1. University of Maryland Extension Farmland Leasing Arrangements Jenny Rhodes – Queen Anne Shannon Dill, - Talbot John Hall - Kent

2. University of Maryland Extension Farm Lease Agreement Written agreement Components

3. University of Maryland Extension Lease Components: 1.Names of Parties and description of property 2.Term of Lease 3.Rental Rates and arrangements a. Crop-share * b. Cash Lease * c. Flexible cash lease * d. livestock share lease e. Farm Machinery, equipment and building leases

4. University of Maryland Extension Lease Components Cont.: 4. Farm operating expenses 5. Conservation and Improved Practices 6. Improvements and repairs 7. Records 8. No Partnerships statement 9. Right of Entry 10. Arbitration ( settlement) 11. Additional agreements and modifications 12. Signatures

5. University of Maryland Extension You need to have a written agreement The purpose of this presentation is to provide tenants and landowners basic information needed to write rental agreements. Changes in the structure of production agriculture have increased the need for persons entering a contractual rental arrangement to have a written agreement. Additionally, rental agreements should be updated regularly to incorporate changes in government programs, environmental regulations, costs of production and revenue received

6. University of Maryland Extension Value of a written lease The value of a written contract is in helping the prospective landowner and tenant think about and agree upon the essential considerations of leasing and operating the farm. To arrive at an equitable lease, the interested parties should talk over the basic considerations involved in the leasing arrangement and in managing the farm. They should then make a contract, preferably written, based on these considerations.

7. University of Maryland Extension 1 – Names of parties and description of property Every lease should identify the parties entering into the lease contract and give the legal description of the property or properties involved. In addition to the legal description, information such as the distance and direction from town, road name, mailing address and popular name of the farm might be given.

8. University of Maryland Extension 2 – Term of lease The term, or length of time the lease is to be in effect, should always be agreed on and should be stated in the contract. The term of the lease is important. A long-term lease is often necessary to develop a profitable business over time because of the need for permanent capital investments. The tenant will not want to share investment in permanent facilities on a short-term lease. Usually, landowners favor a short-term lease on the basis that a longer-term lease lowers the market value of the farm because it cannot readily be sold. This problem can be solved by including a termination clause that would apply in case the farm was sold.

9. University of Maryland Extension The lease agreement can be for either a one-year lease or a longer lease, as desired. Most agreements include an automatic renewal clause and allow some flexibility in the terms of the lease if the parties under contract give adequate notice. Renewal: a multi year lease is automatically renewed unless a termination notice has been submitted. Lease dates: Typically a lease runs for a calendar year. However, this may vary

10. University of Maryland Extension Termination of lease 1.It is recommended that a termination notice be given by July 1 of the growing season. 2.If termination is given, the operator has the right to harvest all crops currently growing on the given land. 3.If there are crop input costs for crops currently growing, these input costs should be addressed at the time of termination.

11. University of Maryland Extension In some communities, it is customary to give notice that the lease is to be terminated before wheat sowing time in the fall or by March 1 in the spring. But failure of either party to give this notice does not necessarily indicate a desire that the lease be continued. Consequently, it is desirable to state in the contract the procedures to be followed for terminating or continuing the lease contract.

12. University of Maryland Extension 3 – Rental rates and arrangements Rental rates and arrangements for payment or disposition of the rent are a significant part of any lease, whether written or oral. Basically, there are five methods of paying rent: a.crop-share rent – “share crop” b.livestock-share rent c.cash rent d.Flexible cash rent e.farm machinery, equipment and buildings rent – “custom farming”

13. University of Maryland Extension a. Crop-share rent – Characteristics of a crop-share lease are that each party receives a share of the crop as earnings for their contribution in land, labor and capital. Normally, crop-sharing involves grain crops such as small grains, corn, and soybeans and land used to participate in government programs. Remaining areas used in producing forages (hay and pasture) are normally cash rented. The landowner’s share of the crop depends on the contribution made toward production of the crop. When crops are divided 50-50, the landowner normally pays 50 percent of the cost of fertilizer, seed and chemicals in addition to providing the land. In other instances, the landowner may or may not share in cash production costs and receives a 1⁄4 to 1⁄3 share of the crop as a return to land.

