Farm Leasing
Arrangements
Tim Eggers
Field Agricultural Economist
teggers@iastate.edu
712-542-5171
www.extension.iastate.edu/feci
Agenda
•
•
•
•
•
•
Hot Topics in Ag Decision Maker
Legislative Update
Crop Conditions
CSR2
Leasing Practices
Trends in
– Farm land values
– Cash rental rates
– Costs of Production
• 2014 Farm Leasing Arrangements Considerations
What goes up,…..
• Is agriculture still cyclical and what
could trigger a down turn?
• What are the implications for livestock,
agribusiness and land?
• Will farm debt increase?
• A new series of papers from ISU.
– www.extension.iastate.edu/agdm/
2013 Legislative Updates
► Past: Iowa statute did not require written
termination notice on parcels of less than 40 acres.
► Now: Iowa Code 562.5 requires a written
termination notice on all parcels regardless of size.
► If proper written notice is not provided by
September 1, the lease automatically continues on
the same terms and conditions as the original
agreement.
Exception: Animal Feeding
Operations
• If primary use of a rented
acreage of less than 40 acres
is for an animal feeding
operation, written notice
requirement does not apply.
• “Mere cropper” exception
remains – essentially refers to
someone hired (as an
employee or custom operator)
to plant/harvest the crop.
Land Holder Liability
• 2013 Legislature added the
phrase “Educational activities” to
Iowa Code 416C -- included in the
list of recreational purposes for
which Iowa landholders have
protection from liability.
• So, if land holder desires to hold a
school farm tour, the code
provides some protection from
liability.
Crop Conditions
•
•
•
•
Drought last year in 2012
Cool wet spring and delayed planting 2013
Crop impacts
Communications skills exercised?
Iowa Crop Conditions as of July 28, 2013
Item
Corn
Soybeans
Pasture & Range
Very
Poor
Poor
%
%
%
%
%
4
3
4
11
9
14
32
35
34
41
41
38
12
12
10
Fair Good Excellent
http://www.nass.usda.gov/Statistics_by_State/Iowa/Publications/Crop_Progress_&_Condition/index.asp
Field Work and Crop Progress as of July 28, 2013
Item
Corn tasseled
Corn silked
Corn in or past milk stag
Soybeans bloomed
Soybeans setting pods
Hay, alfalfa – 2nd cutting
Last
5-yr
Southwest State
Year Average
%
%
%
%
83
64
7
58
9
82
74
50
5
63
14
75
99
96
61
92
54
100
88
77
27
83
43
77
Untimely Rains Induced
Farm Lease Considerations
• Communicate with your landowner
• Send photos of the crops, pastures
• Flexible leases: are crop insurance
proceeds included in the rent formula?
CSR2 – Crop Suitability Rating
•
•
•
•
•
•
What is it?
Why did it need to change?
Where do I find my CSR2?
How much did it change?
When will CSR2 be used by assessors?
How does it change the CSR for my land?
page 26
CSR2 = S‐M‐F‐W‐D±EJ
Where:
S is the taxonomic subgroup class of the soil series
M is the family particle size class
F refers to the field conditions of a particular SMU
W is the water holding capacity
D is a soil depth & erosion factor T
EJ is an expert judgment correction factor
Why did CSR need to change?
1. The philosophical goal is to get values
proportional to CSR but with greater
transparency, consistency & ease.
2. The technical goal is to have CSR2
consistent with today’s soil mapping,
classification, and government programs.
3. The ancillary goal is to be able to extend
CSR2 across boundaries.
Where do I find my CSR2 rating?
