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Farmland Leases 101

March 16, 2013
By: Sara Schafer, Farm Journal Media Business and Crops Editor
 
 

The following information is a Web Extra from the pages of Farm Journal. It corresponds with the article "Beyond a Handshake." You can find the article in Farm Journal's 2013 Early Spring issue. 

 

Farm Journal Pulse: Leased Land Percentages

 

In farming today, leasing land is a popular and profitable option. But, what is the common ratio of rented versus owned land? According to a recent Farm Journal Pulse, only 10% of the more than 1,400 respondents own all their land. Slightly more than 40% rent more than 60% of their acreage.
 
Here are the results:
What percentage of your acres do you rent?
  • 1-20%: 13%
  • 21-40%: 13%
  • 41-60%: 20%
  • 61-80%: 22%
  • 81-99%: 11%
  • 100%: 10%
  • None: 10%
     
 
Click the map below to see how people responded:
PUlse 3 6 13

 

 

 

Ag Lease 101 helps both land owners and land operators learn about alternative lease arrangements and includes sample written lease agreements for several alternatives. Ag Lease 101 was created by and is maintained by the North Central Farm Management Extension Committee. Visit the site at www.aglease101.org.

 

Shannon Ferrell, Oklahoma State University agricultural economics professor, provided the following answers to questions about farm leases:

What are the common farmland lease arrangements farmers are using? Why are these types more popular?

The classics still seem to be the most popular: the standard fixed-price cash lease and the crop-share lease. I think these lease forms are popular for two primary reasons. First, they have been around the longest, and both landlords and tenants are familiar with them; that familiarity makes them more comfortable. Second, when done right, they can both be very effective and equitable arrangements for the landlord and tenant.

Fixed-price leases offer a measure of certainty to both parties, though in exchange for that certainty the landlord gives up increased profit potential if prices and/or production levels are above expectations, and the tenant has to make a given payment regardless of whether prices and/or production levels are below expectations. They require little input from the landlord regarding production decisions, but also prevent landlords from participating in certain government programs. Fixed-price leases may be a good fit for landlords depending on rents for their income.

Crop-share leases may pose risk to landlords in that they do not know the amount of rent they will receive (presenting both downside and upside risk), but that also means that tenants will not face as high a rental "price" if prices and/or production levels are low. Since crop-share leases involve sharing production costs, they necessarily involve sharing in production decisions. This can be good in that it allows landlords to participate in some government programs, and can allow a younger producer to take advantage of an older producer’s experience and knowledge.


What common trends are you seeing in farmland leases?

One trend we have seen in the environment of increasing (and increasingly volatile) commodity prices is the "hybrid" or "flex" lease. These leases can take a number of forms. For example, a flex lease might specify a given rental rate, but it might also specify that the rental rate will increase if a certain commodity price or amount of production is reached.

Another trend we see in leasing is not a change in the leases, but in landlords. Increasingly, we see landowners living off-farm, outside the community, or even outside the state. Some of these landlords may not have any farm operating experience. This means that tenants have more work to do in helping such landlords understand both the economics and the mechanics of the industry in negotiating their rental agreements.

 


 

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FEATURED IN: Farm Journal - Early Spring 2013
RELATED TOPICS: Farm Business, Land

 
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