University of Maryland Extension - PowerPoint PPT Presentation

Loading...

PPT – University of Maryland Extension PowerPoint presentation | free to download - id: 5ec075-YzQ5M



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

University of Maryland Extension

Description:

Title: Slide 1 Author: Verna Clarkston Last modified by: John Hall Created Date: 9/16/2008 7:53:20 PM Document presentation format: On-screen Show (4:3) – PowerPoint PPT presentation

Number of Views:83
Avg rating:3.0/5.0
Slides: 118
Provided by: VernaCl4
Learn more at: http://www.agnr.umd.edu
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: University of Maryland Extension


1
Farmland Leasing Arrangements Jenny Rhodes
Queen Anne Shannon Dill, - Talbot John Hall - Kent

  • University of Maryland Extension

2
Farm Lease Agreement Written
agreement Components

  • University of Maryland Extension

3
  • Lease Components
  • Names of Parties and description of property
  • Term of Lease
  • Rental Rates and arrangements
  • a. Crop-share
  • b. Cash Lease
  • c. Flexible cash lease
  • d. livestock share lease
  • e. Farm Machinery, equipment and building
    leases

  • University of Maryland Extension

4
  • Lease Components Cont.
  • 4. Farm operating expenses
  • 5. Conservation and Improved Practices
  • 6. Improvements and repairs
  • 7. Records
  • No Partnerships statement
  • Right of Entry
  • Arbitration ( settlement)
  • Additional agreements and modifications
  • Signatures

  • University of Maryland Extension

5
You need to have a written agreement The
purpose of this presentation is to provide
tenants and landowners basic information needed
to write rental agreements. Changes in the
structure of production agriculture have
increased the need for persons entering a
contractual rental arrangement to have a written
agreement. Additionally, rental agreements should
be updated regularly to incorporate changes in
government programs, environmental regulations,
costs of production and revenue received

  • University of Maryland Extension

6
Value of a written lease The value of a written
contract is in helping the prospective landowner
and tenant think about and agree upon the
essential considerations of leasing and operating
the farm. To arrive at an equitable lease, the
interested parties should talk over the basic
considerations involved in the leasing
arrangement and in managing the farm. They should
then make a contract, preferably written,
based on these considerations.

  • University of Maryland Extension

7
  • 1 Names of parties and description of property
  • Every lease should identify the parties entering
    into
  • the lease contract and give the legal description
    of the
  • property or properties involved. In addition to
    the legal
  • description, information such as the distance and
    direction from town, road name, mailing address
    and popular name of the farm might be given.

  • University of Maryland Extension

8
2 Term of lease The term, or length of time the
lease is to be in effect, should always be agreed
on and should be stated in the contract. The term
of the lease is important. A long-term lease is
often necessary to develop a profitable business
over time because of the need for permanent
capital investments. The tenant will not want to
share investment in permanent facilities on a
short-term lease. Usually, landowners favor a
short-term lease on the basis that a longer-term
lease lowers the market value of the farm because
it cannot readily be sold. This problem can
be solved by including a termination clause that
would apply in case the farm was sold.

  • University of Maryland Extension

9
The lease agreement can be for either a
one-year lease or a longer lease, as desired.
Most agreements include an automatic renewal
clause and allow some flexibility in the terms of
the lease if the parties under contract give
adequate notice. Renewal a multi year lease
is automatically renewed unless a termination
notice has been submitted. Lease dates
Typically a lease runs for a calendar year.
However, this may vary

  • University of Maryland Extension

10
  • Termination of lease
  • It is recommended that a termination notice be
    given by July 1 of the growing season.
  • If termination is given, the operator has the
    right to harvest all crops currently growing on
    the given land.
  • If there are crop input costs for crops currently
    growing, these input costs should be addressed at
    the time of termination.

