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Farmland Leasing

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									Farmland Leasing
  Economics 333
         Types of Rental
          Arrangements
Cash Rent
Flexible Cash Rent
Crop Share
  50-50 Tenant & Landlord
  67-33 Tenant & Landlord
Custom Farming
              Cash Rent
 Simple, few chances for confusion
 Owner does not need to make day to
  day decisions
 Owner has limited risk
 Tenant has more freedom in planning
 Tenant has fewer records to keep
How Much Rent to Pay? Or Charge?
 Based on survey results
 Based on expected yields
 Based on CSR
 Based on % of gross income
 Based on return on investment
 Based on crop share equivalent
 Based on tenant’s residual
     Supporting Information


Location:                  Iowa County
Acres                      280 acres
Tillable Acres:            264 Acres
Corn Yield:                179 bu/Acre
Soybean Yield:             54 bu/A
Corn Suitability Rating:   84 CSR
           Expected Prices
 Local forward contracting opportunities
 Futures prices minus basis
 Outlook information
 Past averages
 Example:     Corn           $3.75/bu
               Soybeans       $8.60/bu
      Expected Prices and Costs
                    Corn   Soybeans
Seed                $100      $57
Fertilizer + lime   $119      $97
Pesticides           $35      $30
Crop insurance       $20      $12
Interest + misc.     $24      $20
Fuel, repairs        $31      $21
Machinery own.       $35      $26
Drying, storage      $23      $0
Labor + mgmt.        $46      $39
Total               $433     $302
   Calculating Cash Rent Values


Cash Rent Market Approach
  Ag Decision Maker website
  http://www.extension.iastate.edu/agdm/


  Cash Rental Rates for Iowa 2010 Survey (file C2-10)
     Calculating Cash Rent

1.Typical Cash Rent
   Select the Area of the State/County
     Area      6    County Iowa
     Determine Overall average $193

    High Quality Third =   $ 224
    Middle Quality Third = $ 195
    Low Quality Third =    $ 161
           C. Expected Yield, Corn
2 a.   Average Rents Per Unit – Corn Yield

   Select the Area of the State/County

   Determine Average Rent for Corn

       Farm’s Average Corn Yield (bu/A)         179
       Times rent per bushel of Corn yield     $ 1.13
       Equals the Average Rent for Corn Acre   $ 202
       C. Expected Yield, Soybeans
2 b.   Average Rents Per Unit – Soybean Yield

   Select the Area of the State/County

   Determine Average Rent for Soybeans

       Farm’s Average Soybean Yield (bu/A)           54
       Times rent per bushel of Soybean yield      $3.76
       Equals the Average Rent for Soybean Acres   $ 203
D. Corn Suitability Rating (CSR)

3. Average Rents Per CSR Index Point

   Select the Area of the State/County

   Determine the Average Cash Rent using CSR

      Farm’s Average Corn Suitability Rating       84
      Times rent per CSR index point              $ 2.51
      Equals the Average Rent for all Row Crop Acres
                                                  $ 211
 Source: ISU Extension Publication FM- 1851
Web Soil Survey – Home
http://websoilsurvey.nrcs.usda.gov/app/HomePage.htm
                        Leasing Opportunity
Soil Type: Acres: Percent:       CSR
---------- -------- --------     -----
T370B        61.47 23.2%         85
248          17.72 6.7%          60
T368         16.70 6.3%          90
212          11.71 4.4%          91
T369         87.78 33.1%         85
133           9.69    3.7%       80
220          60.11 22.7%         85
---------- --------   --------   -----
Totals      265.19 100.0%        83.73

Iowa Corn Suitability Rating
based yield estimation:
179 bushels per acre
     A. Share of Gross Income
      CORN:    (179 bu X $3.75) + $25 = $696
      SOYBEANS: (54 bu X $8.60) + $25 = $489

Iowa cash rents typically are equal to about 30 to 40 percent of the gross
income from producing corn, and 40 to 45 percent of the gross income
from producing soybeans.

    Cash Rental Rate
    CORN:            $ 696/ac x 30% = $ 209
    SOYBEANS:        $ 489/ac x 40% = $ 196
  B. Tenant Residual Method

CORN:      $ 696 - $433 = $ 264

SOYBEAN:   $ 489 - $302 = $ 187

Average:                 $ 225
   E. Return on Investment




Iowa County farm estimated to have a market value of $4,183 per acre.
Expected Rent: (4%) X $ / acre = $167 / acre
          What is a fair rent?
Survey

Average Rents per bushel

Average Rents per CSR Index Point

Percent of gross crop value

Tenant’s residual
         Flexible Cash Rent
 Limited riskfor landlord
 Landlord can participate in increased
  prices and yields
 Payment is in cash, do not need to
  market crops
 Do not need to renegotiate each year
                  Flexible Rent: Type 1
   No base rent or base revenue
   Rent = Actual yield x actual price x 33%
   No maximum or minimum rent
   Example: Actual corn yield = 185 bu/acre
   Closing corn bids at Williamsburg elevator
       Oct. 1           $3.84
       Nov. 1           $3.74
       Dec. 1           $3.70
       Average          $3.76
   Rent = 185 bu. x $3.76 x 33% = $230
           Flexible Rent: Type 2
 Rent =   Base rent + 50% of profit
 Base rent = $150
 Nonland costs of production = $302 (beans)
 Total cost including base rent = $462
 Actual gross = (60 bu. x $8.15) + $25 = $514
 “Profit” = $514 - $462 = $52
 Rent = $150 + (50% x $52) = $176
              Crop Share
Crop & Price risk are shared equally
A second USDA payment limitation is
  created
Crop Share Percentages
  50-50 Tenant & Landlord
  67-33 Tenant & Landlord
Possible self employment tax for landlord
Crop Share 50-50 Lease
           Landlord      Tenant

                         Labor
          Land           ½ inputs
          ½ inputs       Machinery
                         Management


         ½ income        ½ income
           Custom Farming
                          for operator
 Very little financial risk
 Owner benefits from higher prices,
  government programs
 Only one party markets grain
 Agreements are simple and straight
  forward
 Tax implications- self employment
 Timing of operations can be
  troublesome

								
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