farm leasing arrangements
DESCRIPTION
Farm Leasing Arrangements. Tim Eggers Field Agricultural Economist [email protected] 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 - PowerPoint PPT PresentationTRANSCRIPT
Farm Leasing Arrangements
Tim EggersField Agricultural Economist
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 Very Poor Poor Fair Good Excellent
% % % % %
Corn Soybeans Pasture & Range
434
119
14
323534
414138
121210
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 Southwest State Last Year
5-yr Average
% % % %
Corn tasseled Corn silkedCorn in or past milk stagSoybeans bloomedSoybeans setting podsHay, alfalfa – 2nd cutting
83647
589
82
74505
631475
9996619254
100
887727834377
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±EJWhere:S is the taxonomic subgroup class of the soil seriesM is the family particle size classF refers to the field conditions of a particular SMUW is the water holding capacityD is a soil depth & erosion factor TEJ 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
202
Adair
207
Wapello
213
Taylor
215
Ringgold
219
Johnson
219
Iowa
222
Guthrie
226
Emmet
226
Louisa
228
Union
229
Allamakee
229
Muscatine
229
Marion
230
Henry
230
Dallas
230
Cedar
232
Page
232
Worth
233
Clayton
233
Howard
234
Fremont
236
Warren
236
Keokuk
237
Audubon
241
Winneshiek
244
Des Moines
245
Dickinson
245
Adams
246
Mahaska
248
Cass
250
Jackson
252
Washington
253
Jasper
253
Floyd
254
Palo Alto
255
Woodbury
261
Plymouth
261
Pocahontas
261
Boone
262
Polk
263
Marshall
265
Scott
265
Montgomery
265
Black Hawk
267
Mitchell
268
Hardin
268
Poweshiek
268
Jones
268
Winnebago
269
Linn
269
Chickasaw
270
Calhoun
271
Clay
273
Dubuque
274
Shelby
274
Webster
275
Cherokee
275
Buena Vista
275
Harrison
278
Clinton
278
Sioux
279
Cerro Gordo
279
Kossuth
281
O'Brien
282
Greene
282
Buchanan
283
Hancock
284
Osceola
285
Delaware
285
Pottawattamie
286
Mills
289
Humboldt
289
Story
290
Tama
291
Franklin
292
Lyon
293
Carroll
296
Fayette
297
Benton
298
Wright
299
Sac
301
Crawford
311
Butler
314
Ida
315
Hamilton
321
Bremer
329
Grundy
330
Monona
95
95
959595
95
9595
95
95 95
95
9595
95
95
95
95
9595
95
93
93
93
93
90
95
SMU 120 has a CSR2 of 100
CSR rangedFrom 90 to 95
Ackmore 430 CSR2 is 77
202
Adair
207
Wapello
213
Taylor
215
Ringgold
219
Johnson
219
Iowa
222
Guthrie
226
Emmet
226
Louisa
228
Union
229
Allamakee
229
Muscatine
229
Marion
230
Henry
230
Dallas
230
Cedar
232
Page
232
Worth
233
Clayton
233
Howard
234
Fremont
236
Warren
236
Keokuk
237
Audubon
241
Winneshiek
244
Des Moines
245
Dickinson
245
Adams
246
Mahaska
248
Cass
250
Jackson
252
Washington
253
Jasper
253
Floyd
254
Palo Alto
255
Woodbury
261
Plymouth
261
Pocahontas
261
Boone
262
Polk
263
Marshall
265
Scott
265
Montgomery
265
Black Hawk
267
Mitchell
268
Hardin
268
Poweshiek
268
Jones
268
Winnebago
269
Linn
269
Chickasaw
270
Calhoun
271
Clay
273
Dubuque
274
Shelby
274
Webster
275
Cherokee
275
Buena Vista
275
Harrison
278
Clinton
278
Sioux
279
Cerro Gordo
279
Kossuth
281
O'Brien
282
Greene
282
Buchanan
283
Hancock
284
Osceola
285
Delaware
285
Pottawattamie
286
Mills
289
Humboldt
289
Story
290
Tama
291
Franklin
70
293
Carroll
296
Fayette
297
Benton
298
Wright
299
Sac
301
Crawford
311
Butler
314
Ida
315
Hamilton
321
Bremer
329
Grundy
330
Monona
79 79
83 88 81
86 83
83 83
8380
83 83 8383
83838383
83 83 83 83
83
83
8383
83
83 83
83
71
83
CSR rangedFrom 70 to 83
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 Soil Name CSR CSR2
