Farmland is a finite resource. Once converted to other uses in most cases it cannot be reclaimed. The old days when some folks owned farmland as a tax write-off are gone. Once we moved past crop-share leases to cash rent leases those write-offs disappeared for landowners.

But, the price of farmland keeps escalating and as far as a valued investment, it certainly is that. The unfortunate part for those who farm is that sometimes scraping together the capital to purchase farmland for your livelihood can be very difficult. Usually leaving those farming to take a tenant status in order to rent a farm from a landlord.

Let’s look a little at farmland ownership in the US a get a clearer picture about what really goes on out there on all those acres we see.

In 2022, 39% of agricultural land was rented – a proportion that has remained relatively stable for over 50 years. When deciding how to acquire land, rising farm real estate values can be a valuable asset or an extra hit to growing production expenses. Farmers and ranchers who operate a mix of owned and rented land make up over half of agricultural land in production and are affected by both sides of land value spikes.

USDA has three different classifications for land “tenure”: Full owners who only operate land that they own outright; Part owners who operate a mixture of owned and rented land; and tenants who exclusively rent their land. According to USDA there are over 880 million acres of agricultural land – comprising all cropland, rangeland and forestry land – in the United States, down more than 15 million acres from 2017. Full owners operate nearly 312 million acres of ag land, and this was the only tenure classification that increased from 2017 to 2022 despite the decreases in overall ag land acres. Still, 52% of ag land is operated by part owners, and less than 10% of ag land is operated by someone who exclusively rents land. Overall, this amounts to 39% of all acres being leased.

Twenty-eight percent of farms operate partly or entirely on rented land. These operations are generally larger than fully owned operations, with a national average size of 1,155 acres and 655 acres for part owners and tenants, respectively, compared to a full owner’s average 230 acres. As we continue to lose farming operations, the size of farms of each tenure type continues to grow through consolidation. The average part owner farm grew 13% between 2017 and 2022, more than double the growth rate of full owner or tenant operations.

Land ownership varies between state and crop type. Most of the ag land in the Southwest and Northeast are owner-operated while operating rented land is more prevalent in the Great Plains and Midwest.

In Illinois 65% or farmland is rented and in those states surrounding the Land of Lincoln Iowa is 44% rented, Wisconsin 32% and Indiana 48%.

Row crops – oilseed and grain, tobacco and cotton – are the only crops primarily produced on rented acres. These crops can be easily rotated and do not require long-term changes to their fields, making it easier for renters to alter the land to their management system and for landlords to recover the land at the end of a lease. In both 2017 and 2022, 53% of oilseed and grain crops and tobacco harvested acres were rented. Cotton had the highest rates of rental production in 2017 with 63% of harvested acres rented. After extreme heat and drought in Texas reduced harvested cotton acres in 2022, only 49% of harvested cotton acres were rented. When crop conditions are poor, renters are more likely to suspend their production as they face additional expenses to operate those fields while also facing revenue losses.

When production requires significant investments – such as specialized structures or long-producing plants – farms are more likely to be operated by the owner. Fruit and tree nuts, sugarcane and hay and aquaculture or other animals have the highest proportion of owner operators with 88%, 81% and 86% of land owned, respectively. Orchards generally take many years after planting to begin producing but can continue to produce for years or even decades. Choosing to produce these crops is a long-term investment, so renting land may not lead to efficient returns over the entire production horizon. Extra investments might also come in the form of specialized equipment where a complex system – such as in aquaculture – is installed and does not easily transfer from lessee to lessor at the end of the contract.

As agricultural land values continue to rise, the decision to operate owned versus rented land becomes even more crucial. Farms need enough working capital to sustain day-to-day operations. With cash receipts declining across the ag economy, increased real estate values can be used to support financing for operating loans – but only for owners. An important consideration is that increases in land value have slowed, but overall farm debt continues to rise. So, while land values might be a short-term aid to providing capital during rough years, there is no guarantee that they will grow long enough to sustain prolonged borrowing. For farms operating on rented land, high rental rates simply add to the need for operating capital and increase farm debt if the land’s return doesn’t cover the expense. Cash rents rise and fall with land values but with some lag, so when land prices rise with high crop returns, farmers can face higher rents even after returns have declined –exacerbating a poor bottom line.

As land prices continue to rise, land attainment is one of the most significant barriers to entry for a new generation of farmers and ranchers. Young farmers and ranchers, ages 35 and under, are naturally more likely to rent land than other producers. Less than a quarter of young farmers and ranchers outright owned all the land they operated on in 2022, and they’re almost twice as likely to exclusively rent land. For young farmers that come from farm families, renting may be the first step to operating their own portion of farmland or ranchland. As they grow in their management, they can take on more responsibilities on the family land, becoming the principal operator on a larger mix of owned and rented acres. On the other hand, beginning farmers and ranchers – those with less than 11 years of experience on any farming operation – are more likely than the general population to operate only owned land: 40% of beginning farmers are full owners. The average age of beginning farmers and ranchers is 47 years old. This group on average began farming later in life, so they likely had more capital and financing options to purchase land outright to begin their operation. Beginning farmers and ranchers are still more likely than the general producer to be a tenant, though.

As we closely follow the recent dreary outlook for farm finances, land tenure is one crucial piece that can aid or harm farmers and ranchers. Increases to land competition as well as long-term prospects for farming, may drive farmland values up in many places, even as short-term farm returns decline. This raises costs for rented farm operations but gives owners an increasingly valuable asset. The share of agricultural land that is rented has remained around 40% for decades despite farm closures and consolidations, and through other down ag economies.

“Buy land. They are not making it anymore.” -Mark Twain

Ron Kern is the manager of the Ogle County Farm Bureau.