July ISPAID
October WebSoilSurvey
Tama 120B CSR2 is 95
284
Osceola
292
Lyon
245
Dickinson
226
Emmet
268
Winnebago
232
Worth
93
267
Mitchell
233
Howard
283
Hancock
279
Cerro Gordo
253
Floyd
269
Chickasaw
241
Winneshiek
279
Kossuth
281
O'Brien
278
Sioux
275
Buena Vista
275
Cherokee
261
Plymouth
330
Monona
275
Harrison
274
Shelby
274
Webster
270
Calhoun
282
Greene
293
Carroll
301
Crawford
289
Humboldt
261
Pocahontas
299
Sac
314
Ida
255
Woodbury
254
Palo Alto
271
Clay
237
Audubon
222
Guthrie
298
Wright
291
Franklin
95
311
Butler
315
Hamilton
95
329
Grundy
261
Boone
230
Dallas
95
268
Hardin
289
Story
95
262
Polk
263
Marshall
95
253
Jasper
93
265
Black Hawk
95
95
219
Iowa
95
268
Poweshiek
93
SMU 120 has a
CSR2 of 100
233
Clayton
95
95 95
282
Buchanan
297
Benton
290
Tama
229
Allamakee
296
Fayette
321
Bremer
95
95
285
Delaware
273
Dubuque
268
Jones
95 95
269
Linn
95
219
Johnson
95
230
Cedar
CSR ranged
From 90 to 95
90
236
Warren
202
Adair
248
Cass
286
Mills
265
Montgomery
245
Adams
228
Union
234
Fremont
232
Page
213
Taylor
215
Ringgold
229
Marion
93
246
Mahaska
236
Keokuk
252
Washington
95
226
Louisa
95
207
Wapello
230
Henry
95
95
278
Clinton
95
265
Scott
229
Muscatine
285
Pottawattamie
250
Jackson
244
Des
Moines
Ackmore 430 CSR2 is 77
284
Osceola
70
245
Dickinson
226
Emmet
268
Winnebago
232
Worth
267
Mitchell
233
Howard
283
Hancock
279
Cerro Gordo
253
Floyd
269
Chickasaw
241
Winneshiek
279
Kossuth
281
O'Brien
278
Sioux
275
Buena Vista
275
Cherokee
261
Plymouth
254
Palo Alto
271
Clay
261
Pocahontas
299
Sac
314
Ida
330
Monona
88
83
81
86 83
275
Harrison
282
Greene
293
Carroll
301
Crawford
274
Shelby
274
Webster
270
Calhoun
79 79
255
Woodbury
289
Humboldt
237
Audubon
222
Guthrie
298
Wright
291
Franklin
83
315
Hamilton
268
Hardin
329
Grundy
261
Boone
263
Marshall
289
Story
230
Dallas
83
253
Jasper
83
262
Polk
296
Fayette
321
Bremer
311
Butler
265
Black Hawk
83
83
285
Delaware
269
Linn
83
219
Iowa
268
Poweshiek
233
Clayton
282
Buchanan
297
Benton
290
Tama
229
Allamakee
83
219
Johnson
273
Dubuque
268
Jones
230
Cedar
83
229
Muscatine
285
Pottawattamie
CSR ranged
From 70 to 83
202
Adair
83
248
Cass
83
71
80
286
Mills
265
Montgomery
83
245
Adams
228
Union
234
Fremont
232
Page
213
Taylor
215
Ringgold
83
83
236
Warren
83
83
229
Marion
83
83
246
Mahaska
236
Keokuk
83
207
Wapello
83
252
Washington
83
83 83
230
Henry
226
Louisa
244
Des
Moines
83
250
Jackson
278
Clinton
83
265
Scott
When will CSR2 be used by
assessors?
Visit with your assessor(s).
2015 is the earliest expected use.
page 26
How does it change the CSR
for my land?
How does it change the CSR
for my land?