14. University of Maryland Extension. b. Livestock-share lease – Livestock-share leases vary considerably because of differences in contributions made to the business by each party. The owner normally furnishes land and buildings, while the tenant furnishes major portions of the crop machinery. Livestock is owned jointly. Production costs such as feed, veterinary and medicine, other livestock expenses, fertilizer, seed and chemicals are shared equally. Livestock machinery and equipment may be jointly owned. Labor costs are shared according to the agreement, as are repairs and upkeep on permanent buildings. The landowner usually pays for construction of permanent buildings, or arrangements are made to reimburse the tenant in case the lease is terminated. Livestock and crop sales are divided according to the terms of the agreement

15. University of Maryland Extension c. Cash lease – The cash lease is normally uniform and relatively simple. The tenant pays the landowner a cash sum per acre or a lump sum for his or her investment in farm resources. Provisions in the lease generally state the terms of agreement. For example, the landowner may place restrictions on the use of land or fields for certain crops. Also, the agreement might state the degree of productivity to be maintained. Provisions should also state the amount and method of paying rent. degree of productivity : The definition may need to be defined as part of the agreement. It is assumed that this definition reflects the soil nutrient values. Soil tilth, erosion and other soil parameters may also be addressed

16. University of Maryland Extension d. Flexible cash lease – The flexible cash lease is a hybrid of the cash lease. The flexible cash lease agreement states that the tenant will pay in proportion to either or both the price and the yield level. There are many methods for flexing the rental agreement. The most common method is flexing gross (or net) revenue so that the tenant and landowner share the risks associated with cash renting. If revenue is greater than the established base level, the tenant and landowner share the excess revenue. If revenue is less than the established level, the tenant and landowner share the lost revenue. However, often there is a cash lease price floor that the landowner is guaranteed. Other types of flexible cash rental arrangements include flexing only price or yield or flexing both

17. University of Maryland Extension e. Farm machinery, equipment and buildings leases – Renters have found that leasing unused resources can be cheaper than making new capital investments. Also, producers have found in certain situations leasing machinery and equipment from dealers can be cheaper than purchasing. Additionally, machinery and equipment leasing arrangements can be between renters and owners to allow the renter to avoid paying full value and the owner to generate revenue to cover the ownership costs. Renters need to compare the size, condition, obsolescence, use, location and lease cost of the capital good versus the cost of purchasing the capital good outright. Owners are primarily interested in recovering ownership costs. The lease price should equal the amount needed to cover ownership costs and variable costs, such as upkeep costs incurred from renting the capital good. Both renters and owners should consider current value, depreciation, interest, insurance and taxes, inflation, repairs and maintenance when agreeing on a lease value.

18. University of Maryland Extension The cash lease is the most common. The second most often used is the crop-share lease. Flexible rental agreements are increasing in use as tenants seek to share downside revenue risk with landowners and landowners seek to capture upside revenue potential. The rental arrangement for each specific farm should be developed to fit the farm and the planned operating procedures. These conditions are known best by the landowner and prospective tenant, so they should work out the most satisfactory arrangement between them. No standard lease form can be used to develop an equitable rental agreement. The function of the form is to record operating procedures agreed upon by the parties entering the contract.

