Farmers are generally not used to rejecting farmland, but if paying cash rents deprives them of profitability, 2021 might be the time to do so. When it`s time to sign a new lease for farmland, there`s a lot on both parties can put a lot on the table to make sure the spot lease meets everyone`s needs. Some of the information that should be included also serves to show that you are committed to equity, sustainable agriculture and the administration of the country. There are different types of agricultural or land agreements, but this agreement applies specifically to what is often referred to as a “cash rent” agricultural agreement. This means that the tenant pays for the use of the land, but the landowner does not share a percentage of the income from the crop or livestock. The advantage of this type of agreement is that the landowner receives predictable and scheduled payments. The disadvantage is that they do not receive any major payment possible if the tenant has an exceptional year. For more information on average rental prices in your county, check out the following report, which is based on survey data from the USDA`s National Agricultural Statistics Service for Michigan counties. A copy of the entire series in the form of a fact sheet is available at the following web address. xlsx file Use this decision tool to estimate the performance of a landowner and tenant under various leases, including cash rent, flexible rent, harvest share, or a custom growing agreement. Your farmland negotiation doesn`t need to be in person – a phone call or email isn`t a problem, especially if you don`t live in the same city.
But all leases must be written. See AgDM C2-06, Farmland Lease Annual Report Form, for an example of information that could be shared between tenants and landowners in farmland leases. The September 1 deadline for notification of changes to farmland leases in some states is approaching. For farmers, this means that there is a lot of processing of numbers, and in many cases the calculation is not pretty. Harvesting How are the costs of combining, drying, transporting and storing crops shared under a shared-share lease? If the corn drying equipment is part of the rental unit, the landlord often provides the dryer and storage facilities. If the corn drying unit is portable, it may be jointly owned, or either party may own it and charge the other party a specified amount for its use. Fuel and electricity costs for drying are usually divided in the same proportion as harvesting. In some cases, the tenant is paid extra to deliver the owner`s share of the farm warehouse crop to a lift or processor. Some flexible agreements offer a fixed price per bushel multiplied by the average corn yield for that field. (Example of corn: 1 times the average yield, i.e. 150 bushels per acre, produces a cash rent of $150 per acre.) This relieves the landowner of marketing and production risks and links the rental price to the production capacity of each field, which is good for the tenant. Renting a farm is not as difficult as it used to be, in part because of new technologies and increased attention to farmland leases.
While traditionally many farmland leases have been negotiated at the local coffee shop and sealed by a handshake, more and more landowners and farmers are turning to technology solutions like Tillable to connect with good partners and ensure that farm goals are documented and pursued. Many farm families cannot afford to buy farmland because they do not have enough capital for a down payment, or the income will not be sufficient to meet the financing payments. Young families often have jobs, some working capital, machinery and management skills that they want to use on a farm to earn income for living expenses and future investments or deleveraging. If they are unable to buy land, they can lease land and accumulate equity for a possible future purchase. A common method is to exploit a combination of clean and leased land. This allows the operator to have a tether base with machinery and grain storage while renting additional acres. The share of plants is considered a flexible lease for arable land, in which the landowner and tenant share the income from crops grown on the farm in a predetermined ratio or percentage. An agreement to purchase regular inventory would be 25% for the landowner and 75% for the tenant of the harvested cereal crop if the landowner is not involved in the cost of production.
In some cases, a contract of 1/3 to the landowner and 2/3 to the tenant`s contract is used, but in this case, the landowner is supposed to pay 1/3 of the cost of seeds, fertilizers and chemicals for the production of the plants. Since input and overhead costs have increased over the past 10 years, tenants can no longer afford the historical shares where 1/3 goes to the landowner and 2/3 to the tenant without cost sharing. This differs from the fixed cash lease in that the price paid to the landowner is based on income and not on a fixed amount. The dollar amount is influenced by crop yields and prices. When yields and prices rise, the level of rents rises and vice versa. Examples of rental forms with provisions for several types of leases are available. See FM 1538 (AgDM C2-12) Iowa Farm Lease Form or FM 1874 (AgDM C2-16) Iowa Cash Rent Farm Lease (short form). A lease is automatically continued from year to year, unless one of the parties terminates a separate written notice of the lease agreement. In Iowa, a notice period for the lease must be properly delivered in writing before September 1 before the end of the rental year. This applies to both rent-in and crop-sharing leases, but not tailor-made farming agreements. In a written lease agreement, a date prior to September 1 may be specified for the delivery of a notice of termination. The requirement to terminate a farm lease by September 1 does not apply to areas of less than 40 acres (in Iowa) that are primarily used for animal feed.
But even an oral lease is automatically extended if it is not properly terminated in time. Farmer yields have been low since 2014: farmers` yields on highly productive farmland averaged $17 per acre from 2013 to 2018 (see Figure 3). From a return perspective, $17 per acre is a low return on the risk of managing an acre with cash rent. There are a number of reasons for the stability of cash rents in recent years, including competitiveness in the arable land market, farmers` fear of losing competitiveness in the event of a loss of leased land, the accumulation of financial reserves in the high-yield years from 2006 to 2013, and optimism about prices in the future. One way to share risks and opportunities between the operator (tenant) and landlord is to enter into a flexible ground lease. Iowa State Extension reported that nearly 12 percent of all spot leases in 2008 were flexible. .