Farm Rents
by Bruce Clevenger, OSU Extension Educator and Peggy Kirk Hall, Director, OSU Ag & Resource Law Program
When parties disagree about farm rental arrangements, often an arbitrator or 3 rd party advisor is asked to intervene if a written agreement does not exist. However, even some written agreements may not included details necessary to resolve the disagreement.
What makes a well designed farm rental agreement? While most written agreements do include general terms like a description/location of the farm, who the tenant and landlord is, and the amount of cash rent or crop share percentages, some critical information may be missing to protect both parties.
For example, disagreements can arise about termination or renewal deadlines, and parties may look to Ohio law to find guidance. However, Ohio is a state that does not have a statutory law on farm lease termination or renewal, so it is important to define dates that both parties can agree to and include those in the written farm lease.
Does a written or verbal agreement imply a partnership? Does the agreement increase the landowner or tenant liability for the action of the other party? Who has access to production records from the farm and how does that impact Farm Service Agency program participation? Who pays for lime? Are the buildings included in the agreement and who performs repairs? These are just a few of the questions that can arise from poorly constructed farm rental agreements.
OSU Extension offers a Farm Rental Agreement Checklist to guide landowners and tenants toward a ...
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by Barry Ward (ward.8@osu.edu) Leader Production Business Management
OSU Extension, OSU Department of Agricultural, Environmental and Development Economics (AEDE)
Now, more than ever, big swings in crop prices and input costs points toward negotiating some flexibility in cash leases for farmland. “Volatile” and “Uncertain” are two words that might best describe grain prices and input costs for row crop production heading into the 2009 planting season. With this increased volatility and uncertainty, risk increases for producers and more uncertainty arises about the amount of cash rent to pay. On the other side of the negotiating table, landowners, seeing higher profitability in recent years for commodity crops, are possibly seeking higher cash rents. So, just what is that “most equitable” cash rent amount and how can it be maintained from year to year or contract to contract?
One answer is negotiating a flexible cash lease arrangement that varies from year to year based on price, yield and input costs. Price, yield and input cost changes from an agreed upon starting point will trigger changes in the base lease amount. Historically, flexible cash ...
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by Barry Ward (ward.8@osu.edu ) Leader Production Business Management
OSU Extension, OSU Department of Agricultural, Environmental and Development Economics (AEDE)
Ohio cropland values show signs of falling slightly while cash rents show signs of leveling off or seeing modest increases depending on the region and land productivity. Ohio cropland values are expected to decrease from 2.4% to 4.9% in 2009 while cash rents are expected to range from a decrease of 0.24% to an increase of up to 1.24%.
The “Ohio Cropland Values and Cash Rents” survey is conducted annually drawing on the expertise of numerous professionals that are knowledgeable of Ohio's cropland markets. Surveyed groups include farm managers, rural appraisers, agricultural lenders, OSU Extension Educators, farmers, and Farm Service Agency personnel.
One hundred eighteen surveys were completed, analyzed and summarized. Respondents were asked to give responses based on 3 classes of land in their area; “top” producing land, “average” producing land and “poor” producing ...
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by Barry Ward, Leader, Production Business Management
Brian Freytag, Extension Intern, AEDE Undergraduate Student
Ohio State University
Volatile commodity markets continue to make it challenging to negotiate equitable and sustainable cash rents between landowner and farmer. Rental rates left unchanged for the past 5 years may have been un-equitable the last two years as farm profitability was higher in parts of the Midwest with respectable yields. Fixed cash rental rates negotiated last year may seem too high in the face of lower grain prices and higher fertilizer prices. A flexible cash lease may be worth considering as we continue to grapple with uncertain market conditions.
What it Can Do
The Flexible Cash Lease Calculator allows the user to input a base rent and baseline yields, prices and costs along with minimum and maximum lease amounts if desired. These parameters will serve as the basis for the base rent. Year end yields, prices and costs will be added by the user to formulate the actual “flexed” rental amount at the end of the year based on the deviations in yield, price and costs fro...
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by Jim Skeeles, OSU Extension Educator, Fairfield and Hocking Counties
Summarized from “2009 Rental Decisions Given Volatile Commodity Prices and Higher Input Costs” by Gary Schnitkey and Dale Lattz,
University of Illinois at Urbana-Champaign in “Illinois Farm Economics Update” http://www.farmdoc.uiuc.edu/IFEU/IFEU_08_05/IFEU_08_05.html
Many farmers and landlords are now setting crop land rental rates for 2009. With the current lower crop prices cash rent prices will certainly level and in some instances may even decrease. The authors referenced say, “……..If the cash rent must be set now, realize that the fundamentals of prices and costs suggest lower cash rent bids then what would have been established just a few months ago and what would have been justified by 2007 and 2008 returns…….”
