survey used a fixed- cash rent agreement.
1 Absentee landowners play a large role in cash rent lease usage. For the purposes of this study, absentee landowners are defined as landowners who do not permanently live on the property that they own (Petrzelka, 2012; Petrzelka and Armstrong, 2015). Absentee landownership has been increasing in recent years, and it has been observed that absentee landowners are more likely to try use cash rent leases to provide stable returns (Barry et al. Using cash rent leases to provide consistent returns is a way to mitigate risk in contract selection.
Share rent contracts have a greater income risk for landowners, due to possible changes in crop yields and the potential of negative returns, which is different from cash rent contracts (Harwood et al. Cash rent contracts guarantee a set income per acre, making them inherently less risky for landowners. The purpose of this study is to better understand the factors that potentially affect usage of cash rent leases in Illinois in recent decades. Because of the challenges these trends can present to farm operators, it is important to understand why cash rent usage has increased at the same time that per-acre cash rent prices have also increased.
Seeing a significant rise in cash rent lease usage becomes a problem especially when coupled with lowering farm incomes because farmers may not be able to afford to pay such high prices for land rental. When cash rent prices increase, it becomes even more challenging for farmers to earn positive returns on cash rented land. With farmland being a finite resource, trending towards more cash rent lease usage becomes an issue, especially when farmers who cash rent their land earn negative returns on those acres. Cash rent returns have been trending downward since 2011, with negative returns being experienced in 2014, 2015, and 2017.
Slightly positive returns were seen in 2016 due to higher yields and high Agricultural Risk Coverage (ARC) payments (Schnitkey, 2017a; Schnitkey, 2017b). Determining which factors make the biggest impact on leases will also help 2 with identifying why cash rent leases are growing in popularity, helping both farmers and landowners understand these changes. This study identifies factors that may influence the shift towards cash rent leases and what can be done to help landowners and operators select contracts that will be mutually beneficial to both parties involved going forward. Thesis Organization This thesis is an alternate format.
It includes a general introduction, a manuscript formatted according to the Journal of the American Society of Farm Managers and Rural Appraisers, and a review of the literature. 3 CHAPTER II: MANUSCRIPT Abstract In recent years, cash rent leases have become increasingly popular amongst farm landowners in Illinois. Since 1995, cash rent usage has increased 44%, 105%, and 117% in Northern, Southern, and Central Illinois, respectively for acres enrolled in FBFM. Using data from USDA-NASS, EWG, FBFM, and University of Illinois farmdoc, information on several variables was collected from all 102 counties in Illinois over a 21-year period to examine their impact on the leasing market.
Results indicate crop insurance payments, corn price, soybean price, corn revenue, soybean revenue, and commodity payments have influenced the increasing use of cash rent leases in Illinois. Introduction and Background Over the last two decades, Illinois has experienced a dramatic increase in the use of cash rent leases. From 1995 to 2015, cash rent usage saw an increase from 41 to 59 percent (a 44 percent rise) in Northern Illinois, 20 to 41 percent (a 105 percent rise) in Southern Illinois, and 18 to 39 percent (a 117 percent rise) in Central Illinois, among farms enrolled in FBFM (Lattz, 2016; Lattz and Zwilling, 2020; Schnitkey, 2002; Zwilling, Krapf, and Raab, 2013). These three regions are illustrated in Figure 1, with their respective changes shown in Figures 2-4.
Following the trend towards more cash rent lease usage, cash rent prices have also been increasing. In Illinois, from 1987 to 2014, cash rent prices increased, on average, 3. Since 2006, cash rent prices have increased by 7. Based upon the 2017 Census of Agriculture, it was found that just over 58 percent of farmland in Illinois is leased, while nearly 42 percent is owner-operated.
Nationally, it was found 4 that 39 percent of all farmland acres in the U. are rented, with the remaining 61 percent being owner operated (USDA-NASS, 2017).