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Lease Alternatives

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. Today most cash rent is paid up front. We also offer Cash Rent-Plus, which allows owners to share in higher than normal yields or prices. We also have 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. 

 

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