19. University of Maryland Extension 4 – Farm operating expenses Reaching agreement on farm operating expenses provides an opportunity for the tenant and landowner to discuss and designate the share of cash production costs that are to be paid by each party. We have shared Custom rates and budgets with you Soil Ph / Lime may fall into this area and needs to be addressed

20. University of Maryland Extension 5 – Conservation and improved practices To improve or maintain the productivity of the farm, conservation and improved production practices are usually warranted. Normally, conservation and other improved farming practices require additional labor and expenditures. Give important consideration to questions such as who contributes the labor and cost of implementing the practice and how these contributions affect income for both tenant and landowner. CRP – cutting waterways – spraying noxious weeds

21. University of Maryland Extension 6 – Hunting Waterfowl and deer hunting provide a significant value to many farms on Delmarva. Careful consideration must be given to liability issues as well as methods of hunting, frequency of hunting, trash from hunters, pit, stand and roadway maintenance and location. The land owner must understand liability issues of the property owner See additional issues and contract

22. University of Maryland Extension 7 – Improvements and repairs Misunderstanding is prevented by agreeing ahead of time what repairs will be done, how much will be done and what each party will furnish toward them. In many instances, tenants provide equipment that legally becomes permanent fixtures on the farm. Disagreements can be avoided and the farm’s resources more fully used if both landowner and tenant agree on needed improvements. Roadways, fencing, and machinery storage fit this need. Goose pit construction may also fit this area

23. University of Maryland Extension 8 – Records Farm records are a necessary part of farming. The records need not be elaborate or formal accounts but at least should cover all the expenses affecting both parties. The tenant is the logical person to keep the records because he or she is usually in closer touch with the day to- day operations. If the records are kept as part of a complete farm account record, they will have greater value to the total business. Nutrient management plans maybe part of the records shared. They include: 1. soil tests 2. nutrient inputs 3. Yield records *Owners can get copies if requested Pesticide records may also be part of the records shared

24. University of Maryland Extension 9 – No partnership A lease does not create a partnership. A statement of this nature is advisable in any lease form. Rental arrangements involving livestock-share leases are more apt to be considered partnerships than the crop-share arrangements, but such arrangements are more likely to be considered modifications of the landowner-tenant relationship as traditionally established under the crop-share lease.

25. University of Maryland Extension 10 – Right of entry Every farm lease agreement should include a statement giving the landowner the legal right to enter the property. Without such a statement, a tenant has the right to treat any entrant on the property as a trespasser, including the landowner

26. University of Maryland Extension 11 – Arbitration (settlement) Differences of opinion can arise rather unexpectedly. For this reason, leases should be in writing. Time tends to make oral agreements hazy while a written agreement is always available for reference and recall. Also, a written lease forces both parties to “argue out” their differences in most areas where differences of opinion may occur. This section is included to encourage the use of disinterested persons for settling differences promptly and in a friendly manner rather than by litigation. The county agent, MDA personnel, banker, etc may assist in arbitration

27. University of Maryland Extension 12 – Additional agreements and modifications It is often necessary to change or add to contractual arrangements, and one of the tests of a good lease is its flexibility for changing the operating plan. Any changes made after the initiation of the original contract should be made a part of the written contract. All agreements which encumber the land should be addressed. CSP/ CRP are examples

28. University of Maryland Extension 12 – Signatures Signatures by each party are one of the five essential parts of the lease contract. The agreement becomes a contract when it is signed. All co-owners of the property, including husband and wife, should sign the lease agreement when property is held in joint tenancy or tenancy by entireties. Signatures should be by individuals rather than family members, partners, share holders, etc. so it is clear who is involved.

29. University of Maryland Extension Our goal is to suggest lease agreements that will: Reduce Risk

30. University of Maryland Extension Risk considerations 1.Crop Input costs 2.Machinery costs 3.Fuel costs 4.Land costs 5.Volatile commodity markets 6.A very troubled monetary system

31. University of Maryland Extension Famer controlled costs 1.Crop Input costs 2.Machinery costs 3.Fuel costs

32. University of Maryland Extension What can you do to control Crop Input costs? a.Seed b.Fertilizer c.Herbicides d.Insecticides e.Tillage methods

33. University of Maryland Extension What can you do to control Machinery costs?

34. University of Maryland Extension DIRTI – Method to determine cost of ownership D- Depreciation I – Interest R – Repairs T – Taxes I - Insurance