  • University of Maryland Extension

11
In some communities, it is customary to give
notice that the lease is to be terminated before
wheat sowing time in the fall or by March 1 in
the spring. But failure of either party to give
this notice does not necessarily indicate a
desire that the lease be continued. Consequently,
it is desirable to state in the contract
the procedures to be followed for terminating or
continuing the lease contract.

  • University of Maryland Extension

12
  • 3 Rental rates and arrangements
  • Rental rates and arrangements for payment or
    disposition of the rent are a significant part of
    any lease, whether written or oral.
  • Basically, there are five methods of paying rent
  • crop-share rent share crop
  • livestock-share rent
  • cash rent
  • Flexible cash rent
  • farm machinery, equipment and buildings rent
    custom farming

  • University of Maryland Extension

13
a. Crop-share rent Characteristics of a
crop-share lease are that each party receives a
share of the crop as earnings for their
contribution in land, labor and
capital. Normally, crop-sharing involves grain
crops such as small grains, corn, and soybeans
and land used to participate in government
programs. Remaining areas used in producing
forages (hay and pasture) are normally cash
rented. The landowners share of the crop depends
on the contribution made toward production of the
crop. When crops are divided 50-50, the landowner
normally pays 50 percent of the cost of
fertilizer, seed and chemicals in addition to
providing the land. In other instances,
the landowner may or may not share in cash
production costs and receives a 1/4 to 1/3 share
of the crop as a return to land.

  • University of Maryland Extension

14
  • .

b. Livestock-share lease Livestock-share leases
vary considerably because of differences in
contributions made to the business by each party.
The owner normally furnishes land and buildings,
while the tenant furnishes major portions of the
crop machinery. Livestock is owned jointly.
Production costs such as feed, veterinary and
medicine, other livestock expenses, fertilizer,
seed and chemicals are shared equally. Livestock
machinery and equipment may be jointly owned.
Labor costs are shared according to the
agreement, as are repairs and upkeep on permanent
buildings. The landowner usually pays for
construction of permanent buildings, or
arrangements are made to reimburse the tenant in
case the lease is terminated. Livestock and crop
sales are divided according to the terms of the
agreement

  • University of Maryland Extension

15
  • c. Cash lease The cash lease is normally
    uniform and
  • relatively simple. The tenant pays the landowner
    a cash
  • sum per acre or a lump sum for his or her
    investment
  • in farm resources. Provisions in the lease
    generally state
  • the terms of agreement. For example, the
    landowner
  • may place restrictions on the use of land or
    fields for certain
  • crops. Also, the agreement might state the degree
  • of productivity to be maintained. Provisions
    should also
  • state the amount and method of paying rent.
  • degree of productivity The definition may need
    to be defined as part of the agreement. It is
    assumed that this definition reflects the soil
    nutrient values. Soil tilth, erosion and other
    soil parameters may also be addressed

  • University of Maryland Extension

16
d. Flexible cash lease The flexible cash lease
is a hybrid of the cash lease. The flexible cash
lease agreement states that the tenant will pay
in proportion to either or both the price and the
yield level. There are many methods for flexing
the rental agreement. The most common method is
flexing gross (or net) revenue so that the tenant
and landowner share the risks associated with
cash renting. If revenue is greater than
the established base level, the tenant and
landowner share the excess revenue. If revenue is
less than the established level, the tenant and
landowner share the lost revenue. However, often
there is a cash lease price floor that
the landowner is guaranteed. Other types of
flexible cash rental arrangements include flexing
only price or yield or flexing both

  • University of Maryland Extension

17
e. Farm machinery, equipment and buildings leases
Renters have found that leasing unused
resources can be cheaper than making new capital
investments. Also, producers have found in
certain situations leasing machinery and
equipment from dealers can be cheaper than
purchasing. Additionally, machinery and
equipment leasing arrangements can be between
renters and owners to allow the renter to avoid
paying full value and the owner to generate
revenue to cover the ownership costs. Renters
need to compare the size, condition, obsolescence,
use, location and lease cost of the capital good
versus the cost of purchasing the capital good
outright. Owners are primarily interested in
recovering ownership costs. The lease price
should equal the amount needed to cover ownership
costs and variable costs, such as upkeep costs
incurred from renting the capital good. Both
renters and owners should consider current value,
depreciation, interest, insurance and taxes,
inflation, repairs and maintenance when
agreeing on a lease value.

