Ideas For Flexible Cash Rent Leases

By Jane Fyksen Crops Editor
Thursday, October 16, 2008 7:34 AM CDT

Producers are finishing up this crop season n and looking toward next year - in an economic environment unprecedented in their farming careers.

In the present chaotic state of the economy, the crystal balls of ag-industry prognosticators are fogged up. Producers are groping in the mist, worried and wondering if land values will begin to slide n and may not be able to stop. Amidst this turmoil, growers are trying to renegotiate cropland leases.

Bill Edwards, Iowa State Extension economist, says many tenants and landowners agree to set their cash rental rates on actual prices, yields and/or production costs each year n instead of fixing a rate in advance. If producers haven’t looked hard at flexible lease agreements before, it might be time to do so.

Recently, ISU surveyed producers on the flexible cash rental agreements they’ve been using. Although no two agreements are alike, Edwards says most fall into a few general categories.

One is flexible rent based on actual gross revenue. This is “the most common type” of flexible lease, according to Edwards. “In many cases the rate is simply a percent of the price times the yield. Some agreements also include government payments in the gross revenue, and some specify a maximum and/or minimum rent.”

Here are some examples from farmers’ responses:

* Base cash rent or a third of the value of crop, whichever is greater. It looks like this: $100 base guaranteed; 150 bushels of corn X Dec.15 price X 1/3; 50 bushels of soybeans X Dec.15 price X 1/3.

* Yearly base rent or 35 percent of gross revenue from the farm, including FSA payment; farm yield X average price at a local elevator on April 1, July 1 and Nov. 1.

* Yield X price established at a local elevator X 35 percent; $125 minimum.

* 38 percent of gross for corn, 48 percent for beans (“gross” equals average price the first of every month at local co-op X actual yield).

* Corn yield X price at local elevator X 30 percent.

* Landlord receives 40 percent of the gross revenue in cash.

* Higher of $165 or 42 percent of gross for beans or 33 percent of gross for corn, using county average yield X average of March 15 and Oct. 15 local price.

* Corn: 35 percent of yield X price; Beans: 40 percent of yield X price. Edwards says price is determined at a local elevator on certain dates picked by the landlord, usually a spring and fall date.

* Actual yield X March 1 cash price X 40 percent.

* One-third of total bushels X average price received from last year’s crop.

* Corn equals 35 percent of yield X average price for year. Beans equal 40 percent of yield X average price for year.

* Jan. 1 to Oct. 1 price of corn per bushel X bushels per acre, plus government payment to determine a total return per acre. Then, total return X 35 percent is the per-acre rent.

* 35 percent of corn and 41 percent of beans - Actual yield X average of whole marketing year price, paid at harvest and adjusted next summer.

* Corn equals gross dollars X 35 percent; beans equal gross dollars X 45 percent.

* Actual yield X price (three different dates) X 0.35 to come up with rent per acre. Here’s an example: 180 bushels of corn X $4 X 0.35 = $252.

* Yields in fall are used. Prices on the first of each month June through October are used. Rent is a percent of gross usually 25 percent, up to 28 percent.

* 40 percent of bean yield X Dec. 1 price at the local co-op; 35 percent of corn yield X Dec. 1 price at local co-op.

* Average county yield and price three different times of the year at local co-op.

* Corn: Multiple Peril Crop Insurance spring price ($5.40) less fall basis (50 cents) equals $4.90 price; $4.90 X county yield or something close to actual yield X 25 percent. Here’s an example $4.90 X 180 bushels (yield) = $882 X 0.25 = $220 rent per acre.

* One-third of gross income based on Nov. 1 local cash prices.

Edward says the second common category is “base rent plus a bonus.”

“Another common type of agreement fixes a base level of rent and then adds a bonus to it based on a percent of the gross revenue over a certain level,” he explains. “The base rent is often the minimum rent paid. The base revenue may be equal to a long-run average value for gross revenue or the amount of revenue the tenant needs in order to pay all non-land production costs plus the base rent.”

Here are some examples:

* Base price equals 40 percent of typical yield (APH) plus bonus of 33 percent X yield above typical yield (APH), X harvest price.

* Corn: Everything over $450 per acre gross X 35 percent, not to exceed $250 per acre. Beans: Everything over $350 per acre gross X 45 percent, not to exceed $250 per acre.

* Gross revenue minus $325 per acre divided by three, plus base rent.

* $175 plus one-third of corn over 175 bushels per acre or one-third of soybeans over 52 bushels acre, priced at local elevator on Dec. 1.

* Base rent of $150 an acre. Base revenue of $525 per acre for corn and $375 for beans. Use local elevator price Dec. 1 after crops are harvested to establish gross revenue per acre.

* Bonus rent of 28 percent of corn yield if it exceeds base revenue of $525. Bonus rent of 32 percent of bean yield if it exceeds base revenue. Here’s Edwards’ example: $600 gross revenue on corn n $525 = $75, X 0.28 = $21 extra rent.

* Split 50/50 on gross income per acre over $700 an acre, up to maximum of $60 over base rent.

* Base and bonus calculated by (county index crop insurance yield X average price X 20 percent).

* Bushels per acre X price of crop Dec. 1; $150 up front, half revenue over 150 bushels per acre, maximum rent of $250.

* On the cash rent ground the bushels above 150 an acre for corn and 50 bushels an acre of soybeans are split.

* Cash base plus 25 percent over $700 per acre gross.

* Base of $150 and acre plus 1/3 of corn bushels above APH yield at market price Nov. 1.

* Up to a $30-per-acre bonus on soybean acres if gross income (yield X November cash price) is over $500 an acre; $40-per-acre bonus if corn gross income is over $650 an acre. It’s pro-rated if gross income is less.

* $200 an acre plus corn yield over 180 bushels per acre at $2 per-bushel premium.

* $175 base rent plus half of gross greater than $700 an acre for corn and $465 an acre for beans (actual yield X Dec. 1 price).

* Add to base rent of two years ago. Average corn and bean yield X 12-month average of price, 30 percent of amount over $300 gross revenue.

* $150 per acre plus 10 percent of yield X average price (August-October-December 1).

* Base rent such as $150, plus a third of gross sales over $400 for corn or over $300 for soybeans on a per-acre basis.

Editor’s Note: Next week, examples of flexible cash rents based on “yield only” or “price only” will be shared. Profit-sharing agreements will also be examined.

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