8B Judson silty clay loam, 2 to 5 percent slopes 82 949 Marshall silty clay loam, 0 to 2 percent slopes 90 100
9B Marshall silty clay loam, 2 to 5 percent slopes 85 959C2 Marshall silty clay loam, 5 to 9 percent slopes, moderately eroded 68 87
9D2 Marshall silty clay loam, 9 to 14 percent slopes, moderately eroded
58 64
11B Ackmore-Colo-Judson complex, 2 to 5 percent slopes 68 7599C2 Exira silty clay loam, 5 to 9 percent slopes, moderately eroded 65 8799D2 Exira silty clay loam, 9 to 14 percent slopes, moderately eroded 55 64222C2 Clarinda silty clay loam, 5 to 9 percent slopes, moderately eroded 25 43
222D2Clarinda silty clay loam, 9 to 14 percent slopes, moderately eroded
10 20
822D2 Lamoni clay loam, 9 to 14 percent slopes, moderately eroded 15 13
Soils Aren’t Equally DistributedMap Unit Acres Percent of Symbol in AOI AOI
11B 118.1 19.10%9B 113.2 18.30%
222D2 112.8 18.20%9C2 89.3 14.40%
99C2 72.9 11.80%9D2 51.5 8.30%
9 31.7 5.10%99D2 16.7 2.70%222C2 6.5 1.00%822D2 4.8 0.80%
8B 2.2 0.40%
CSR59.3
CSR271.1
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
Owner Op-erated; 37%
Custom; 3%
CRP acres; 5%
Other Conservation; 1%Cash rent; 42%
Crop Share; 12%
Other crop rent; 0% Other rents*; 1%
Distribution of Iowa Farmland Acres by Operation Type, 2012
Crop Share Lease Tenure 1
2 to 5
6 to 10
11 to 20 > 20 Average
Years tenant has rented the land 5% 12% 20% 28% 35% 15.5
12 to
56 to 10
11 to 20 > 20 Average
Years tenant has rented the land 4% 22% 30% 27% 17% 11.3 yr.
Cash Lease Tenure
1982 1992 2002 2007 20120%
25%
50%
75%
100%
Owner operated Cash rent leaseCrop share lease Other type of lease
Distribution of Iowa Farmland by Type of Operator Tenure
Sole owner; 18%
Tenancy in common; 6%
Trust; 44%
Corporation; 25%
Others; 5%
7% of acres are managed by a professional farm manager
Percent of Farmland Acres Managed by a Professional Farm Manager by Type of Ownership, 2012
< 35 35 - 44 45 - 54 55 - 64 65 - 74 > 740%
5%
10%
15%
20%
25%
30%
35%
11%
14%
23% 22%
17%
12%
4% 5%
14%
22%
26%
30%
Distribution of Iowa Farmland Based on the Age of the Owner
Single, Male; 20%
Single, Female; 16%
Couple; 40%
Multiple ; 24%
Distribution of Iowa Farmland by Type of Owner, 2012
Seed
Ferti
lizer
Custom fe
rtilizer a
pplication
Herbicides
Insecticid
es
Custom pesti
cide applica
tionLim
ing50%60%70%80%90%
100%2007 2012
Distribution of Crop Share Acres Based on the 50%of Costs Paid by the Owner
AgLetterFederal Reserve Bank of Chicago
Realtors Land InstituteMarch 2013 Survey
$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000$9,000
$218 $234 $234 $221 $229 $238 $243 $251 $269 $277 $261 $261 $267 $276 $291 $318 $354 $397 $409 $419 $419 $430 $482 $635 $834 $1,095 $1,368 $1,450 $1,646 $1,958 $2,066 $2,147 $1,801 $1,691 $1,357 $948 $787 $875 $1,054 $1,139 $1,214 $1,219 $1,249 $1,275 $1,356 $1,455 $1,682 $1,837 $1,801 $1,781 $1,857 $1,926 $2,083 $2,275 $2,629 $2,914 $3,204 $3,908 $4,468 $4,371
$5,064
$6,708
$8,296
Average Valuesall grades 1950−2012
Southwest
$7,015up 18.8%up $1,110
high $8,818med $6,732low $4,484
Commodity Pric
es (Higher)
Favorable In
terest Rates
Cash/C
redit Availa
bility
Good Farm
Economy / R
eturn to La
nd
Safe In
vestment /
Lack of O
thers
Land Availabilit
y (Lim
ited Supply)
0%
20%
40%
60%
80% 80%
63%
15% 14% 12% 10%
Positive Factorsaffecting land values
Weather Politics / Congress &
Admin
Land too High
(Bubble Burst?)