  • University of Maryland Extension

18
  • The cash lease is the most common. The second
  • most often used is the crop-share lease. Flexible
    rental
  • agreements are increasing in use as tenants seek
  • to share downside revenue risk with landowners
    and
  • landowners seek to capture upside revenue
    potential.
  • The rental arrangement for each specific farm
    should be
  • developed to fit the farm and the planned
    operating procedures.
  • These conditions are known best by the landowner
    and prospective tenant, so they should work out
    the most satisfactory arrangement between them.
    No standard lease form can be used to develop an
    equitable rental agreement. The function of the
    form is to record operating procedures agreed
    upon by the parties entering the contract.

  • University of Maryland Extension

19
4 Farm operating expenses Reaching
agreement on farm operating expenses provides an
opportunity for the tenant and landowner to
discuss and designate the share of cash
production costs that are to be paid by each
party. We have shared Custom rates and budgets
with you Soil Ph / Lime may fall into this area
and needs to be addressed

  • University of Maryland Extension

20
  • 5 Conservation and improved practices
  • To improve or maintain the productivity of the
  • farm, conservation and improved production
    practices
  • are usually warranted. Normally, conservation and
  • other improved farming practices require
    additional
  • labor and expenditures. Give important
    consideration
  • to questions such as who contributes the labor
    and cost
  • of implementing the practice and how these
    contributions affect income for both tenant and
    landowner.
  • CRP cutting waterways spraying noxious weeds

  • University of Maryland Extension

21
  • 6 Hunting
  • Waterfowl and deer hunting provide a significant
    value to many farms on Delmarva.
  • Careful consideration must be given to liability
    issues as well as methods of hunting, frequency
    of hunting, trash from hunters, pit, stand and
    roadway maintenance and location.
  • The land owner must understand liability issues
    of the property owner
  • See additional issues and contract

  • University of Maryland Extension

22
  • 7 Improvements and repairs
  • Misunderstanding is prevented by agreeing ahead
  • of time what repairs will be done, how much will
    be
  • done and what each party will furnish toward
    them.
  • In many instances, tenants provide equipment that
  • legally becomes permanent fixtures on the farm.
  • Disagreements can be avoided and the farms
    resources more fully used if both landowner and
    tenant agree on needed improvements.
  • Roadways, fencing, and machinery storage fit this
    need.
  • Goose pit construction may also fit this area

  • University of Maryland Extension

23
8 Records Farm records are a necessary part of
farming. The records need not be elaborate or
formal accounts but at least should cover all the
expenses affecting both parties. The tenant is
the logical person to keep the records because he
or she is usually in closer touch with the day
to- day operations. If the records are kept as
part of a complete farm account record, they will
have greater value to the total
business. Nutrient management plans maybe part
of the records shared. They include 1. soil
tests 2. nutrient inputs 3. Yield
records Owners can get copies if
requested Pesticide records may also be part of
the records shared

  • University of Maryland Extension

24
  • 9 No partnership
  • A lease does not create a partnership. A
    statement
  • of this nature is advisable in any lease form.
  • Rental arrangements involving livestock-share
  • leases are more apt to be considered partnerships
    than
  • the crop-share arrangements, but such
    arrangements are more likely to be considered
    modifications of the
  • landowner-tenant relationship as traditionally
    established under the crop-share lease.

