“Volatile” and “Uncertain” are two words that might best describe grain prices and input costs for row crop production heading into the 2008 planting season. With this increased volatility and uncertainty, risk increases for producers and more uncertainty arises about the amount of cash rent to pay.
On the other side of the negotiating table, landowners, seeing higher profitability in commodity crops, are seeking higher cash rents. So, just what is that “most equitable” cash rent amount and how can it be maintained from year to year or contract to contract?
One answer is negotiating a flexible cash lease arrangement that varies from year to year based on price or yield or a combination of the two. Price and yield deviations from an agreed upon starting point (base rent) will trigger additional rent in the case of higher prices or yields or possibly lower rent in the case of price or yield shortfalls.
Several resources exist that will give you detailed information on how a flexible cash lease arrangement can be prepared.
Flexible-Cash Rents for Farmland – OSU Extension Factsheet
http://ohioline.osu.edu/fr-fact/0002.html
Flexible Farm Lease Agreements – Iowa State Decision Maker Article
http://www.extension.iastate.edu/agdm/wholefarm/html/c2-21.html
Flexible Cash Leases Based on Crop Insurance Parameters – Univ. of Illinois – farmdoc
http://www.farmdoc.uiuc.edu/manage/newsletters/fefo07_13/fefo07_13.html
Flexible leases and USDA payments – Iowa State Decision Maker Article
http://www.extension.iastate.edu/agdm/articles/edwards/EdwJune07.html
Cash Farm Lease with Flexible Provisions – North Central Region Extension Publication
http://agecon.uwyo.edu/RiskMgt/legalrisk/CashFarmLease.pdf
Flexible Lease Agreement Worksheet (Downloadable Excel Spreadsheet You May Consider Using is Included on this page.) – Iowa State
http://www.extension.iastate.edu/paloalto/news/Flex+Leases.htm
Example of Flex Lease Agreement – South Dakota
http://agbiopubs.sdstate.edu/articles/ExEx5068.pdf
Government Payments Under a Flexible Cash Lease Arrangements
The Farm Service Agency specifies that certain flexible cash lease arrangements are in fact “crop share leases” and certain government payments (direct and counter-cyclical payments) will be divided up between tenant and landowner according to the risk each bears in the production of crops on the leased parcel. To comply with FSA guidelines tenants and landowners need to do one of two things.
- Provide a copy of the flexible cash lease to your county FSA office, and request approval for the proposed sharing of the direct and counter cyclical payments.
- Structure your flexible cash lease so that it is defined as a cash lease arrangement under FSA Guidelines. See the following articles for more information on how to comply with FSA Guidelines.
When is Flexible Cash Rent Treated as Fixed Cash Rent by Farm Services Agency – OSU Extension – Ohio Ag Manager January 2008
http://ohioagmanager.osu.edu/uncategorized/when-is-flexible-cash-rent-treated-as-fixed-cash-rent-by-farm-services-agency/
Flexible leases and USDA payments – Iowa State Decision Maker Article
http://www.extension.iastate.edu/agdm/articles/edwards/EdwJune07.html
Flexible Cash Leases Based on Crop Insurance Parameters – Univ. of Illinois – farmdoc
http://www.farmdoc.uiuc.edu/manage/newsletters/fefo07_13/fefo07_13.html