SMU
8B
9
9B
9C2
Soil Name
Judson silty clay loam, 2 to 5 percent slopes
Marshall silty clay loam, 0 to 2 percent slopes
Marshall silty clay loam, 2 to 5 percent slopes
Marshall silty clay loam, 5 to 9 percent slopes, moderately
eroded
9D2 Marshall silty clay loam, 9 to 14 percent slopes, moderately
eroded
11B Ackmore-Colo-Judson complex, 2 to 5 percent slopes
99C2 Exira silty clay loam, 5 to 9 percent slopes, moderately eroded
CSR
82
90
85
68
CSR2
94
100
95
87
58
64
68
65
75
87
99D2 Exira silty clay loam, 9 to 14 percent slopes, moderately eroded
55
64
222C2 Clarinda silty clay loam, 5 to 9 percent slopes, moderately eroded
25
43
Clarinda silty clay loam, 9 to 14 percent slopes, moderately
222D2 eroded
822D2 Lamoni clay loam, 9 to 14 percent slopes, moderately eroded
10
20
15
13
Soils Aren’t Equally
Distributed
Map Unit
Symbol
11B
9B
222D2
9C2
99C2
9D2
9
99D2
222C2
822D2
8B
CSR
59.3
Acres Percent of
in AOI
AOI
118.1
113.2
112.8
89.3
72.9
51.5
31.7
16.7
6.5
4.8
2.2
19.10%
18.30%
18.20%
14.40%
11.80%
8.30%
5.10%
2.70%
1.00%
0.80%
0.40%
CSR2
71.1
Leasing Practices
• 10th land ownership survey since 1958
• Phone survey conducted by the Center for
Survey Statistics and Methodology and the
ISU Statistical Department
• Survey selection is based on 40 acre
parcel; all owners are surveyed.
• This year allows some discussion of
owners not just acres
• 69% response rate
Distribution of Iowa Farmland
Acres by Operation Type, 2012
Crop Share,
12%
Other crop
rent, 0%
Other rents*,
1%
Owner
Operated,
37%
Custom, 3%
Cash rent, 42%
Other
Conservation,
1%
CRP acres,
5%
Crop Share Lease Tenure
Years tenant has rented the land
1
5%
2 to 6 to 11 to
5
10
20 > 20
12% 20% 28% 35%
Average
15.5
Cash Lease Tenure
Years tenant has rented the land
1
4%
2 to 6 to
5
10
22% 30%
11 to
20
27%
> 20
17%
Average
11.3 yr.
Distribution of Iowa Farmland
by Type of Operator Tenure
100%
75%
50%
25%
0%
1982
1992
2002
2007
Owner operated
Cash rent lease
Crop share lease
Other type of lease
2012
Percent of Farmland Acres Managed
by a Professional Farm Manager by
Type of Ownership, 2012
Corporation,
25%
Others, 5%
Sole owner,
18%
Tenancy in
common,
6%
Trust, 44%
7% of acres are managed by a professional farm manager
Distribution of Iowa Farmland
Based on the Age of the Owner
35%
30%
30%
26%
25%
23%
22%
22%
20%
17%
14%
15%
10%
14%
12%
11%
5%
5%
4%
0%
< 35
35 - 44
1982
45 - 54
1992
55 - 64
2002
65 - 74
2007
2012
> 74
Distribution of Iowa Farmland
by Type of Owner, 2012
Multiple , 24%
Couple, 40%
Single,
Male, 20%
Single,
Female,
16%
Distribution of Crop Share
Acres Based on the 50%of
Costs Paid by the Owner
100%
90%
80%
70%
60%
50%
2007
2012
AgLetter
Federal Reserve Bank of Chicago
Realtors Land Institute
March 2013 Survey
Average Values
all grades 1950−2012
$9,000
$8,296
$8,000
$7,000
$6,708
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
$5,064
$4,468
$4,371
$3,908
$3,204
$2,914
$2,629
$2,275