  • University of Maryland Extension

25
10 Right of entry Every farm lease agreement
should include a statement giving the landowner
the legal right to enter the property. Without
such a statement, a tenant has the right to treat
any entrant on the property as a trespasser,
including the landowner

  • University of Maryland Extension

26
11 Arbitration (settlement) Differences of
opinion can arise rather unexpectedly. For this
reason, leases should be in writing. Time tends
to make oral agreements hazy while a
written agreement is always available for
reference and recall. Also, a written lease
forces both parties to argue out their
differences in most areas where differences
of opinion may occur. This section is included to
encourage the use of disinterested persons for
settling differences promptly and in a friendly
manner rather than by litigation. The county
agent, MDA personnel, banker, etc may assist in
arbitration

  • University of Maryland Extension

27
  • 12 Additional agreements and modifications
  • It is often necessary to change or add to
    contractual
  • arrangements, and one of the tests of a good
    lease is its flexibility for changing the
    operating plan. Any changes made after the
    initiation of the original contract should be
    made a part of the written contract.
  • All agreements which encumber the land should be
    addressed.
  • CSP/ CRP are examples

  • University of Maryland Extension

28
  • 12 Signatures
  • Signatures by each party are one of the five
    essential
  • parts of the lease contract. The agreement
    becomes a
  • contract when it is signed. All co-owners of the
    property,
  • including husband and wife, should sign the lease
  • agreement when property is held in joint tenancy
    or tenancy by entireties.
  • Signatures should be by individuals rather than
    family members, partners, share holders, etc. so
    it is clear who is involved.

  • University of Maryland Extension

29
Our goal is to suggest lease agreements that
will Reduce Risk

  • University of Maryland Extension

30
  • Risk considerations
  • Crop Input costs
  • Machinery costs
  • Fuel costs
  • Land costs
  • Volatile commodity markets
  • A very troubled monetary system

  • University of Maryland Extension

31
  • Famer controlled costs
  • Crop Input costs
  • Machinery costs
  • Fuel costs

  • University of Maryland Extension

32
  • What can you do to control Crop Input costs?
  • Seed
  • Fertilizer
  • Herbicides
  • Insecticides
  • Tillage methods

  • University of Maryland Extension

33
What can you do to control Machinery costs?

  • University of Maryland Extension

34
DIRTI Method to determine cost of
ownership D- Depreciation I Interest R
Repairs T Taxes I - Insurance

  • University of Maryland Extension

35
Depreciation Definition a. tax
purposes b. real value purposes (amortize)

  • University of Maryland Extension

36
Depreciation - Real b. real value
purposes 200,000 combine 8
years Residual value 50,000 What are annual
costs? 150,000/8 18,750.00 per year

  • University of Maryland Extension

37
  • DIRTI 200,000 combine
  • Ownership costs
  • Amortization 18,750.00
  • Interest 50 at 9 9,000.00
  • Repairs 1 2,000.00
  • Taxes
  • Insurance 1 2,000.00
  • Annual ownership costs 31,750.00

  • University of Maryland Extension

38
Machinery costs What are real combine costs at
31,750.00 per year per acre? a. 500
acres 63.50 b. 1000 acres 31.75 c. 1500
acres 21.17 d. 2000 acres 15.87

  • University of Maryland Extension

39
Fuel costs 1. Assume 12 gallons per hour 2.
4.00 per gallon 3. 3 acres per hour 12
4.00 48.00 / 3 16.00 per acre

  • University of Maryland Extension

40
What about Labor? Assume 15.00 per hour-
salary plus any benefits Remember Health care -
5,000 5.00 per acre

  • University of Maryland Extension

41
Total Costs for combining 500 acres 1000
acres 1. Ownership 63.50 31.75 2. Fuel
16.00 16.00 3. Labor
5.00 5.00 Real costs
84.50 52.75 Per acre

  • University of Maryland Extension

42
Total Costs for combining 1500 acres 2000
acres 1. DIRTI 21.17 15.87 2. Fuel
16.00 16.00 3. Labor 5.00
5.00 Real costs
42.17 36.87 Per acre