Input Costs (Higher)
Poor Yields Stock Market /
Economy/Global
0%
5%
10%
15%
20%
25%
30%
35%
40%
45% 43%
18% 18%15% 14% 13%
Negative Factorsaffecting land values
Investors 18%
Existing Farmers 78%
New Farmers 3%Others
1%
Who Purchased Farmland
Who Has Purchased Farmland
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0%10%20%30%40%50%60%70%80%90%
More – 64% Less – 8%Same – 28%
More – 64%Less – 5% Same – 31%
More – 30%Less – 38%Same – 32%
More – 63%Less – 13%Same – 24%
More – 65% Less – 14%Same –21%
More – 59% Less – 12%Same – 29%
More – 51%Less – 18%Same –31%
More – 52%Less – 23%Same –25%
More – 41%Less – 11%Same – 48%
Change in sales activity from previous year
Land Value & Cash Rental Rate Trends
Source: ISU Extension Economics, Dec. 2011 and May 2012
Averages
2012 Land Value: $8,296/A
2013 Cash Rent: $270/A
2013 Iowa Cash Rental Rate Survey
William Edwards, Extension Economist
Response• Sent out 6,000 surveys• 1,703 county observations received
Farmers; 50%
Landowners; 27%
Prof. Man-agers; 13%
Ag Lenders; 8% Other; 2%
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
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$0
$40
$80
$120
$160
$200
$240
$280
$102
$105
$110
$119
$119
$117
$120
$122
$124
$128
$131
$135
$135$148
$176$183
$184$214
$252
$270
State Average Values, $/acre
2011 2012 2013 $150 $175 $200 $225 $250 $275 $300 $325
High quality third Medium quality third Low quality third
Average corn/soybean rent/acre
$294$283$281
$294 $297 $284
$257 $210 $229
State Average Values, $/acre
2011 2012 2013 $110 $120 $130 $140 $150 $160 $170 $180 $190 $200
Alfalfa HayOats
Oats, Hay, Hunting RightsCrop
ReportingDistrict Alfalfa Grass Hay Oats
Hunting Rights
NW $242 $159 $219 $17NC $227 $154 $198 $11NE $278 $209 $216 $20WC $190 $141 $229 $10C $185 $129 $177 $15
EC $217 $157 $166 $19SW $145 $100 $128 $ 8SC $126 $ 96 $109 $ 9SE $157 $109 $178 $14
2011 2012 2013 $45 $50 $55 $60 $65 $70 $75 $80
Improved Pasture
Un- improved Pasture
State Average Values, $/acre
Pasture, Corn Stalk GrazingCrop
Reporting District
Improved Pasture
Unimproved Pasture
Pasture per AUM
Corn stalk Grazing
NW $84 $60 $13
NC $65 $44 $22 $ 9
NE $66 $47 $19
WC $92 $64 $20 $ 9
C $75 $52 $12
EC $84 $56 $21 $11
SW $76 $57 $ 7
SC $80 $51 $12
SE $68 $42 $26
Cash Rent as % of Gross Revenue(Iowa avg. yield @ Oct-Dec Cash Price)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0%
10%
20%
30%
40%
50%
60%
SoybeansCorn
Soybean Average 2008-12 = 37%
Corn Average 2008-12 = 25%
Cash Rent as % of Gross Crop IncomeIowa 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 provisionsSupply 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 194– Middle third acres 173– Low third acres 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) $185• Grass hay (established) $129• Oats $177• Improved permanent pasture $ 75• Unimproved pasture $ 52• Cornstalk grazing $ 12• Hunting rights (per year) $ 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 OutreachTo learn more about this spreadsheet see Information File C2-87, Computing the Corn Suitability Rating for Your FarmPlace the cursor over cells with red triangles to read comments.Enter your input values in shaded cells.