$2,147
$2,083
$2,066
$1,958
$1,926
$1,857
$1,837
$1,801
$1,801
$1,781
$1,691
$1,682
$1,646
$1,455
$1,450$1,357$1,214
$1,368
$1,356
$1,275
$1,249
$1,219
$1,139
$1,095
$1,054
$948
$875
$834
$787
$635
$482
$430
$419
$419
$409
$397
$354
$318
$291
$277
$276
$269
$267
$261
$261
$251
$243
$238
$234
$234
$229
$221
$218
1950
1960
1970
1980
1990
2000
2010
Southwest
$7,015
up 18.8%
up $1,110
high $8,818
med $6,732
low $4,484
Positive Factors
affecting land values
90%
80%
70%
60%
80%
63%
50%
40%
30%
20%
15%
14%
12%
10%
10%
0%
Commodity Favorable Cash/Credit Good Farm
Safe
Land
Prices
Interest Availability Economy / Investment Availability
(Higher)
Rates
Return to / Lack of
(Limited
Land
Others
Supply)
Negative Factors
affecting land values
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
43%
18%
18%
15%
14%
13%
Who Purchased Farmland
New Farmers
3%
Others
1%
Investors 18%
Existing
Farmers
78%
Who Has Purchased Farmland
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1989 1992 1995 1998 2001 2004 2007 2010
Farmers
Investors
New Farmers
Other
Change in sales activity
from previous year
More – 64%
Less – 5%
Same – 31%
More – 65%
Less – 14%
Same –21%
More – 63%
Less – 13%
Same – 24%
More – 64%
Less – 8%
Same – 28%
More – 59%
Less – 12%
Same – 29%
More – 30%
Less – 38%
Same – 32%
More – 52%
Less – 23%
Same –25%
More – 51%
Less – 18%
Same –31%
More – 41%
Less – 11%
Same – 48%
Land Value & Cash Rental Rate Trends
Averages
2012 Land Value: $8,296/A
2013 Cash Rent: $270/A
Source: ISU Extension Economics, Dec. 2011 and May 2012
2013 Iowa Cash Rental
Rate Survey
William Edwards, Extension Economist
Response
• Sent out 6,000 surveys
• 1,703 county observations received
Ag Lenders,
8%
Prof.
Managers,
13%
Landowners,
27%
Other, 2%
Farmers, 50%
Timing and Purpose
• Questionnaires sent out in March
• Summary ready in May
Purpose: provide information to tenants
and landlords to use as a starting point
for estimating a fair cash rent.
Questions
• “What do you think typical cash rental rates
are in your county?”
• Half paid in advance, half after harvest
• For corn and soybean land
– High 1/3, medium 1/3, low 1/3 productivity
– Based on farm yields reported to NASS
• Oats, hay, pasture, cornstalks, hunting
Average Corn/Soybean Rent
$270
$280
$252
$240
$200
$176
$160
$120
$80
$184
$102
$105
$110
$120
$119
$119
$117
$122
$124
$131
$128
$214
$183
$135
$148
$135
$40
$0
1994
1997
2000
2003
2006
2009
2012
State Average Values, $/acre
$325
$300
$275
$250
$225
$200
High quality third
$175
Medium quality third
$150
Low quality third
2013
2011
2012
$283
$294
$257
$294
$281
$297
$210
$284
$229
Average corn/soybean rent/acre
State Average Values, $/acre
$200
$190
$180
$170
Alfalfa Hay
Oats
Grass legume Hay
$160
$150
$140
$130
$120
$110
2011
2012
2013
Oats, Hay, Hunting Rights
Crop
Reporting
District
Alfalfa
Grass Hay
Oats
Hunting
Rights
NW
$242
$159
$219
$17
NC
$227
$154
$198
$11
NE
