Farm Leases
Tim Eggers
Field Ag Economist
Southwest Iowa
teggers@iastate.edu
712 542 5171
Tools
• Ag Decision Maker
– Decision Aids
• Annual Surveys
• Publications
– Decision Tools
• Agricultural Management e-School
– Farm Leasing Arrangements course
• Non ISUE on-line resources
• Face-to-Face resources
Top Issues
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Land Values
Cash Rental Rates
Custom Rates
Leasing Practices
Crop-Share Leases
Calculating a Cash Rent Lease
Modified Crop-Share Leases
Iowa Farmland Value Surveys
• Iowa State University Extension
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conducted annually around November 1st
mailed survey sent to 1,100 licensed real estate brokers
usually 500-600 responses
released in mid-December
• Federal Reserve Bank of Chicago
– quarterly survey of ag lenders by state
– http://www.chicagofed.org/economic_research_and_data/ag_letter.cfm
• Realtors Land Institute
– semi-annual survey (March and September)
– compares land classification by corn production
– includes pasture and timber land
– http://www.centralstatesland.com/csmlsdisplay.asp?id=ed01
Leasing Practices
Crop Share Practices
Leasing Opportunity
Soil Type: Acres: Percent:
---------- -------- -------T370B
61.47 23.2%
248
17.72 6.7%
T368
16.70 6.3%
212
11.71 4.4%
T369
87.78 33.1%
133
9.69
3.7%
220
60.11 22.7%
---------- --------------Totals
265.19 100.0%
CSR
----85
60
90
91
85
80
85
----83.73
Iowa Corn Suitability Rating
based yield estimation:
179 bushels per acre
Determining A “Fair”
Cash Rent
Value
Supporting Information
Location:
Tillable Acres:
Corn Yield:
Soybean Yield:
Corn Suitability Rating:
Page County
265 Acres
179 bu/Acre
49 bu/A
84 CSR
Calculating Cash Rent Values
Cash Rent Market Approach
ISU Extension Publication FM 1851 – Cash Rental
Rates for Iowa 2006 Survey (released in May)
Three Methods for Determining Cash Rent Values
Typical Cash Rent
Average Rent for Production
Average Rent for Corn Suitability Rating (CSR)
Calculating Cash Rent
1.Typical Cash Rent
Select the Area of the State/County
Area
10 County Page
Determine Overall average
$ 120
/A
High Quality Third =
$ 139 /A
Middle Quality Third = $ 119 /A
Low Quality Third =
$ 104 /A
Calculating Cash Rent
2 a.
Average Rents Per Unit – Corn Yield
Select the Area of the State/County
Determine Average Rent for Corn
Farm’s Average Corn Yield (bu/A)
Times rent per bushel of Corn yield
Equals the Average Rent for Corn Acre
179
$0.89
$ 159./A
Calculating Cash Rent
2 b.
Average Rents Per Unit – Soybean Yield
Select the Area of the State/County
Determine Average Rent for Soybeans
Farm’s Average Soybean Yield (bu/A)
49
Times rent per bushel of Soybean yield
$2.84
Equals the Average Rent for Soybean Acres $139/A
Calculating Cash Rent
2. Average Rents Per Unit – Corn & Soybeans
Add the Average Rent for Both
Corn Average Rent
Soybean Average Rent
$ 159/A
$ 139/A
Average Rent Corn & Soybeans $ 149 /A
Using Corn Suitability Rating (CSR)
3. Average Rents Per CSR Index Point
Select the Area of the State/County
Determine the Average Cash Rent using CSR
Farm’s Average Corn Suitability Rating
84
Times rent per CSR index point
$1.61
Equals the Average Rent for all Row Crop Acres
$
135 / A
Source: ISU Extension Publication FM- 1851
Overall Average
Average all 3 Methods
Method 1: Typical Cash Rent
$139 /A
Method 2: Average Rents per Unit
$149 /A
Method 3: Average Rents per CSR Index Point $135 /A
Total all Methods and divide by 3
$141 /A X 265 Tillable Acres =
$141 /A
$37,365
Split Payments of $18,682 and $18,682
Source: ISU Extension Publication FM- 1851
Crop Lease Comparison
Gross Income Method
Tenant Residual Method
Market Productivity Method
Crop Share Method
Return on Investment Method
(a) Assumptions: 265 crop acres, 179 bushel corn yield, 49 bushel Soybean
yield,
(b) Corn Market Price $2.20 / bu, Soybean Market Price $5.25 / bu,
(c) Direct Government Payments average $22.00 / acre
Share of Gross Income
CORN:
179 bu X $2.20 + $30.00 = $424.75
SOYBEANS: 49 bu X $5.25 + $15.00 = $281.70
Iowa cash rents typically are equal to about 30 to 40 percent of the gross
income from producing corn, and 35 to 45 percent of the gross income
from producing soybeans.