Owner's Name RandomFarm Name RandomLocation Montgomery CountyLegal Description Total Acres 619 Cropland Acres 619
Map Unit Corn AcresPercent
of Corn YieldSymbol Soil Type Yield in AOI AOI by Soil Type
8B Judson silty clay loam, 2 to 5 percent slopes 219 2.2 0.40% 482 9 Marshall silty clay loam, 0 to 2 percent slopes 205 31.7 5.10% 6,499 9B Marshall silty clay loam, 2 to 5 percent slopes 201 113.2 18.30% 22,753 9C2 Marshall silty clay loam, 5 to 9 percent slopes,
moderately eroded189 89.3 14.40%
16,878 9D2 Marshall silty clay loam, 9 to 14 percent slopes,
moderately eroded181 51.5 8.30%
9,322 11B Ackmore-Colo-Judson complex, 2 to 5 percent slopes 197 118.1 19.10% 23,266 99C2 Exira silty clay loam, 5 to 9 percent slopes,
moderately eroded189 72.9 11.80%
13,778 99D2 Exira silty clay loam, 9 to 14 percent slopes,
moderately eroded181 16.7 2.70%
3,023 222C2 Clarinda silty clay loam, 5 to 9 percent slopes,
moderately eroded105 6.5 1.00%
683
222D2
Clarinda silty clay loam, 9 to 14 percent slopes, moderately eroded
101 112.8 18.20%
11,393 822D2 Lamoni clay loam, 9 to 14 percent slopes, moderately
eroded113 4.8 0.8%
542 619.7 100.1% 108,617
Weighted Average Corn Yield (per acre) 175.3
Map Unit Soybean Acres Percent of Soybean YldSymbol * Soil Type Yield in AOI AOI by Soil Type
8B Judson silty clay loam, 2 to 5 percent slopes 63 2.2 0.40% 139 9 Marshall silty clay loam, 0 to 2 percent slopes 59 31.7 5.10% 1,870 9B Marshall silty clay loam, 2 to 5 percent slopes 58 113.2 18.30% 6,566 9C2 Marshall silty clay loam, 5 to 9 percent slopes,
moderately eroded55 89.3 14.40%
4,912 9D2 Marshall silty clay loam, 9 to 14 percent slopes,
moderately eroded52 51.5 8.30%
2,678 11B Ackmore-Colo-Judson complex, 2 to 5 percent slopes 57 118.1 19.10% 6,732 99C2 Exira silty clay loam, 5 to 9 percent slopes,
moderately eroded55 72.9 11.80%
4,010 99D2 Exira silty clay loam, 9 to 14 percent slopes,
moderately eroded52 16.7 2.70%
868 222C2 Clarinda silty clay loam, 5 to 9 percent slopes,
moderately eroded30 6.5 1.00%
195
222D2Clarinda silty clay loam, 9 to 14 percent slopes, moderately eroded
29 112.8 18.20%3,271
822D2 Lamoni clay loam, 9 to 14 percent slopes, moderately eroded
33 4.8 0.8%158
619.7 100.1% 31,398
Weighted Average Soybean Yield (per acre) 50.7
Gross Income Corn SoybeansAcres in Each Crop 300 300Expected Yield 175.3 50.7Expected Price $4.86 $11.74
USDA Direct Payments
Total annual
payment OR payment per acre $0.00 $- $- Total Gross Income for Crop, per acre $851.96 $595.22
Cash Rental Rate Estimation Ag Decision Maker -- Iowa State University ExtensionSee Information File C2-20, "Computing a Cropland Cash Rental Rate" for information.
Place the cursor over cells with red triangles to read comments.Enter your input values in shaded cells.