  • University of Maryland Extension

43
Ownership costs
Years 25,000 50,000 75,000 100,000
5 5,000 10,000 15,000 20,000
7 3,571 7,143 10,714 14,286
9 2,778 5,556 8,333 11,111
12 2,083 4,167 6,250 8,333
15 1,667 3,333 5,000 6,667

  • University of Maryland Extension

44
Suggestion Custom rates should be a.
ownership costs Plus b. Fuel
c. labor

  • University of Maryland Extension

45

  • University of Maryland Extension

46
Example Break

  • University of Maryland Extension

47
Land Costs

  • University of Maryland Extension

48
Rental rates and arrangements Cash
Rental Rates Determine a fair rate
Crop-Share Leases Calculating a Cash Rent
Lease Flexible Cash Leases

  • University of Maryland Extension

49
  • Background
  • Land values have been steadily increasing along
    with land taxes. Land owners are looking for ways
    to off set this increased costs
  • Land rents have escalated dramatically in some
    areas
  • Rents in Iowa have topped 300 per acre when corn
    was 6.00
  • Some local rents have approached 175.

  • University of Maryland Extension

50

  • University of Maryland Extension

51

  • University of Maryland Extension

52

  • University of Maryland Extension

53
Quick Overview Crop share cash flex
From the Owners perspective Which lease
is least volatile from year to year? From the
Tenants perspective Which lease is most
volatile from year to year?

  • University of Maryland Extension

54
  • Land Rental rates and arrangements-
  • Crop-Share Leases
  • Cash Rental Rates
  • Leasing Practices
  • 4. Flexible Cash Leases

  • University of Maryland Extension

55
1. Crop Share 50-50 Lease Landlord
Tenant Land
Labor Machinery
Management ½ inputs ½ inputs

½ Income
½ Income

  • University of Maryland Extension

56
1b. Crop Share 60-40 Lease? Landlord
Tenant Land
Labor Machinery
Management ½ inputs ½ inputs

60 Income
40Income

  • University of Maryland Extension

57
2. Determining A Fair Cash Rent Value

  • University of Maryland Extension

58
Iowa State Examples applied to Delmarva
Options to consider

  • University of Maryland Extension

59
Calculating Cash Rent Values
  • By survey
  • Cash Rent Market Approach
  • ISU Extension Publication FM 1851 Cash Rental
  • Rates for Iowa 2008 Survey (released in June)
  • Three Methods for Determining Cash Rent Values
  • Typical Cash Rent
  • 2. Average Rent for Production
  • 3. Average Rent for Corn Suitability Rating (CSR)

  • University of Maryland Extension

60
Calculating Cash Rent Values
  • Three Methods for Determining Cash Rent Values
  • Typical Cash Rent
  • 2. Average Rent for Production
  • 3. Average Rent for Corn Suitability Rating (CSR)
  • ( based on soil type)

  • University of Maryland Extension

61
Calculating Cash Rent Values
  • Typical Cash Rent
  • Extensive survey system at Iowa State

  • University of Maryland Extension

62
Calculating Cash Rent
1. Typical Cash Rent Iowa Area 3
County Cerro Gordo Determine Overall average
200 High Quality Third 238
Middle Quality Third 204 Low Quality
Third 159 Based on survey cost and
yield 2007 - 2008

  • University of Maryland Extension

63
Calculating Cash Rent
Maryland data

  • University of Maryland Extension

64
Maryland Cash Rent by County NASS UDSA Annapolis
County 2005 2006 2007 Caroline 81.2
6 75.68 73.65 Cecil 72.31 74.44
72.19 Dorchester 81.56 76.92
77.54 Kent 83.08 83.12 89.13 Queen
Anne 90.47 91.81 92.18 Somerset 62.5
7 63.55 64.68 Talbot 76.71 83.12
83.02 Wicomico 71.45 73.20
73.21 Worchester 75.04 80.64 82.38
Does not include 2008