Cash Rental Rate
CORN:
$424.75/ac X 35% = $ 148.66
SOYBEANS:
$281.7/ac x 45% = $ 126.77
Tenant Residual Method
CORN:
$424.75 – $286.51 = $138.24/ac
SOYBEAN:
$281.70 - $207.12 = $74.58/ac
Average:
$106.29/ac
Crop Share Method 50-50 Share
Income:
Corn: 50 % x $424.75 = $212.38
Soybeans: 50 % x $281.70 = $140.58
Expense:
Corn: 50 % x $175 = $87.50 Soybeans: 50 % x $114 = $57
Equivalent Rent:
Corn:
$212.38 / acre - $87.50 / acre = $124.88 / acre
Soybean:
$140.58 / acre - $57 / acre =
$83.85 / acre
Average:
$104.37 / acre
(1) The owner is assumed to pay 50 percent of the costs for seed, fertilizer, lime,
pesticides, crop insurance, interest and miscellaneous, and drying and storage.
Return on Investment Method
Rent as a Percent of Value for Iowa Farm Land
12%
10%
8%
6%
4%
2%
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
0%
Iowa farm estimated to have a market value of $2,962 per acre.
Expected Rent: 0.047 (4.7%) X $2,962 / acre =
$139.21 / acre gross income
Corn
Soybeans
Cash Rent Survey
Per Bushel Yield
Per CSR Point
Gross Income
Tenant Residual
Crop Share
Return on Investment
$139
$159
$135
$149
$138
$125
$139
$139
$139
$135
$127
$ 75
$ 84
$139
Average
$141
$120
All Average: $130
Based on this information:
Most likely agreed upon cash rent: ?????
Crop Share 50-50 Lease
Landlord
Tenant
Labor
Land
½ inputs
½ inputs
Machinery
Management
½ income
½ income
Crop Share 50-50 Lease
Landlord
Tenant
Land
$124
Labor
$39
½ inputs
$88
½ inputs
$88
Machinery
$55
Management
$30
½ income $212
½ income $212
Crop Share 50-50 Modified Lease
Landlord
Tenant
Land
$139
Labor
$25
½ inputs
$73
½ inputs
$103
Machinery
$55
Management
$29
½ income $212
½ income $212
Shift the tech fee or chemicals to tenant to balance up the ratio
Cash Rent
Expenses
Land
Labor
Inputs
Machinery
Management
Total
Income
$140
$ 30
$150
$ 65
$ 20
$405
150 bu corn
or
50 bu SB
Ave
$400
$300
$350
Cash Rent
Expenses
Land
Labor
Inputs
Machinery
Management
Total
Income
$140
$ 30
$150
$ 65
$ 20
$405
150 bu corn
or
50 bu SB
Ave
Either find economies of scale or
Play take away !!
Where do we start ???
$400
$300
$350
Cash Rent
Expenses
Land
Labor
Inputs
Machinery
Management
Total
Income
$140
$ 10
$145
$ 35
$ 00
$330
150 bu corn
or
50 bu SB
Ave
$400
$300
$350
I can still make it work and I can spend
$10 on crop insurance to lock it in !!!
Well maybe !!!
Machinery costs
Fixed costs
Variable costs
Depreciation
Repairs
Interest
Labor
Storage
Fuel
Insurance
$100 per hour
IFBA 2004 Machinery Costs
Average
Corn
Soybeans
Low Third
$33.30
$32.52
Mid Third
$54.53
$53.50
High Third
$86.77
$84.60
Other Resources
•
Online Courses – Ag Management e-School
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Workshops, meetings, conferences
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http://www.extension.iastate.edu/pubs/
Articles and spreadsheets
–
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http://dbs.extension.iastate.edu/calendar/
Publications – rental survey, land value survey, etc.
–
•
http://www.extension.iastate.edu/ames
http://www.extension.iastate.edu/agdm/
Private Consultation
–
http://www.extension.iastate.edu/ag/fsfm/fsfarmmg.html
Farm Lease Arrangements
Land Leasing Confidence
A.M.E.S.
Agricultural
Management
e-school
An ISU
Extension
Outreach
Institute
•
•
•
•
•
•
•
•
•
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Introduction to Farm Leases
Cash Rent Leases
Crop Share Leases
Custom Farming
Renting Buildings
Renting Hay and Pasture Land
Legal and Tax Considerations
Conservation and Environmental Considerations
USDA Agencies and Programs
Owner and Operator Relations
Farmland Ownership
Purchase Plan
A.M.E.S.
Agricultural
Management
e-school
An ISU
Extension
Outreach
Institute
•
•
•
•
•
Land Value Trends
Using Soils Information
Appraisal Techniques
Financing Considerations
Feasibility of a Land Purchase
Thank You!
Tim Eggers
Field Ag Economist
ISU Page County Extension
311 East Washington
Clarinda, Iowa 51632
(712) 542-5171
teggers@iastate.edu
www.extension.iastate.edu/feci
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