$278
$209
$216
$20
WC
$190
$141
$229
$10
C
$185
$129
$177
$15
EC
$217
$157
$166
$19
SW
$145
$100
$128
$8
SC
$126
$ 96
$109
$9
SE
$157
$109
$178
$14
State Average Values, $/acre
$80
$75
$70
$65
Improved Pasture
$60
Un- improved Pasture
$55
$50
$45
2011
2012
2013
Pasture, Corn Stalk Grazing
Crop
Reporting
District
Improved
Pasture
Unimproved
Pasture
NW
$84
$60
NC
$65
$44
$22
NE
$66
$47
$19
WC
$92
$64
$20
C
$75
$52
EC
$84
$56
SW
$76
$57
$7
SC
$80
$51
$12
SE
$68
$42
$26
Pasture per
AUM
Corn stalk
Grazing
$13
$9
$9
$12
$21
$11
Cash Rent as % of Gross Revenue
(Iowa avg. yield @ Oct-Dec Cash Price)
60%
Soybean Average 2008-12 = 37%
50%
40%
30%
20%
Soybeans
Corn
Corn Average 2008-12 = 25%
10%
0%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Cash Rent as % of Gross Crop Income
Iowa Average Yield x Oct.-Dec. Cash Price
Source: ISU Extension Economics, Dec. 2002 thru Dec. 2011
Other Factors
•
•
•
•
•
•
•
•
Fertility and drainage
Size and shape of fields, % tillable
USDA program bases and yields
Local grain prices and basis
Seed production contracts
Manure application contracts
Longevity of lease
“Extras” done by tenant
Influences on 2014 Rental Market
• Grain prices
–
–
–
–
Increased acres
Price of crude oil (ethanol demand and price)
Export demand
Livestock feeding
• Reduced crop yields in 2012, including
forages
• New farm bill provisions
Supply and demand will ultimately set the rents.
Hardin
Hardin County
• 2008-2012 Average Corn Yield
172 bu.
• 2007-2011 Avg. Soybean Yield
51 bu.
• Average Row Crop CSR Index
80
Hardin County
• Typical Cash Rent for Corn and Soybeans
• Overall average
$328
• High quality third
– Average response
$394
– Range of responses
$275 - $500
• Medium quality land
$325 ($250 - $425)
• Low quality land
$266 ($150 - $375)
Hardin County
• Typical corn yield, bushels per acre
– High third acres
– Middle third acres
– Low third acres
194
173
146
Hardin County
• Rent per bu. of corn yield = $328/172 bu = $1.91
• Rent per bu. of soybean yield = $328/51 =
$6.43
• Rent per CSR index point = $328 / 80 =
$4.11
Useful for adjusting rent to a specific farm.
Other Crops
(Central CRD Averages) $ per acre
•
•
•
•
•
•
•
Alfalfa hay (established)
Grass hay (established)
Oats
Improved permanent pasture
Unimproved pasture
Cornstalk grazing
Hunting rights (per year)
$185
$129
$177
$ 75
$ 52
$ 12
$ 15
Estimating a Cash Rental Rate
• Ag Decision Maker information file C2-20
• Decision Aid file C2-20 (spreadsheet)
Flexible Cash Leases
• Ag Decision Maker information file C2-21
• Decision Aid file C2-21 (spreadsheet)
Calculating a Weighted Average Corn Suitability Rating
Ag Decision Maker -- Iowa State University Extension and
Outreach
To learn more about this spreadsheet see Information File C2-87, Computing the Corn Suitability Rating for
Your Farm
Place the cursor over cells with red triangles to read comments.
Enter your input values in shaded cells.
