NPR - CONTEMPORARY FLEXIBLE CASH FARM LEASES – PARAMETER DERIVATION

Abstract:

Landowners and farmers have found it increasingly difficult to agree on an equitable cash rent as crop prices and input costs have recently experienced significant volatility. Cash lease rates aren’t public knowledge and don’t have any public clearinghouse such as a futures exchange so information on rates is often sketchy or unavailable. Farmers with full yield and profit information are often reluctant to share this information with the landowner for fear of rent escalation. Landowners knowing there is significant value in “fringe benefits” that farmers provide (snow clearing, rock removal, fence-row maintenance, tiling, etc.) may be reluctant to recognize this value in the negotiation process.
Flexible cash leases do allow flexibility but they may not be suitable for every situation. They do require more communication between landowner and farmer. They also require more management and record keeping. These flex leases typically require a sharing of data from the farming lessor to the landowner lessee. The lease also will contain a formula to calculate the final rental rate to be paid at the end of the lease period. Since most flex leases require some combination of yield, price and possibly input costs, there needs to be verification mechanisms agreed to and written into the lease.

Keywords: Flexible cash leases,