Name: Montgomery County Random Field
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 $45.00 Fertilizer $130.00 $60.00 Lime $10.00 $10.00 Herbicides $25.00 $17.00 Insecticides $- $- Crop Insurance $20.00 $10.00 Miscellaneous $9.00 $9.00 Interest on Input Costs
length of period (months) 8 interest rate 6.0% $11.76 $6.04 Custom Hire $- $- Fuel, Repairs $41.00 $31.00
Machinery OwnershipCost per
bu. $51.00 Cost per bu. $41.00 Drying $0.15 $26.30 $- $- Storage $0.03 $5.26 $0.03 $1.52 Transportation $0.10 $17.53 $0.10 $5.07 Labor: Wage rate $12.00 /hour Hours/acre Hours/acre
Total hours hrs. or enter hr/a 2.6 $31.20 2.25 $27.00
Desired return to tenant for management and profit $60.00 $60.00
Total of all non-land costs, per acre $538.04 $322.63
Power Machinery Cost and Investment Cost (Per Acre)
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
50
100
150
200
250
300
350
400
450
500Mach & Power Cost Mach & Power Investment
Direct Corn Expenses
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
20406080
100120140160180200
Seed Insecticide Herbicide Fertilizer & Lime Drying & Storage
Direct Bean Expenses
2003 2004 2005 2006 2007 2008 2009 2010 2011 20120
10
20
30
40
50
60
Seed Insecticide Herbicide Fertilizer & Lime
Total Cost Expected Yield bu/A Cost Per BushelSoybeans after Corn Corn after Soybeans
Corn after Corn
Early 2014 Crop Cost Estimates
$570
$798
$853
50
180
165
$11.40
$4.43
$5.17
Source: Duffy, ISU Extension Economics, July 2013
Share of Gross Income
Corn Gross income $851.96 x 25% = $212.99 $/acre rentSoybeans Gross income $595.22 x 35% = $208.33 $/acre rent
Average Weighted
Rent = $210.66 $/acre rent
Corn Potential yield 175.3bu./acre x $1.72 per bu rent = $301.52 $/acre rentSoybeans Potential yield 50.7bu./acre x $5.90 per bu rent = $299.13 $/acre rent
Average Weighted
Rent = $300.32 $/acre rent
Yield Potential
Percent of Land Value
Tenant’s Residual
Current market value of land $ 5,500 per acre x 4%return = $220.00 $/acre rent
Corn Gross income $ 851.96 minus tenant's costs $ 538.04 = $313.91 $/acre rentSoybeans Gross income $ 595.22 minus tenant's costs $ 322.63 = $272.59 $/acre rent
Average Weighted Residual = $293.25 $/acre rent
Crop Share Equivalent
Corn Owner's share of income $ 425.98 minus owner's costs $ 177.42 = $248.56 $/acre returnSoybeans Owner's share of income $ 297.61 minus owner's costs $ 81.82 = $215.79 $/acre return
Average Weighted
Return = $232.18 $/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 LeasesFlex 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 SoybeansPercent of acres 50% 50%Expected yield, bu. per acre 169 50Expected price, $ per bushel $5.00 $12.00Seed, fertilizer & pesticide costs, $ per acre $341 $181Machinery , drying & labor costs, $ per acre
$176 $109
Rent per bushel of actual yield $1.50 $4.00Fixed bushels per acre used to set rent 50 bu 17 bu% of gross crop value to set rent or bonus 29% 35%Minimum rent per acre $150 $150Maximum rent per acre $400 $400Base gross revenue per acre for bonus rent $845 $600
50-50 crop share
Profit share over costs
Base rent plus bonus
% of gross crop value
Fixed bushels x price
Fixed $ x yield
Fixed cash rent
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
49%
57%
65%
67%
73%
97%
100%
Relative Risk Born by Tenant under Flexible Leases(based on standard deviation of profit)
Custom farming
50-50 crop share
Profit share over costs
Base rent plus bonus
% of gross crop value
Fixed bushels x price
Fixed $ x yield
Fixed cash rent
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
0%
15%
21%
28%
27%
30%
39%
40%
Downside Risk:Tenant’s Probability of a $100 Loss
Custom farming
50-50 crop share
Profit share over costs
Base rent plus bonus
% of gross crop value
Fixed bushels x price
Fixed $ x yield
Fixed cash rent
($350) ($300) ($250) ($200) ($150) ($100) ($50) $0
($15)
($120)
($186)
($236)
($184)
($211)
($294)
($311)
Tenant’s $ Loss at 10th Percentile
Custom farming
50-50 crop share
Profit share over costs
Base rent plus bonus
% of gross crop value
Fixed bushels x price
Fixed $ x yield
Fixed cash rent
($350) ($300) ($250) ($200) ($150) ($100) ($50) $0 $50
($15)
($120)
($186)
($236)
($184)
($211)
($294)
($311)
$(15)
$(8)
$21
$(7)
$(35)
$(28)
$(99)
$(82)
Tenant’s Loss at 10th Percentilewith Revenue Protection Insurance
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
ISU Extension builds partnerships and provides research-based learning opportunities to improve
quality of life in Iowa
Our Mission
We believe in . . .• Quality• Access• Diversity• Accountability