Owner's Name Random
Farm Name
Random
Location
Montgomery County
Legal
Description
Total Acres
Cropland
Acres
619
619
Map Unit
Symbol
8B
9
9B
9C2
9D2
11B
99C2
99D2
222C2
222D2
822D2
Soil Type
Judson silty clay loam, 2 to 5 percent slopes
Marshall silty clay loam, 0 to 2 percent slopes
Marshall silty clay loam, 2 to 5 percent slopes
Marshall silty clay loam, 5 to 9 percent slopes,
moderately eroded
Corn
Yield
219
205
201
189
Percent
Acres
of
Corn Yield
in AOI
AOI by Soil Type
2.2
0.40%
482
31.7
5.10%
6,499
113.2
18.30%
22,753
89.3
14.40%
16,878
Marshall silty clay loam, 9 to 14 percent slopes,
moderately eroded
181
51.5
Ackmore-Colo-Judson complex, 2 to 5 percent slopes
Exira silty clay loam, 5 to 9 percent slopes,
moderately eroded
197
189
Exira silty clay loam, 9 to 14 percent slopes,
moderately eroded
181
Clarinda silty clay loam, 5 to 9 percent slopes,
moderately eroded
105
6.5
1.00%
Clarinda silty clay loam, 9 to 14 percent slopes,
moderately eroded
101
112.8
18.20%
Lamoni clay loam, 9 to 14 percent slopes, moderately
eroded
113
118.1
72.9
19.10%
11.80%
9,322
23,266
13,778
16.7
2.70%
3,023
683
11,393
4.8
619.7
Weighted Average Corn Yield (per acre)
8.30%
0.8%
100.1
%
542
108,617
175.3
Map Unit
Symbol *
8B
9
9B
9C2
9D2
11B
99C2
99D2
222C2
222D2
822D2
Soil Type
Judson silty clay loam, 2 to 5 percent slopes
Marshall silty clay loam, 0 to 2 percent slopes
Marshall silty clay loam, 2 to 5 percent slopes
Marshall silty clay loam, 5 to 9 percent slopes,
moderately eroded
Soybean
Yield
63
59
58
55
Acres
in AOI
2.2
31.7
113.2
89.3
Percent of Soybean Yld
AOI
by Soil Type
0.40%
139
5.10%
1,870
18.30%
6,566
14.40%
4,912
Marshall silty clay loam, 9 to 14 percent slopes,
moderately eroded
Ackmore-Colo-Judson complex, 2 to 5 percent slopes
52
51.5
8.30%
57
118.1
19.10%
Exira silty clay loam, 5 to 9 percent slopes,
moderately eroded
Exira silty clay loam, 9 to 14 percent slopes,
moderately eroded
Clarinda silty clay loam, 5 to 9 percent slopes,
moderately eroded
Clarinda silty clay loam, 9 to 14 percent slopes,
moderately eroded
Lamoni clay loam, 9 to 14 percent slopes, moderately
eroded
55
72.9
11.80%
2,678
4,010
52
16.7
2.70%
868
30
6.5
1.00%
29
112.8
18.20%
195
3,271
33
4.8
619.7
Weighted Average Soybean Yield (per acre)
6,732
0.8%
100.1%
158
31,398
50.7
Cash Rental Rate Estimation
Ag Decision Maker -- Iowa State University Extension
See Information File C2-20, "Computing a Cropland Cash Rental Rate" for
information.
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Name:
Montgomery County Random Field
Gross Income
Acres in Each Crop
Expected Yield
Expected Price
USDA Direct
Payments
Corn
300
175.3
$4.86
Soybeans
300
50.7
$11.74
Total
annual
payment
OR payment per acre
Total Gross Income for Crop, per acre
$0.00 $$851.96
$$595.22
Farm Bill 2012, 2013, 2014?
• Nothing happens
• Continuation of current farm program
(probably without direct payments)
• More changes for crop insurance
(lowering of subsidies for those with high
incomes)
• New Farm (Food and Nutrition) Bill with a
program similar to ACRE
Production Costs (For Tenant's Residual or Crop Share Equivalent approach, only)
Seed
$100.00
Fertilizer
$130.00
Lime
$10.00
Herbicides
$25.00
Insecticides
$Crop Insurance
$20.00
Miscellaneous
$9.00
Interest on Input Costs
length of period (months)
8
interest rate
6.0% $11.76
Custom Hire
$Fuel, Repairs
$41.00
Cost per
Machinery Ownership
bu.
$51.00 Cost per bu.