The authors also had the following to say about crop price projection on October 15 th : “Besides declining, there is a great deal of price uncertainty. Bid prices on options contracts can be used to gauge price uncert...
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by Barry Ward, Leader Production Business Management, OSU Extension and Department of Agricultural, Environmental and Development Economics (AEDE)
“Volatile” and “Uncertain” are two words that might best describe grain prices and input costs for row crop production heading into the 2008 planting season. With this increased volatility and uncertainty, risk increases for producers and more uncertainty arises about the amount of cash rent to pay.
On the other side of the negotiating table, landowners, seeing higher profitability in commodity crops, are seeking higher cash rents. So, just what is that “most equitable” cash rent amount and how can it be maintained from year to year or contract to contract?
One answer is negotiating a flexible cash lease arrangement that varies from year to year based on price or yield or a combination of the two. Price and yield deviations from an agreed upon starting point (base rent) will trigger additional rent in the case of higher prices or yields or possibly lower rent in the case of price or yield shortfalls.
Several resources exist that will give you detailed ...
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by Chris Bruynis, Extension Educator-Wyandot County, Dr. Don Breece, OSU Extension Farm Management Sepcialist, and David Marrison, Extension Educator-Ashtabula County
With yields exceeding expectations in many parts of Ohio and the wide basis presently on soybeans, many farmers are looking for additional storage space. This creates the challenge of determining a rental rate for empty grain bins. First, contact the local elevator to determine what the current storage rate is this year. In most cases, rental for on-farm grain bins is about half the going storage rate of the local elevator. Usually elevators charge about 4 cents per bushel per month. Thus, we usually look at 2 cents per bushel per month when renting grain bins from retired farmers, etc. This could be higher this year given the market and any potential price speculation. Most data shows the total rent being 12-14 cents per bushel for the storage season (typically 4 months or so).
Secondly, the grain bin owner should calculate their overhead costs associated with renting the grain bin. Grain bins, like other capital assets, when rented should at least cover d ...
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by Chris Bruynis, Ph.D., Extension Educator, Ohio State University Extension Wyandot County
Determining land rental rates on farmland is not as easy as determining the price of a bushel of corn or soybeans because there is no open market for rental rates. There are however several strategies that can be employed to determine land rental rates. There is a good outline of several strategies put together by Don Hofstrand and William Edwards fro Iowa that can be found at http://www.extension.iastate.edu/AgDM/wholefarm/html/c2-20.html. Another resource is the Fair Rent software program that was created by Center for Farm Financial Management at the University of Minnesota. Contact you local Extension office for more information on this software program.
by Donald J. Breece, Farm Management Specialist, OSU Extension Center at Lima
This USDA Notice clarifies the Flexible or Variable Leasing issue as it pertains to whether these agreements should be considered as cash or share leases for Direct Crop Payments. It also addresses the impact to the CCC-509 payment shares for bonuses paid to landowners. A cash lease has payment based upon cash, a fixed number of bushels or pounds of crop. A share lease contains provisions that require one or a combination of a payment of rent based on the amount of crop produced, proceeds derived from the crop and/or interest the producer would have had, if the crop had been produced. Also, the greater of a guaranteed amount or share of the crop proceeds. And, FSA will consider it a share lease if there is a guaranteed amount (such as a fixed dollar amount or quanity) and a share of the crop proceeds paid as rent. In the Flexible examples within the notice, it would appear that if the flexibility is based upon factors external to the farm, it would be classified as a cash ...
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by Chris Bruynis, Extension Educator, OSU Extension, Wyandot County
Many farmers have experienced striking differences in the management of farmland they cash rent when the land is transferred to the second generation. Gone are the days of a gentlemen's agreement that concludes with a handshake around the kitchen table. The new landowners are trying to maximize their return on assets and want some written provisions in place to protect their interests. There are some excellent resources available for landowners and farm tenants that address farm leases. The fact sheet found at the website
http://ohioline.osu.edu/fr-fact/0003.html provides a thorough list of items that should be discussed and included in a farmland lease. Sample farmland leases can be found at http://www.mwps.org/index.cfm or http://www.farmdoc.uiuc.edu/pubs/Legal.asp?Subsect=Acquiring&Subclass=Lease
In addition to changing the way land rental agreements are discussed, these new landowners are not shy about renegotiating cash rental rates when they believe the opportunity exists. Current cash prices for corn and ...