  • University of Maryland Extension

65
Calculating Cash Rent
1. Typical Cash Rent Upper shore
Determine Overall average 100 High
Quality Third 130 Middle Quality
Third 100 Low Quality Third
70 Based on NASS data upswing in 2008 caused
by high commodity prices are not included

  • University of Maryland Extension

66
Calculating Cash Rent Values
2. Average Rent for Production

  • University of Maryland Extension

67
Calculating Cash Rent
2 a. Average Rents Per Unit Corn
Yield Iowa Determine Average Rent for Corn
Farms Average Corn Yield (bu/A) 175 Equals
the Average Rent for Corn Acre 200 Rent
per bushel of Corn yield 1.14

  • University of Maryland Extension

68
Calculating Cash Rent
2 b. Average Rents Per Unit Soybean Yield
Iowa - County Cerro Gordo Determine
Average Rent for Soybeans Farms Average
Soybean Yield (bu/A) 45 Average
Rent for Soybean Acres 200 200 / 45 per bushel
of Soybean yield 4.45

  • University of Maryland Extension

69
Calculating Cash Rent
Maryland data

  • University of Maryland Extension

70
Calculating Cash Rent
Maryland data 2 a. Average Rents Per Unit Corn
Yield Determine Average Rent for Corn
Farms Average Corn Yield (bu/A) 125 Equals
the Average Rent for Corn Acre 100 Rent per
bushel of Corn yield 0.80

  • University of Maryland Extension

71
Calculating Cash Rent
Maryland Data 2 b. Average Rents Per Unit
Soybean Yield Determine Average
Rent for Soybeans Farms Average Soybean
Yield (bu/A) 35 Equals the Average Rent for
Soybean Acres 100 Rent per bushel of Soybean
yield 2.85

  • University of Maryland Extension

72
Using Corn Suitability Rating (CSR)
  • Iowa data
  • 3. Average Rents Per CSR Index Point
  • Select the Area of the State/County Cerro
    Gordo
  • Determine the Average Cash Rent using CSR
  • Farms Average Corn Suitability Rating78
  • Times rent per CSR index point2.56
  • Equals the Average Rent for all Row Crop
    Acres 200
  • Source ISU Extension Publication FM-1851

  • University of Maryland Extension

73
Soil Type Acres Percent CSR -------------------
------------ T370B 61.47 23.2 85 248 17.72 6.7
60 T368 16.70 6.3 90 212 11.71 4.4 91 T369
87.78 33.1 85 133 9.69 3.7 80 220 60.11 22.7
85 ------------------------------- Totals 265.19
100.0 83.73 Iowa Corn Suitability Rating based
yield estimation 179 bushels per acre

  • University of Maryland Extension

74
Rental rates based on soil productivity James
Brewer Resource Soil Scientist USDA-NRCS Easton,
MD

  • University of Maryland Extension

75

  • University of Maryland Extension

76
See 2003 Eastern Shore Soil productivity
grouping FSA yields 2003 Group 1 150 bushels
per acre Group II 135 bushels per acre Group
III 120 bushels per acre Group IV 90 bushels
per acre Average 125 bushels per acre

  • University of Maryland Extension

77
Rental rates based on soil productivity
groupings, yield potential and value Group 1 150
bushels per acre 0.80 120 Group II 135
bushels per acre 0.80 108 Group III 120
bushels per acre 0.80 96 Group IV 90
bushels per acre 0.80 72 Average 125
bushels per acre

  • University of Maryland Extension

78
Additional Iowa Cash Lease Calculations
A. Gross Income Method B. Tenant Residual
Method C. Crop Share Method D. Return on
Investment Method

  • University of Maryland Extension

79
A. Share of Gross Income
CORN (150 buX
3.80) 22 592.00
SOYBEANS (35 buX 7.70) 22 291.50 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. Maryland example
Cash Rental Rate 4a. CORN592./ac X 25
148.00 4b. SOYBEANS291.50/ac x 35
102.00 Average 125.00