Drying
$0.15
$26.30
$Storage
$0.03
$5.26
$0.03
Transportation
$0.10
$17.53
$0.10
Labor:
Wage rate $12.00 /hour
Hours/acre
Hours/acre
Total hours
hrs. or enter hr/a
2.6
$31.20
2.25
Desired return to tenant for management and
profit
Total of all non-land costs, per
acre
$45.00
$60.00
$10.00
$17.00
$$10.00
$9.00
$6.04
$$31.00
$41.00
$$1.52
$5.07
$27.00
$60.00
$60.00
$538.04
$322.63
Power Machinery Cost
and Investment Cost (Per Acre)
500
Mach & Power Cost
Mach & Power Investment
450
400
350
300
250
200
150
100
50
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Direct Corn Expenses
Seed
Insecticide
Herbicide
Fertilizer & Lime
Drying & Storage
200
180
160
140
120
100
80
60
40
20
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Direct Bean Expenses
60
50
40
30
20
10
0
2003
Seed
2004
2005
Insecticide
2006
2007
Herbicide
2008
2009
Fertilizer & Lime
2010
2011
2012
Drying & Storage
Early 2014 Crop Cost Estimates
Total Cost
Expected Yield bu/A
Cost Per Bushel
Soybeans after Corn
$570
50
$11.40
Corn after Soybeans
$798
180
$4.43
Corn after Corn
$853
165
$5.17
Source: Duffy, ISU Extension Economics, July 2013
Share of Gross Income
Corn
Soybeans
Gross income
Gross income
$851.96
$595.22
x
x
25%
35%
=
=
$212.99 $/acre rent
$208.33 $/acre rent
Average
Weighted
Rent =
$210.66 $/acre rent
Yield Potential
Corn
Soybeans
Potential yield
Potential yield
175.3bu./acre x
50.7bu./acre x
$1.72
$5.90
per bu rent
per bu rent
Average
Weighted
Rent
=
=
$301.52 $/acre rent
$299.13 $/acre rent
=
$300.32 $/acre rent
Percent of Land Value
Current market value of land
$
5,500 per acre x
4%return
=
$220.00 $/acre rent
Tenant’s Residual
Corn
Soybeans
Gross income
Gross income
$
$
851.96 minus tenant's costs
595.22 minus tenant's costs
$
$
538.04
322.63
Average
Weighted
Residual
=
=
$313.91 $/acre rent
$272.59 $/acre rent
=
$293.25 $/acre rent
Crop Share Equivalent
Corn
Soybeans
Owner's share of income $
Owner's share of income $
425.98 minus owner's costs
297.61 minus owner's costs
$
$
177.42
= $248.56
81.82
= $215.79
Average
Weighted
Return = $232.18
$/acre return
$/acre return
$/acre return
Flexible Cash Lease
• Rent is paid in cash
• Actual rent paid each year is determined
by a formula that includes any or all of:
– Actual price
– Actual yield
– Costs of production
• Also called “variable” cash leases
Reasons for Flexible Leases
• Fewer landowners and tenants want to be
involved in crop share leases
• Still recognize a need for sharing risk
• Prices and yields have been volatile in
recent years
• Cash rents have lagged behind profits in
crop production
• Neither party enjoys renegotiating annually
Prevalence of Flexible Leases
• Iowa land tenure surveys
– 1993: 3.5% of cash rented acres
– 2003: 11% of cash rented acres
– 2007: 12% of cash rented acres
– 2012: 16% of cash rented acres
• Ohio 1999: 8% of cash leases
• Illinois 2012: 32% of cash leases under
professional management
Research by Edwards & Hart
• Compare how different types of flexible
leases affect risk sharing between
landowners and tenants
• Monte Carlo simulation with 5,000 draws
• Yield volatilities derived from YP rates
• Price and cost volatilities derived from corn,
soybean and energy options
• Rank correlations estimated from historical
data 1975-2011 (detrended) for yields, prices
and costs (energy related)
Types of Flexible Leases
Flex on yield only
 Rent = fixed $/bu. x actual yield
 Rent = base rent x (actual yield / base yield)
Flex on price only
 Rent = fixed bu./acre x actual price
 Rent = base rent x (actual price / base price)
Flex on Both Price and Yield
• Rent = actual price x actual yield x fixed %
(% of gross revenue)
• Rent = actual price x actual yield x fixed %
with a minimum and maximum rent
• Rent = base rent x (actual yield / base yield)
x (actual price / base price)
• Rent = base rent + fixed % x (actual gross
revenue – base gross revenue) (bonus)
Flex on Yield, Price and Costs
• Rent = base rent + fixed % x
(actual gross revenue – base gross revenue)
where base gross revenue = cost of prod.
