Cash LeaseThis is the most popular option for farm rental agreements. In Iowa especially, tenants and landlords have a good connection and work together to determine the rate for the following year. Having one fixed number helps both the tenant and landlord make plans for the following year. This also elevates more calculations when you are harvesting. It is important when negotiating new rental rates to understand your other production costs and where your breakeven prices sits. There are many tools that are able to assist you in calculating your breakeven point. The Iowa State Extension Office provides lots of great calculators you can access here.
Flex LeaseThis the newest wave in agreements. This essentially replaces the crop share program. There are two methods commonly found. The first is when rental rates are completely dependent on crop value or revenue. This is usually a percentage. In a decreasing economy, this helps the renter and hurts the landlord. If yields and prices are good, this is an advantage to the landlord and doesn't hurt the renter any more.
The second method is establishing a base rental rate and a bonus if yields and prices are good. This protects the landlord to cover land ownership costs, but the renter may lose out if prices fall dramatically. This also results in profit sharing beyond the base rate at an agreed upon rate. This way, both the renter and landlord have a vested interest in how well the crop does. Usually the base chosen for this method is lower than the standard rate so the landlord shares risk.
Examples of both of these methods are from Iowa State Extension Office at this link.
YieldsRight now, folks with good looking crops are worrying about where it is going. Folks with flooding or moisture containment problems are worrying about enough yields to breakeven. As of this morning corn prices were $3.40, this is below most production costs for farmers. It is important that both the renter and landlord calculate costs and revenues the same way. Be sure to have this conversation ahead of time in your agreement so there are no surprises at harvest.
Waiting until harvest to renew leases is becoming a more popular choice, but risky. You are creating an opportunity for another renter to enter negotiations in a very competitive environment. You need to have your business goals, costs, and calculations in line when heading into 2016 rental agreements. Agreement templates can be found on the Iowa State Extension website for your use.
Here's to a great #Harvest15, agreeable rental terms, and the ability to invest in your farm.
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