High interest rates and tight profit margins require landowners to increase their farm income. However, it can be difficult to justify higher farmland rental rates than the USDA county averages.

But USDA isn’t the only source of industry benchmark data. In fact, CommonGround’s proprietary CashRentstimate algorithm can assess your farmland value more accurately. Read on to learn why it’s a better tool for calculating cash rental rates. 

CashRentstimate is CommonGround’s proprietary algorithm for calculating the true value of a piece of farmland. It takes into account over fifty different demographics to make this calculation, including:

These data are then analyzed by a multiple linear regression algorithm, a machine learning technique that finds the most powerful variables and weights them more heavily. Because different states have different priorities, we’ve tailored the CashRentstimate to specific conditions and predominant crops within 20 individual states. 

For example, North Dakota produces more canola and winter wheat than Illinois. As such, canola and winter wheat weigh more heavily in the North Dakota CashRentstimate than they would in Illinois. 

Once the variables have been weighted properly, the CashRentstimate correlates each of those 50 variables with cash rental rates for the given region, combining them into a single formulate that generates the most accurate estimate possible.

Instead of calculating cash rental rates based on a single metric, like 10-year county averages—the CashRentstimate takes into account all the factors that impact land value and profit potential. The estimate produced is based on facts, not guesses. 

So the big question you’re probably asking now is: why trust the CashRentstimate over USDA? While USDA published figures are commonly accepted among farmland owners and their tenants, relying on them exclusively can give you an inaccurate picture of the true value of your farmland. 

USDA published figures are based on data captured through farmer self-reporting. This means as comprehensive as it is, USDA data falls prey to the inherent weaknesses of survey data—most notably, farmer bias. 

In this case of cash rents, farmers have an incentive to keep the county average low. As a result, they may under report the amount they pay in rentals to drive down the average and, by extension, expectations of payment in future seasons.

Another challenge that USDA published figures face is that they’re based entirely on a single demographic: cash rental rate. 

So while you can have a good sense of fair market value for that region, you don’t really get accurate information about that specific piece of land. There are a number of factors specific to your farmland that could justify higher rental rates:

While USDA published figures don’t take these land-specific demographics into account, the CashRentstimate does. That way, you lease your farmland at a rate that reflects its true value. 

USDA figures are based on ten-year county averages. This means that even if your land value spiked this year, odds are your cash rents aren’t keeping up—because USDA is still factoring ten-year-old prices into their averages.

If you want to charge a fair price based on the value of your land today, not ten years ago, you need a way to quantify that value based on up-to-date metrics. Our CashRentstimate algorithm helps you do just that. 

The fact that farmers report cash rental payments to the USDA, which are then used as the basis for determining the fair value of a cash rental agreement in following years, runs the risk of creating a positive feedback loop. 

This is especially true if you newly acquire a piece of land, and find out the previous owner gave the farmer a sweetheart deal. They could be charging $200 per acre, when the value of the land is now $350. This drives down the county average, which is then used to justify future similar prices. 

The problem with positive feedback loops is that they can perpetuate arbitrary figures that aren’t based in anything concrete or substantial. Instead, CashRentstimate calculates your land’s true value as the basis for your cash rental rates. 

By providing a more accurate picture of your farmland value, a CashRentstimate can materially impact the health and profitability of your operation. Here are some specific benefits you’ll realize from using the tool. 

Because CashRentstimates nearly always lead to higher cash rental rates than USDA published figures, you can recoup the investment in your farmland faster. In one case, a landowner we work with was able to realize a positive ROI two years sooner than originally anticipated. 

Because historical lease values are one factor (of many) that determine the market value of farmland, raising your lease rates can contribute to higher farmland valuation. This can help you improve your equity in the asset, even before you recoup all your investment costs. 

Key to a successful farm partnership is transparent communication between landowner and tenant. A CashRentstimate can provide an objective standard by which you can evaluate your piece of land, instead of making the farmer take your word for it. 

Interestingly enough, half of CashRentstimates are requested by farmers, not landowners. Farmers are just as interested in being fair-minded when negotiating their lease, but they also want full transparency into the true value of the land. 

The vast majority of farmers filling out CashRentstimates and bidding on properties listed on CommonGround are below the age of 40. As such, filling out a CashRentstimate and listing your property on CommonGround can be a great way to attract younger farmers and increase your operational longevity. 

Ready to get the most out of your farmland? Get a free CashRentstimate today to see the true value of your asset.