35. University of Maryland Extension Depreciation Definition a. tax purposes b. real value purposes (amortize)

36. University of Maryland Extension Depreciation - Real b. real value purposes $200,000 combine 8 years Residual value $50,000 What are annual costs? 150,000/8 $18,750.00 per year

37. University of Maryland Extension DIRTI$200,000 combine Ownership costs 1.Amortization $18,750.00 2.Interest 50% at 9% $9,000.00 3.Repairs 1% $2,000.00 4.Taxes 5.Insurance 1% $2,000.00 Annual ownership costs $31,750.00

38. University of Maryland Extension Machinery costs What are real combine costs at $31,750.00 per year per acre? a. 500 acres$63.50 b. 1000 acres$31.75 c. 1500 acres$21.17 d. 2000 acres$15.87

39. University of Maryland Extension Fuel costs 1. Assume 12 gallons per hour 2. $4.00 per gallon 3. 3 acres per hour 12 * $4.00 = $48.00 / 3 = $16.00 per acre

40. University of Maryland Extension What about Labor? Assume $15.00 per hour- salary plus any benefits Remember Health care - $5,000 + $5.00 per acre

41. University of Maryland Extension Total Costs for combining 500 acres1000 acres 1. Ownership $63.50 $31.75 2. Fuel 16.00 16.00 3. Labor 5.00 5.00 Real costs $84.50 $52.75 Per acre

42. University of Maryland Extension Total Costs for combining 1500 acres2000 acres 1. DIRTI $21.17 $15.87 2. Fuel 16.00 16.00 3. Labor 5.00 5.00 Real costs $42.17 $36.87 Per acre

43. University of Maryland Extension Years$25,000$50,000$75,000$100,000 5$5,000$10,000$15,000$20,000 7$3,571$7,143$10,714$14,286 9$2,778$5,556$8,333$11,111 12$2,083$4,167$6,250$8,333 15$1,667$3,333$5,000$6,667 Ownership costs

44. University of Maryland Extension Suggestion: Custom rates should be a. ownership costs Plus b. Fuel c. labor

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46. Example Break

47. University of Maryland Extension Land Costs

48. University of Maryland Extension Rental rates and arrangements Cash Rental Rates Determine a fair rate Crop-Share Leases Calculating a Cash Rent Lease Flexible Cash Leases

49. University of Maryland Extension Background Land values have been steadily increasing along with land taxes. Land owners are looking for ways to off set this increased costs Land rents have escalated dramatically in some areas Rents in Iowa have topped $300 per acre when corn was $6.00 Some local rents have approached $175.

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53. Quick Overview “Crop share – cash – flex” From the Owner’s perspective: – Which lease is least volatile from year to year? From the Tenant’s perspective: – Which lease is most volatile from year to year?

54. University of Maryland Extension Land Rental rates and arrangements- 1. Crop-Share Leases 2. Cash Rental Rates 3. Leasing Practices 4. Flexible Cash Leases

55. University of Maryland Extension 1. Crop Share 50-50 Lease Landlord Tenant Land Labor Machinery Management ½ inputs ½ Income

56. University of Maryland Extension 1b. Crop Share 60-40 Lease? Landlord Tenant Land Labor Machinery Management ½ inputs 60% Income 40%Income

57. University of Maryland Extension 2. Determining A “Fair” Cash Rent Value

58. University of Maryland Extension Iowa State Examples applied to Delmarva Options to consider

59. University of Maryland Extension Calculating Cash Rent Values By survey Cash Rent Market Approach ISU Extension Publication FM 1851 – Cash Rental Rates for Iowa 2008 Survey (released in June) Three Methods for Determining Cash Rent Values 1.Typical Cash Rent 2. Average Rent for Production 3. Average Rent for Corn Suitability Rating (CSR)