  • University of Maryland Extension

80
A. Share of Gross Income
Iowa Keep in mind, at 35 40 of the gross
income going into land rent, , the operator
cannot do anything else. If he does, he must bill
his services to the land owner. You must
understand the complete rental agreement before
you compare rental rates from one region to
another

  • University of Maryland Extension

81
A. Share of Gross Income
Iowa CORN (175
buX 4.50) 22 809.50
SOYBEANS (45 buX 9.00) 22 427.00 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
4a. CORN809.50/ac X 25 202.35
4b. SOYBEANS427/ac x 35 149 Average

175.67

  • University of Maryland Extension

82
A. Share of Gross Income
Iowa CORN (175
buX 4.50) 22 809.50
SOYBEANS (45 buX 9.00) 22 427.00 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
4a. CORN809.50/ac X 25 202.35
4b. SOYBEANS427/ac x 35 149 Average

308

  • University of Maryland Extension

83
B. Tenant Residual Method
CORN 592 526.39 65.61 SOYBEAN
291.50- 310.51 (-19.01) Average
23.30 Price and yield is
everything

  • University of Maryland Extension

84
C. Crop Share Method 50-50 Share
12/3/2008 Prices Corn 50 of gross
minus owners costs 592/2 296
(406.04/2(203)) 92.00 Soybeans 50 of
gross minus owners costs 291/2
145.5-(211.12/2( 105.56) 39.94 Average66.
00 (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.

  • University of Maryland Extension

85
D. Return on Investment Method Iowa
Iowa farm estimated to have a market value of
5,000 per acre. Expected Rent (4.8) X 5,000 /
acre 240/acre(4.8 -2003-2007 avg.)

  • University of Maryland Extension

86
Iowa Corn Soybeans Cash
Rent Survey 200 200 Per Bushel
Yield 205 200 Per CSR Point 200
200 Gross Income 363 (290) 252
(202 Tenant Residual 539 (332) 311 (185)
Crop Share 355 (251) 219 (156) Return on
Investment 240 240 Average 300
(245) 232 (198) Todays Average
266 (222) 2007 Survey Average - 162

  • University of Maryland Extension

87
Future Consideration

  • University of Maryland Extension

88

  • University of Maryland Extension

89
Future Consideration
What are prices (income) going to be?
Ethanol impact how long? Shifts in what is
grown Global impact? What are inputs going
to cost? Higher oil, higher fertilizer
costs. Higher demand for seed, technology
cost.

  • University of Maryland Extension

90

  • University of Maryland Extension

91

  • University of Maryland Extension

92

  • University of Maryland Extension

93

  • University of Maryland Extension

94

  • University of Maryland Extension

95

  • University of Maryland Extension

96
Corn Cost of Production What if?
  • Fertilizer 188.40
  • Seed 71.01
  • Pesticides 49.08
  • Insurance 21.00
  • Drying and Storage 20.00
  • Machinery and Labor 160.35
  • Interest 16.55
  • Total (w/o rent) 526.39/150 3.51 per bu.
  • Land charge 80.00 606.39 /1504.04
    per bu

  • University of Maryland Extension

97
Bottom Line
Risk management strategies and tools will be
extremely important for 2009.

  • University of Maryland Extension

98
New Average Crop Revenue Election (ACRE)
Gives producers a one-time option to choose a
revenue-based counter-cyclical payment program,
starting in 2009 through 2012 Producers choose
between the current program (LDP and CCP) or
ACRE Computed on planted acres, up to the
total number of base acres on the farm Price
guarantee is the 2-year average of the
national price (seasonal).