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by Barry Ward, Leader, Production Business Management, OSU Extension and The Department of Agricultural, Environmental, Development Economics
Barry Ward, Leader, Production Business Management, OSU Extension and The Department of Agricultural, Environmental, Development Economics
Many Ohio farmers hire custom farm work in their farm business or perform custom farm work for others. Custom farming rates traditionally have been arrived at by a series of calculations and negotiations. One of the most common ways custom farming providers and consumers arrive at an agreeable custom farming rate is to access University Extension summarized surveys. Ohio State University Extension and the Department of Agricultural, Environmental and Development Economics have historically published farm custom rates to assist farm businesses with this important task.
“Ohio Farm Custom Rates 2006” is the first Ohio custom rate survey update since 2002 and is available at your local Ohio State University extension Office or online at:
http://aede.osu.edu/programs/FarmManagement/OhioFarmCustomRates2006.pdf
“Ohio Farm Custom Rates 2006 i...
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by Jerry Mahan , Extension Educator, Greene County
UPDATED 9/20/10 by Jerry Mahan
We have a lot of bank barns, storage sheds, and cattle or hog barns located around Ohio. Many of these structures are in relatively good condition but for various reasons are not being used for their original purpose. The bank barns were designed for housing livestock, hay, and grain. The stone walls depended on the heat from the livestock in the winter to compensate for the freezing temperatures and the expansion and contraction of the walls and soil. Without livestock some barns have deteriorating barn support walls especially on the “bank” side of the barn. Many of these barns were also designed for farm machinery long since out of use. The farm machinery used today is larger both in width and height. Some counties in Ohio are long known for hog production but with contract feeding of hogs we have fewer people raising hogs. Thus many hog barns sit empty as does some cattle feeding facilities.
Knowing what to charge or pay for these buildings if used for storage is not easy to figure. Some guidelines revolve around the DIRTI five – depreciation, interest, repairs, taxes and insurance.
Depreciation is figured based on the remaining value of the building. Many structures have been depreciated to “zero” for tax purposes but you can estimate the value of the building and divide it by the expected remaining life. For example a bank barn might be valued at $15,000 and have an expected life of 15 years – so the annual depreciatio...
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by Barry Ward, Leader, Production Business Management, OSU Extension Department of Agricultural, Environmental and Development Economics
Demand for land value and cash rent data is strong as farmers, landowners, ag lenders, agribusiness persons and investors seek baseline data to formulate their business and investment plans. Previously, data has been gathered by surveying farmers, landlords or a combination of the two groups. In this initial survey we survey two groups of professionals with strong ties and an intimate knowledge of agriculture land and rental markets.
A survey of agricultural lenders, farm managers and rural appraisers was conducted at three OSU Extension/AEDE meetings in the Fall of ‘05 and Winter of '06. This survey was a sample of participants in attendance at these meetings. It was not a random sample of the population but rather a survey of all willing participants in attendance at these meetings designed to test the survey instrument. Surveying these agricultural experts is an attempt to capture unbiased data for evaluating farmland value and cash rents. Eighty-four surveys were completed, ...
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by Donald J. Breece, Farm Management Specialist, OSU Extension Center at Lima
The Midwest Plan Service offers free examples of leasing agreements for farm land, buildings, and pastures. These were developed by farm management specialists from North Central Land Grant Universities. This is the web site:
http://www.public.iastate.edu/~mwps_dis/mwps_web/leases.html
These forms provide owners and renters with a guide for developing an agreement to fit their situation. However, they are not intended to take the place of competent legal advice pertaining to contractual relationships between two parties. The Midwest Plan Service has many other resources as well, (publications about ag. engineering, building design, air quality, manure management, agribusiness, tillage, and grain handling) the main web site is:
http://www.mwpshq.org
The Ohio State University Extension web site called Ohioline includes a series of fact sheets about farm rents and leasing, http://ohioline.osu.edu/fr-fact/index.html . Topics include cash and share rental of land, tax and legal considerations, an agreement checklist, ...
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Since 1974, most farmland in Ohio has been assessed for property tax purposes on its Current Agricultural Use Value (CAUV) instead of the fair market value used for most other types of real estate. CAUV results in a significant reduction in farmland assessed values. CAUV's as a percent of fair market values range from about 20% in metropolitan areas to around 40% in rural farming counties. Real estate parcels are reappraised every six years and assessed values are updated every three years. The objective of this article is to explain why CAUV's may change between reappraisals and updates.
CAUV's are estimated by dividing the estimated net income per acre by a capitalization rate (Cap Rate). The Cap Rate reflects the opportunity cost of money for someone who is considering an investment in farmland. Consider an example where the gross revenue = 150 bu. x $2.00 = $300 per acre, non-land production cost = $200 per acre and the Cap Rate = 10%. The CAUV for this parcel would be ($300- $...
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Keith L. Smith, Ph.D., Associate Vice President for Agricultural Administration and Director, Ohio State University Extension TDD No. 800-589-8292 ( Ohio only) or 614-292-1868