60. University of Maryland Extension Calculating Cash Rent Values Three Methods for Determining Cash Rent Values 1.Typical Cash Rent 2. Average Rent for Production 3. Average Rent for Corn Suitability Rating (CSR) ( based on soil type)

61. University of Maryland Extension Calculating Cash Rent Values 1.Typical Cash Rent Extensive survey system at Iowa State

62. University of Maryland Extension Calculating Cash Rent 1. Typical Cash Rent Iowa Area 3 County Cerro Gordo Determine Overall average $ 200 High Quality Third = $ 238 Middle Quality Third =$ 204 Low Quality Third = $ 159 Based on survey – cost and yield 2007 - 2008

63. University of Maryland Extension Calculating Cash Rent Maryland data

64. University of Maryland Extension Maryland Cash Rent by County NASS – UDSA Annapolis County2005 2006 2007 Caroline$81.26 $75.68 $73.65 Cecil$72.31 $74.44 $72.19 Dorchester$81.56 $76.92 $77.54 Kent$83.08 $83.12 $89.13 Queen Anne$90.47 $91.81 $92.18 Somerset$62.57 $63.55 $64.68 Talbot$76.71 $83.12 $83.02 Wicomico$71.45 $73.20 $73.21 Worchester$75.04 $80.64 $82.38 Does not include 2008

65. University of Maryland Extension Calculating Cash Rent 1. Typical Cash Rent Upper shore Determine Overall average $ 100 High Quality Third = $ 130 Middle Quality Third =$ 100 Low Quality Third = $ 70 Based on NASS data – upswing in 2008 caused by high commodity prices are not included

66. University of Maryland Extension Calculating Cash Rent Values 2. Average Rent for Production

67. University of Maryland Extension Calculating Cash Rent 2 a. Average Rents Per Unit – Corn Yield Iowa Determine Average Rent for Corn Farm’s Average Corn Yield (bu/A) 175 Equals the Average Rent for Corn Acre $200 Rent per bushel of Corn yield $ 1.14

68. University of Maryland Extension Calculating Cash Rent 2 b. Average Rents Per Unit –Soybean Yield Iowa - County –Cerro Gordo Determine Average Rent for Soybeans Farm’s Average Soybean Yield (bu/A) 45 Average Rent for Soybean Acres $200 200 / 45 per bushel of Soybean yield $4.45

69. University of Maryland Extension Calculating Cash Rent Maryland data

70. University of Maryland Extension Calculating Cash Rent Maryland data 2 a. Average Rents Per Unit – Corn Yield Determine Average Rent for Corn Farm’s Average Corn Yield (bu/A) 125 Equals the Average Rent for Corn Acre $100 Rent per bushel of Corn yield $ 0.80

71. University of Maryland Extension Calculating Cash Rent Maryland Data 2 b. Average Rents Per Unit –Soybean Yield Determine Average Rent for Soybeans Farm’s Average Soybean Yield (bu/A) 35 Equals the Average Rent for Soybean Acres $100 Rent per bushel of Soybean yield $ $2.85

72. University of Maryland Extension Iowa data 3. Average Rents Per CSR Index Point Select the Area of the State/County – Cerro Gordo Determine the Average Cash Rent using CSR Farm’s Average Corn Suitability Rating78 Times rent per CSR index point$2.56 Equals the Average Rent for all Row Crop Acres $ 200 Source: ISU Extension Publication FM-1851 Using Corn Suitability Rating (CSR )

73. University of Maryland Extension 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

74. University of Maryland Extension Rental rates based on soil productivity James Brewer Resource Soil Scientist USDA-NRCS Easton, MD

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76. See 2003 Eastern Shore Soil productivity grouping – FSA yields 2003 Group 1150 bushels per acre Group II135 bushels per acre Group III120 bushels per acre Group IV90 bushels per acre Average 125 bushels per acre

