Farm Leases Tim Eggers Field Ag Economist Southwest Iowa

Tools Ag Decision Maker –Decision Aids Annual Surveys Publications –Decision Tools Agricultural Management e-School –Farm Leasing Arrangements course Non ISUE on-line resources Face-to-Face resources

Top Issues Land Values Cash Rental Rates Custom Rates Leasing Practices Crop-Share Leases Calculating a Cash Rent Lease Modified Crop-Share Leases

Iowa Farmland Value Surveys Iowa State University Extension –conducted annually around November 1st –mailed survey sent to 1,100 licensed real estate brokers –usually responses –released in mid-December Federal Reserve Bank of Chicago –quarterly survey of ag lenders by state – Realtors Land Institute –semi-annual survey (March and September) –compares land classification by corn production –includes pasture and timber land –

Leasing Practices

Crop Share Practices

Leasing Opportunity Soil Type: Acres: Percent: CSR T370B % % 60 T % % 91 T % % % Totals % Iowa Corn Suitability Rating based yield estimation: 179 bushels per acre

Determining A “Fair” Cash Rent Value

Location:Page County Tillable Acres:265 Acres Corn Yield:179 bu/Acre Soybean Yield:49 bu/A Corn Suitability Rating:84 CSR Supporting Information

Cash Rent Market Approach ISU Extension Publication FM 1851 – Cash Rental Rates for Iowa 2006 Survey (released in May) Three Methods for Determining Cash Rent Values Typical Cash Rent Average Rent for Production Average Rent for Corn Suitability Rating (CSR) Calculating Cash Rent Values

1.Typical Cash Rent Select the Area of the State/County Area 10County Page Determine Overall average$ 120 /A High Quality Third =$ 139 /A Middle Quality Third =$ 119 /A Low Quality Third =$ 104 /A Calculating Cash Rent

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 $0.89 Equals the Average Rent for Corn Acre$ 159./A Calculating Cash Rent

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) 49 Times rent per bushel of Soybean yield $2.84 Equals the Average Rent for Soybean Acres $139/A Calculating Cash Rent

2.Average Rents Per Unit – Corn & Soybeans Add the Average Rent for Both Corn Average Rent $ 159/A Soybean Average Rent $ 139/A Average Rent Corn & Soybeans$ 149 /A Calculating Cash Rent

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 Rating84 Times rent per CSR index point $1.61 Equals the Average Rent for all Row Crop Acres $ 135 / A Using Corn Suitability Rating (CSR) Source: ISU Extension Publication FM- 1851

Average all 3 Methods Method 1: Typical Cash Rent$139 /A Method 2: Average Rents per Unit$149 /A Method 3: Average Rents per CSR Index Point $135 /A Total all Methods and divide by 3 $141 /A $141 /A X 265 Tillable Acres =$37,365 Split Payments of $18,682 and $18,682 Overall Average

Gross Income Method Tenant Residual Method Market Productivity Method Crop Share Method Return on Investment Method Crop Lease Comparison (a)Assumptions: 265 crop acres, 179 bushel corn yield, 49 bushel Soybean yield, (b)Corn Market Price $2.20 / bu, Soybean Market Price $5.25 / bu, (c)Direct Government Payments average $22.00 / acre

Share of Gross Income CORN:179 bu X $ $30.00 = $ SOYBEANS: 49 bu X $ $15.00 = $ Iowa cash rents typically are equal to about 30 to 40 percent of the gross income from producing corn, and 35 to 45 percent of the gross income from producing soybeans. Cash Rental Rate CORN:$424.75/ac X 35% = $ SOYBEANS:$281.7/ac x 45% = $

Tenant Residual Method CORN:$ – $ = $138.24/ac SOYBEAN: $ $ = $74.58/ac Average:$106.29/ac

Crop Share Method Share Expense: Corn: 50 % x $175 = $87.50 Soybeans: 50 % x $114 = $57 Equivalent Rent: Corn: $ / acre - $87.50 / acre = $ / acre Soybean: $ / acre - $57 / acre = $83.85 / acre Average:$ / acre (1)The owner is assumed to pay 50 percent of the costs for seed, fertilizer, lime, pesticides, crop insurance, interest and miscellaneous, and drying and storage. Income: Corn: 50 % x $ = $ Soybeans: 50 % x $ = $140.58

Return on Investment Method Iowa farm estimated to have a market value of $2,962 per acre. Expected Rent: (4.7%) X $2,962 / acre = $ / acre gross income

Cash Rent Survey Per Bushel Yield Per CSR Point Gross Income Tenant Residual Crop Share Return on Investment Average Corn Soybeans All Average: $130 Based on this information: Most likely agreed upon cash rent: ????? $139 $159$139$135 $149$127 $138$ 75 $125$ 84$139 $141$120

LandlordTenant Land ½ inputs Labor ½ inputs Machinery Management ½ income Crop Share Lease

LandlordTenant Land $124 ½ inputs$88 Labor$39 ½ inputs$88 Machinery$55 Management$30 ½ income$212 Crop Share Lease

LandlordTenant Land $139 ½ inputs$73 Labor$25 ½ inputs$103 Machinery$55 Management$29 ½ income$212 Shift the tech fee or chemicals to tenant to balance up the ratio Crop Share Modified Lease

Cash Rent Land$140 Labor$ 30 Inputs$150 Machinery$ 65 Management$ 20 Total$ bu corn$400 or 50 bu SB$300 Ave$350 Expenses Income

Cash Rent Land$140 Labor$ 30 Inputs$150 Machinery$ 65 Management$ 20 Total$ bu corn$400 or 50 bu SB$300 Ave$350 Expenses Income Either find economies of scale or Play take away !! Where do we start ???

Cash Rent Land$140 Labor$ 10 Inputs$145 Machinery$ 35 Management$ 00 Total$ bu corn$400 or 50 bu SB$300 Ave$350 Expenses Income I can still make it work and I can spend $10 on crop insurance to lock it in !!! Well maybe !!!

Machinery costs Fixed costsVariable costs Depreciation Interest Storage Insurance Repairs Labor Fuel $100 per hour

Low Third$33.30$32.52 Mid Third$54.53$53.50 High Third$86.77$84.60 IFBA 2004 Machinery Costs CornSoybeansAverage

Other Resources Online Courses – Ag Management e-School – Workshops, meetings, conferences – Publications – rental survey, land value survey, etc. – Articles and spreadsheets – Private Consultation –

Land Leasing Confidence Introduction to Farm Leases Cash Rent Leases Crop Share Leases Custom Farming Renting Buildings Renting Hay and Pasture Land Legal and Tax Considerations Conservation and Environmental Considerations USDA Agencies and Programs Owner and Operator Relations Farm Lease Arrangements A.M.E.S. Agricultural Management e-school An ISU Extension Outreach Institute

A.M.E.S. Agricultural Management e-school An ISU Extension Outreach Institute Purchase Plan Land Value Trends Using Soils Information Appraisal Techniques Financing Considerations Feasibility of a Land Purchase Farmland Ownership

Thank You! Tim Eggers Field Ag Economist ISU Page County Extension 311 East Washington Clarinda, Iowa (712)

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