Negotiating a yearly lease is a key step toward profitable
farm ownership. Depending on where your farm is located, you may have as many
as five different lease options, from cash to custom. A brief description the
various lease types is listed below.
Each lease option has certain risks, and
certain opportunities. Farmers National can help you analyze your options, and
choose a lease that will help you achieve your goals. If you are interested in
a lease analysis to determine what the cost and income potential is for each
lease, just email Jim Farrell at jfarrell@farmersnational.com.
Cash Rent Lease
Typically calculated on the basis of a fixed number of
dollars per acre. In the past, many of these leases called for approximately
one-half of the rent in the spring with the remaining rent due in the fall. We've
designed several "variable" versions of this which allow owners to share in
higher than normal yields or prices. We've also developed a new product termed Cash
Rent Assurance. This program guarantees the rent will be
paid to you in full -- on time -- regardless of whether your farm operator pays
the rent on time. (Not available on building leases.)
Bushel Lease
This lease specifies a fixed number of bushels of a
particular commodity to be delivered to a specified elevator by a certain date
without cost to the owner. The number of bushels is determined by negotiation,
but in many cases is approximately one-third of normal production. No
government payments are paid to the landlord on a bushel lease.
Net Share Lease
This leasing alternative has gained in popularity as an alternative
to cash rent. It differs from the bushel lease in that the owner receives a
specified percentage of the crop. Thus, if the crop yields are good, the rent
goes up. The only cost the owner is usually responsible for is the drying
and/or storage of their share of the grain at harvest. All other production
costs are paid by the operator.
Crop Share Lease
Under this arrangement the owner pays a share of the input
costs and receives a share of the crop. In many areas, the owner shares in 50%
of the cost of the seed, fertilizer, and chemicals, and then receives 50% of
the crop. In other areas, this may be 25%, 33-1/3%, or 40% share, depending
upon the amount of weather risk involved and the consistency of production over
time. With changing farming methods and increasing land values, this lease may
not be as competitive as it once was. To address this issue, many leases are
now being tailored to each farm situation, and new percentages, such as 55% owner
- 45% operator, are emerging or supplemental cash rent. Another alternative is
to adjust the percentage of input cost paid by the owner.
Custom Blend Lease
Under this operating arrangement the owner pays 100% of
the direct crop production input costs (usually seed, fertilizer, and
chemicals). The operator pays all machine and labor costs to prepare the land,
plant the crop, cultivate if necessary, and harvest it, but pays none of the production
input costs. The crop share is negotiable, but generally is in the range of 75%
to the owner and 25% to the operator. Like the bushel, net share, and
traditional crop share leases, the owner is responsible for paying drying and
storage costs on their share of the grain.
Custom Operation
This arrangement offers the most reward potential, but
carries the most risk. Good farms in consistent production areas are excellent
candidates for a custom operation. With this arrangement, the owner pays 100%
of the direct input costs plus contracts with a local operator to perform all
of the operations required to grow the crop and harvest it for either a fixed
amount per operation or per acre. In most situations, we prefer to pay by the
operation in order to keep costs under control. Since the owner receives 100%
of the crop and government program payments under this arrangement, the owner
is responsible for drying and storage of the crop.
For more information, call Jim Farrell, AFM at 1-800-346-2650.