  • University of Maryland Extension

99
Average Crop Revenue Election (ACRE)
  • Gives producers a one-time option to choose a
  • revenue-based counter-cyclical payment
    program,
  • starting in 2009
  • Producers choose between the current stable of
  • programs or ACRE
  • Producers choosing ACRE agree to 20 decline
  • in direct payments and 30 decline in loan
    rates

  • University of Maryland Extension

100
Flexible Cash Leases
Desire Stable and predictable rents. Current
Reality Prices and yields are very
unpredictable. Potential Solution Flexible
lease contract

  • University of Maryland Extension

101
Advantages
Disadvantages
Owner and producer share in risks Not as well
understood as traditional cash lease or
crop share More difficult to calculate Owner
benefits from tenants management
skills Tenant loses windfall profit potential
from high prices
Price and production risk shared as well as
profit opportunities Actual rent adjusts as
production or price change Owner does not have
to be involved in decision making about
inputs or marketing

  • University of Maryland Extension

102
Flexible Cash Lease is a Cash Lease
If the final rent does not depend on the farm
yield, a flexible rent is still considered to
be a cash rent. Example base rent on
county average yield and actual price at
harvest. County yields are not published until
March each year.

  • University of Maryland Extension

103
Types of Flexible Cash Leases
Rent varies with both price and yield
Matches tenants ability to pay Rent varies
with yield only Could have high yields, low
prices Rent varies with price, only Could
have low yields, high prices

  • University of Maryland Extension

104

  • University of Maryland Extension

105
Base plus Bonus
Paying a flex bonus when revenue is above
expectations does not affect the split of
payments if it is not based on the actual farm
yield. Provide a copy of your agreement to the
FSA county office.

  • University of Maryland Extension

106
(No Transcript)
107

  • University of Maryland Extension

108
Example
High yield - low price 180 bu. 2.50 Low
yield - low price 90 bu. 2.50 High
yield high price 180 bu. 4.50 Low yield
high price 90 bu. 4.50 Go to spread sheet

  • University of Maryland Extension

109
Example
High yield - low price 180 bu. 2.50 Rent
Low yield - low price 90 bu.
2.50 Rent High yield high price 180 bu.
4.50 Rent Low yield high price 90
bu. 4.50 Rent

  • University of Maryland Extension

110
Other Resources
Materials from this meeting
http//www.extension.iastate.edu/feci/Leasing/vflm
.html Online Courses Ag Management e-School
http//www.extension.iastate.edu/ames
Workshops, meetings, conferences
http//dbs.extension.iastate.edu/calendar/
Publications rental survey, land value survey,
etc. http//www.extension.iastate.edu/pubs/
Articles and spreadsheets http//www.extension
.iastate.edu/agdm/ Private Consultation
http//www.extension.iastate.edu/ag/fsfm/fsfarmmg.
html

  • University of Maryland Extension

111
Putting a Lease Together Move back Improving
Negotiation Skills Focus on win-win situations
Dont underestimate your position at the
bargaining table Formulate a resistance point

  • University of Maryland Extension

112
Irriagated ground

University of Maryland Extension
113
Summary
  • A Good Lease agreement
  • Written
  • Names of parties
  • Terms of lease
  • Rental rates and arrangements
  • May address farm operating expenses
  • Should include conservation and improved
    practices
  • Hunting provisions

  • University of Maryland Extension

114
Summary
7. Should address improvements and repairs 8. May
include records nutrient management 9. May
include statement that states it is not a
partnership 10. Right of entry statement 11.
Method of arbitration 12. Additional agreements
if any 13. Signatures

  • University of Maryland Extension

115
Summary
Rental Rates a. crop share b. cash lease c.
flexible cash lease d. Livestock share lease d.
farm machinery, equipment, and building lease

  • University of Maryland Extension

116
Summary
Determining cash rental values 1. Surveys
NASS data by county 2. Using soil productivity
groupings NRCS 3. Gross income method 4.
Tenant residual method 5. Crop share method 6.
Return on investment

  • University of Maryland Extension

117
Summary
Introduced the new Flexible cash lease
method Hybrid of the share crop and cash
systems What to share in good times reduces
risks in volatile times Way to protect land
owner for actually participating ( FSA ruling)

  • University of Maryland Extension
About PowerShow.com