77. University of Maryland Extension Rental rates based on soil productivity groupings, yield potential and value Group 1150 bushels per acre* $0.80= $120+ Group II135 bushels per acre* $0.80= $108+ Group III120 bushels per acre* $0.80= $96+ Group IV90 bushels per acre * $0.80= $72+ Average 125 bushels per acre

78. University of Maryland Extension Additional Iowa Cash Lease Calculations A. Gross Income Method B. Tenant Residual Method C. Crop Share Method D. Return on Investment Method

79. University of Maryland Extension CORN: (150 buX $3.80) + $22 = $592.00 SOYBEANS: (35 buX $7.70) + $22 = $291.50 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. Maryland example Cash Rental Rate 4a. CORN:$592./ac X 25% = $148.00 4b. SOYBEANS:$291.50/ac x 35% = $102.00 Average $125.00 A. Share of Gross Income

80. University of Maryland Extension Iowa Keep in mind, at 35 – 40% of the gross income going into land rent,, the operator cannot do anything else. If he does, he must bill his services to the land owner. You must understand the complete rental agreement before you compare rental rates from one region to another A. Share of Gross Income

81. University of Maryland Extension Iowa CORN: (175 buX $4.50) + $22 = $809.50 SOYBEANS: (45 buX $9.00) + $22 = $427.00 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 4a. CORN:$809.50/ac X 25% = $202.35 4b. SOYBEANS:$427/ac x 35% = $149 Average $175.67 A. Share of Gross Income

82. University of Maryland Extension Iowa CORN: (175 buX $4.50) + $22 = $809.50 SOYBEANS: (45 buX $9.00) + $22 = $427.00 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 4a. CORN:$809.50/ac X 25% = $202.35 4b. SOYBEANS:$427/ac x 35% = $149 Average $308 A. Share of Gross Income

83. University of Maryland Extension CORN: $592 – $526.39 = $65.61 SOYBEAN: $291.50- $310.51 = $(-19.01) Average: $23.30 Price and yield is everything B. Tenant Residual Method

84. University of Maryland Extension 12/3/2008 Prices Corn: 50% of gross minus owner’s costs $592/2= $296 –($406.04/2($203)) = $92.00 Soybeans: 50% of gross minus owner’s costs $291/2= 145.5-(211.12/2( $105.56) = $$39.94 Average:$66.00 (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. C. Crop Share Method 50-50 Share

85. University of Maryland Extension D. Return on Investment Method Iowa Iowa farm estimated to have a market value of $5,000 per acre. Expected Rent: (4.8%) X $5,000 / acre = $240/acre(4.8% -2003-2007 avg.)

86. University of Maryland Extension Iowa Corn Soybeans Cash Rent Survey$200 $200 Per Bushel Yield$205 $200 Per CSR Point$200 $200 Gross Income $363 ($290) $252 ($202 Tenant Residual$539 ($332)$311 ($185) Crop Share $355 ($251)$219 ($156) Return on Investment$240 $240 Average $300 ($245)$232 ($198) Today’s Average $266 ($222) 2007 Survey Average - $162

87. University of Maryland Extension Future Consideration

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89. University of Maryland Extension Future Consideration What are prices (income) going to be? – Ethanol impact –how long? – Shifts in what is grown –Global impact? What are inputs going to cost? – Higher oil, higher fertilizer costs. – Higher demand for seed, technology cost.

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96. Corn Cost of Production –What if? Fertilizer$188.40 Seed $ 71.01 Pesticides$ 49.08 Insurance$ 21.00 Drying and Storage$ 20.00 Machinery and Labor $160.35 Interest$ 16.55 Total (w/o rent)$526.39/150 = $3.51 per bu. Land charge $80.00 $606.39 /150=$4.04 per bu

97. University of Maryland Extension Bottom Line Risk management strategies and tools will be extremely important for 2009.

98. University of Maryland Extension New Average Crop Revenue Election (ACRE) Gives producers a one-time option to choose a revenue-based counter-cyclical payment program, starting in 2009 through 2012 Producers choose between the current program (LDP and CCP) or ACRE Computed on planted acres, up to the total number of base acres on the farm Price guarantee is the 2-year average of the national price (seasonal).

