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Determining the Average Cash Rent Based on Productivity Index

Posted by Terri Miller -

Looking for a better way to determine average cash rents? Gary Schnitkey with the U of I has some good information posted on FarmDoc Daily.

Permalink: http://farmdocdaily.illinois.edu/2017/11/determining-average-cash-rent-productivity-index.html

Individuals often desire to arrive at an average cash rent given a farm's inherent productivity. Herein, a method is presented for determining a 2017 benchmark rent based on that parcel's productivity index. Given the variability in rents, a parcel's actual cash rent can vary from the benchmark rent. Landowners should expect farmers to attempt to re-negotiate lower cash rents if the 2017 cash rent is near or above the 2017 benchmark rent.

Productivity Indexes

Productivity indexes (PIs) published in Bulletin 811, entitled Optimal Crop Productivity Ratings for Illinois Soils, often are used to quantify yield potential of Illinois soils. This publication gives PIs for different soil types. Higher PIs typically are associated with higher corn and soybean yields.

Figure 1 shows a map made available by the National Resources Conservation Service (NRCS) of PIs across Illinois, with dark green colors reflecting higher PIs, and yellow and red colors being associated with lower PIs. As expected, the highest PIs are located in east-central, west-central, and northern Illinois. The counties with the highest PIs are Piatt (east central with 138 PI), Macon (east central with 137 PI), Champaign (east central with 136 PI), Logan (east central with 135 PI) and DeKalb (northern with 135 PI). The counties with the lowest average PIs are located in southern Illinois: Williamson (85 PI), Calhoun (89 PI), Johnson (91 PI), and Perry (92 PI), and Monroe (94 PI).

fdd110717_fig1.jpg



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