Flexible Farm Lease Agreements

Rental prices for arable land have risen dramatically in recent years, with commodity prices reaching record levels and remaining high compared to historical averages. When grain prices fall, rent prices often lag behind and do not fall as quickly. As a result, farmers will have high rental prices, which will result in a loss for the year. Market volatility and uncertain yields make it difficult to set up a fair cash rental price before each harvest year. To tackle this problem, some landlords and tenants use flexible leases that only set the rent after harvest. The final rental price is based on the actual prices and/or returns obtained each year. The Iowa Farmland Ownership and Tenure Survey 2017 showed that flexible leases accounted for 18% of all cash leases in Iowa. Flexible leases have the following advantages: the most common type of flexible rental requires the landlord to receive cash rent for a certain share of the gross proceeds of the harvest. The value of the harvest is determined by multiplying the yield actually harvested by the market price available, normally at the time of harvest. In this type of leasing, price and return risks are shared between the tenant and the owner in the same ratio as the gross receipts.

In this respect, it looks like a Crop Share Lease. This is a lease agreement in which rents are based on gross income from arable land. It may include a base payment during the harvest year and a final payment after the actual yield and price have been determined. One of the ways to share the risk and opportunities between the operator (tenant) and the lessor is to enter into a flexible land lease agreement. Iowa State Extension reported that nearly 12 percent of cash leases in 2008 were flexible. An interactive whiteboard for flexible agricultural lease analysis is available on the Ag Decision Maker website at www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xlsx. Some flexible leases use the average county return estimated by the USDA. This avoids the question of how to measure actual output and eliminates the influence that above- or below-average management capabilities have on yields. However, the average revenues of the USDA National Agricultural Statistics Service (NASS) are generally not announced until March of each year.

A secondary performance should be discussed if the performance of a given county is not reported. Many flexible cash leases require a basic return of any kind. The simplest method to obtain a basic yield is the use of crop insurance`s APH product, which is updated annually. Another alternative to determining a basic yield for a crop could be the use of the producer`s actual verified annual production on a holding that is average over a period of years. The actual calculation of on-farm yields for a given year may be determined by supporting documents, billing slips, scale notes, container measurements, grain cart scales, yield monitors or any other method acceptable to both the owner and the operator. Iowa State University Extension and Outreach Publication FM Iowa Farm Lease Form 1538/AgDM C2-12 contains a standard farm rental form….

Author: daniele130