Top of Mind: Time to Revive Share Leases?

March 30, 2016 02:02 AM
 
Top of Mind: Time to Revive Share Leases?

As Illinois farmer Joe Zumwalt prepares to plant his 4,500 crop acres this spring, he has plenty on his mind. Renegotiating rental agreements isn’t a challenge on his list, though. 

About 10% of his acres near Warsaw, Ill., are cash-rented. The remaining 90%, which is all family-owned, is in a crop-share arrangement.

“The cash-rent producer is struggling right now,” says Zumwalt, a 2014 Top Producer of the Year finalist. “With crop-share arrangements, both parties—tenant and landowner—take advantage of the good times and take a hit in the hard times.”

Zumwalt uses a 50-50 lease, in which he and the landowners split costs for inputs and then equally share the harvested grain. They work together on cropping and marketing decisions.

Although 50-50 leases tend to be the most common, some farmers use a 60-40 crop-share lease, in which the farmer pays for a larger share. Landowners admit they enjoy the reduced risk of this option. 

Leases are not one-size-fits-all arrangements. Zumwalt’s advice is to listen to your landlords to understand their priorities. 

Rent Redux. While crop-share leases used to be the norm, we’ve seen a shift toward fixed-cash leases in the past few years. 

“As farmers rent to more absentee landowners or landowners without experience with agriculture, cash leases are simpler for the landowners,” says Mykel Taylor, farm management specialist at Kansas State University.

It’s true: Cash-rent leases are clear-cut. As you try to capture every dollar this year, see if your landlords are willing to consider a crop-share or flex-lease agreement. 

Know and share projections during these meetings. “Show your landlords how different lease options would adjust relative to what they are getting currently,” Taylor says. “Highlight how both sides will benefit.”

As always, communication is key.

“If you have good communication, it doesn’t matter how far away your landowner lives or how familiar they are with agriculture,” Taylor says. “You can help them know what is important.”

Because you and your landlord will jointly make crop, marketing and land-improvement decisions, you have the chance to build an even stronger bond. Be sure to document how and when you will make these decisions, Zumwalt says. “Having a written rental contract becomes more important, even if the agreement is with family members,” he says.

To find a deep well of farm-lease resources, head over to www.aglease101.org. These decisions are tough and might take several years to implement. Arm yourself with best-in-class information.

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