• Rent = base rent
x (actual yield / base yield)
x (actual price / base price)
x (base costs of production / actual costs)
Benchmark Arrangements
• Fixed cash rent lease
• 50-50 crop share lease
• Custom farming agreement
Parameter Values
Corn
Soybeans
Percent of acres
Expected yield, bu. per acre
Expected price, $ per bushel
50%
169
$5.00
50%
50
$12.00
Seed, fertilizer & pesticide costs, $ per acre $341
Machinery , drying & labor costs, $ per acre $176
$181
$109
Rent per bushel of actual yield
Fixed bushels per acre used to set rent
% of gross crop value to set rent or bonus
Minimum rent per acre
$1.50
50 bu
29%
$150
$4.00
17 bu
35%
$150
Maximum rent per acre
$400
Base gross revenue per acre for bonus rent $845
$400
$600
Relative Risk Born by Tenant under Flexible Leases
(based on standard deviation of profit)
Fixed cash rent
100%
Fixed $ x yield
97%
Fixed bushels x price
73%
% of gross crop value
67%
Base rent plus bonus
65%
Profit share over costs
57%
50-50 crop share
49%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90% 100%
Downside Risk:
Tenant’s Probability of a $100 Loss
Fixed cash rent
40%
Fixed $ x yield
39%
Fixed bushels x price
30%
% of gross crop value
27%
Base rent plus bonus
28%
Profit share over costs
21%
50-50 crop share
Custom farming
15%
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Tenant’s $ Loss at 10th Percentile
Fixed cash rent
($311)
Fixed $ x yield
($294)
Fixed bushels x price
($211)
% of gross crop value
($184)
Base rent plus bonus
($236)
Profit share over costs
($186)
50-50 crop share
($120)
Custom farming
($350)
($15)
($300)
($250)
($200)
($150)
($100)
($50)
$0
Tenant’s Loss at 10th Percentile
with Revenue Protection Insurance
$(82)
($311)
Fixed cash rent
$(99)
($294)
Fixed $ x yield
$(28)
($211)
Fixed bushels x price
$(35)
($184)
% of gross crop value
$(7)
($236)
Base rent plus bonus
$21 Profit share over costs
($186)
($120)
$(8)
50-50 crop share
$(15)
($15)
($350) ($300) ($250) ($200) ($150) ($100)
($50)
Custom farming
$0
$50
Conclusions
• Flexible cash leases transfer significant
financial risk from tenant to landowner.
• Flexing on yield only has little effect.
• Flexing on price only has more effect.
• Flexing on price x yield has more effect.
• Including production costs has more effect.
• Setting a minimum rent shifts risk back to the
tenant.
• A 50-50 crop-share lease still shifts most risk.
Conclusions
• Crop insurance reduces everyone’s risk
(except the government!)
Full article will appear in the 2013 Journal of
the American Society of Farm Managers and
Rural Appraisers.
Hazards for 2014
• Interest rate increases
• Margin compression
• New farm bill/understanding
role of crop insurance
Thank You!
Tim Eggers
Field Ag Economist
(712) 303-7781
teggers@iastate.edu
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