99. University of Maryland Extension Average Crop Revenue Election (ACRE)  Gives producers a one-time option to choose a revenue-based counter-cyclical payment program, starting in 2009  Producers choose between the current stable of programs or ACRE  Producers choosing ACRE agree to 20% decline in direct payments and 30% decline in loan rates

100. University of Maryland Extension Flexible Cash Leases Desire: Stable and predictable rents. Current Reality: Prices and yields are very unpredictable. Potential Solution: Flexible lease contract

101. University of Maryland Extension AdvantagesDisadvantages Price and production risk shared as well as profit opportunities Actual rent adjusts as production or price change Owner does not have to be involved in decision making about inputs or marketing Owner and producer share in risks Not as well understood as traditional cash lease or crop share More difficult to calculate Owner benefits from tenant’s management skills Tenant loses windfall profit potential from high prices

102. University of Maryland Extension Flexible Cash Lease is a Cash Lease If the final rent does not depend on the farm yield, a flexible rent is still considered to be a cash rent. Example: base rent on county average yield and actual price at harvest. County yields are not published until March each year.

103. University of Maryland Extension Types of Flexible Cash Leases Rent varies with both price and yield – Matches tenant’s ability to pay Rent varies with yield only – Could have high yields, low prices Rent varies with price, only – Could have low yields, high prices

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105. Base plus Bonus Paying a “flex bonus” when revenue is above expectations does not affect the split of payments if it is not based on the actual farm yield. Provide a copy of your agreement to the FSA county office.

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108. Example High yield - low price 180 bu. $2.50 Low yield - low price 90 bu. $2.50 High yield – high price180 bu. $4.50 Low yield – high price 90 bu.$4.50 Go to spread sheet

109. University of Maryland Extension Example High yield - low price 180 bu. $2.50 Rent = Low yield - low price 90 bu. $2.50 Rent = High yield – high price180 bu. $4.50 Rent = Low yield – high price 90 bu.$4.50 Rent =

110. University of Maryland Extension Other Resources Materials from this meeting – http://www.extension.iastate.edu/feci/Leasing/vflm.html Online Courses –Ag Management e-School – http://www.extension.iastate.edu/ameshttp://www.extension.iastate.edu/ames Workshops, meetings, conferences – http://dbs.extension.iastate.edu/calendar/http://dbs.extension Publications –rental survey, land value survey, etc. – http://www.extension.iastate.edu/pubs/ Articles and spreadsheets – http://www.extension.iastate.edu/agdm/ Private Consultation – http://www.extension.iastate.edu/ag/fsfm/fsfarmmg.html

111. University of Maryland Extension Putting a Lease Together Move back Improving Negotiation Skills Focus on win-win situations Don’t underestimate your position at the bargaining table Formulate a resistance point

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113. Summary A Good Lease agreement Written 1.Names of parties 2.Terms of lease 3.Rental rates and arrangements 4.May address farm operating expenses 5.Should include conservation and improved practices 6.Hunting provisions

114. University of Maryland Extension Summary 7. Should address improvements and repairs 8. May include records – nutrient management 9. May include statement that states it is not a partnership 10. Right of entry statement 11. Method of arbitration 12. Additional agreements if any 13. Signatures

115. University of Maryland Extension Summary Rental Rates a. crop share b. cash lease c. flexible cash lease d. Livestock share lease d. farm machinery, equipment, and building lease

116. University of Maryland Extension Summary Determining cash rental values 1. Surveys – NASS data by county 2. Using soil productivity groupings NRCS 3. Gross income method 4. Tenant residual method 5. Crop share method 6. Return on investment

117. University of Maryland Extension Summary Introduced the new Flexible cash lease method Hybrid of the share crop and cash systems What to share in good times reduces risks in volatile times Way to protect land owner for actually participating ( FSA ruling)