|Farmland Leasing Options|
There are several types of leasing arrangements that can be negotiated. The exact terms of the lease will vary depending upon market conditions and individual situations. The return and risk of each type of lease should also be considered.
Historically, it was assumed that the land resource, provided by the landowner, was equal to the operator's contribution of labor and machinery. Over the years, this was the most common type of lease. The crop income and crop expenses are divided equally between the land owner and farm operator. With higher crop yields and less tillage, the trend has been away from 50-50 crop share leases.
In addition to sharing the crop income and expenses noted above, the landowner participates in the livestock production with the farm operator. The specific lease terms depend on the type of livestock and the livestock facilities.
In addition to the land, the landowner provides all of the seed, chemicals, and fertilizer. The operator provides the machinery, fuel, and labor. Each party is responsible for drying and storing his respective share of the crop. The owner receives from 72 to 78 percent of the crop depending on the quality of the land. This arrangement will normally provide a higher return to the landowner as compared to the 50/50 crop-share lease.
Most progressive and timely operators have more than an adequate line of equipment to farm their current operation and are interested in custom farming to have a guaranteed cash flow. As they already have their equipment and labor, their only cost is fuel and repairs. The custom operation will generate a higher net income on above-average land, particularly with favorable yields and commodity prices.
A percentage lease is similar to a cash rent lease. However, the owner receives a specified percentage of corn or soybeans delivered to an agreed grain terminal or location and a percentage of the government payment. The operator pays all expenses. This gives the owner some inflation protection and the ability to increase his return through effective grain marketing. Once again, it is important to evaluate the credit worthiness of the proposed operator and to evaluate the herbicide, fertilizer, and method of farming to protect your land investment. Improper application rates and farming methods can reduce the production potential of the farm. Generally, the owner's percentage varies from 30% to 40% depending on the quality of the land.
An operator pays a set amount of cash and the landowner does not participate in the crop production. Usually, one-half of the rent is paid on March 1 and the balance is paid after the harvest is completed. It is important to evaluate the credit worthiness of the proposed operator and to evaluate the herbicides, fertilizer, and method of farming to protect your land investment. Improper application rates and farming methods can reduce the production potential of the farm. It is equally important to execute a UCC-1 financing statement to ensure collection of the rent.
Please contact us to discuss leasing alternatives and an estimate of net income for your farm.