Farm Leasing Arrangements. Tim Eggers. Field Agricultural Economist

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1 Farm Leasing Arrangements Tim Eggers Field Agricultural Economist

2 Agenda Hot Topics in Ag Decision Maker Legislative Update Crop Conditions CSR2 Leasing Practices Trends in Farm land values Cash rental rates Costs of Production 2014 Farm Leasing Arrangements Considerations

3 What goes up,.. Is agriculture still cyclical and what could trigger a down turn? What are the implications for livestock, agribusiness and land? Will farm debt increase? A new series of papers from ISU.

2013 Legislative Updates Past: Iowa statute did not require written termination notice on parcels of less than 40 acres. Now: Iowa Code 562.

4 2013 Legislative Updates Past: Iowa statute did not require written termination notice on parcels of less than 40 acres. Now: Iowa Code requires a written termination notice on all parcels regardless of size. If proper written notice is not provided by September 1, the lease automatically continues on the same terms and conditions as the original agreement.

5 Exception: Animal Feeding Operations If primary use of a rented acreage of less than 40 acres is for an animal feeding operation, written notice requirement does not apply. Mere cropper exception remains essentially refers to someone hired (as an employee or custom operator) to plant/harvest the crop.

Land Holder Liability 2013 Legislature added the phrase Educational activities to Iowa Code 416C -- included in the list of recreational purposes for

6 Land Holder Liability 2013 Legislature added the phrase Educational activities to Iowa Code 416C -- included in the list of recreational purposes for which Iowa landholders have protection from liability. So, if land holder desires to hold a school farm tour, the code provides some protection from liability.

7 Crop Conditions Drought last year in 2012 Cool wet spring and delayed planting 2013 Crop impacts Communications skills exercised?

9 Iowa Crop Conditions as of July 28, 2013 Item Very Poor Poor Fair Good Excellent % % % % % Corn Soybeans Pasture & Range

10 Field Work and Crop Progress as of July 28, 2013 Item Southwest State Last Year 5-yr Average % % % % Corn tasseled Corn silked Corn in or past milk stag Soybeans bloomed Soybeans setting pods Hay, alfalfa 2 nd cutting

11 Untimely Rains Induced Farm Lease Considerations Communicate with your landowner Send photos of the crops, pastures Flexible leases: are crop insurance proceeds included in the rent formula?

12 CSR2 Crop Suitability Rating What is it? Why did it need to change? Where do I find my CSR2? How much did it change? When will CSR2 be used by assessors? How does it change the CSR for my land? page 26

13 CSR2 = S M F W D±EJ Where: S is the taxonomic subgroup class of the soil series M is the family particle size class F refers to the field conditions of a particular SMU W is the water holding capacity D is a soil depth & erosion factor T EJ is an expert judgment correction factor

14 Why did CSR need to change? 1. The philosophical goal is to get values proportional to CSR but with greater transparency, consistency & ease. 2. The technical goal is to have CSR2 consistent with today s soil mapping, classification, and government programs. 3. The ancillary goal is to be able to extend CSR2 across boundaries.

15 Where do I find my CSR2 rating? July ISPAID October WebSoilSurvey

16 Tama 120B CSR2 is Adair 207 Wapello 213 Taylor 215 Ringgold 219 Johnson 219 Iowa 222 Guthrie 226 Emmet 226 Louisa 228 Union 229 Allamakee 229 Muscatine 229 Marion 230 Henry 230 Dallas 230 Cedar 232 Page 232 Worth 233 Clayton 233 Howard 234 Fremont 236 Warren 236 Keokuk 237 Audubon 241 Winneshiek 244 Des Moines 245 Dickinson 245 Adams 246 Mahaska 248 Cass 250 Jackson 252 Washington 253 Jasper 253 Floyd 254 Palo Alto 255 Woodbury 261 Plymouth 261 Pocahontas 261 Boone 262 Polk 263 Marshall 265 Scott 265 Montgomery 265 Black Hawk 267 Mitchell 268 Hardin 268 Poweshiek 268 Jones 268 Winnebago 269 Linn 269 Chickasaw 270 Calhoun 271 Clay 273 Dubuque 274 Shelby 274 Webster 275 Cherokee 275 Buena Vista 275 Harrison 278 Clinton 278 Sioux 279 Cerro Gordo 279 Kossuth 281 O'Brien 282 Greene 282 Buchanan 283 Hancock 284 Osceola 285 Delaware 285 Pottawattamie 286 Mills 289 Humboldt 289 Story 290 Tama 291 Franklin 292 Lyon 293 Carroll 296 Fayette 297 Benton 298 Wright 299 Sac 301 Crawford 311 Butler 314 Ida 315 Hamilton 321 Bremer 329 Grundy 330 Monona SMU 120 has a CSR2 of 100 CSR ranged From 90 to 95

17 Sioux 261 Plymouth 255 Woodbury CSR ranged From 70 to 83 Ackmore 430 CSR2 is Harrison 284 Osceola 281 O'Brien 275 Cherokee 226 Emmet 222 Guthrie Pottawattamie Cass Adair 234 Fremont 245 Dickinson 271 Clay 275 Buena Vista Ida Sac Monona Crawford Carroll Mills Shelby Audubon Montgomery 232 Page Palo Alto 261 Pocahontas 270 Calhoun 245 Adams 282 Greene 279 Kossuth 289 Humboldt 274 Webster 228 Union 261 Boone 230 Dallas 268 Winnebago 283 Hancock 298 Wright 315 Hamilton Polk 232 Worth 279 Cerro Gordo 289 Story 291 Franklin 268 Hardin 263 Marshall 253 Jasper 267 Mitchell 253 Floyd 329 Grundy 290 Tama 268 Poweshiek 233 Howard 269 Chickasaw 321 Bremer 265 Black Hawk 207 Wapello Taylor Ringgold 297 Benton Iowa 241 Winneshiek 296 Fayette 282 Buchanan 269 Linn 219 Johnson Warren Marion Mahaska Keokuk Washington Butler Henry 229 Allamakee 233 Clayton 285 Delaware Jones Cedar 229 Muscatine 226 Louisa Des Moines 273 Dubuque 250 Jackson 278 Clinton Scott

18 When will CSR2 be used by assessors? Visit with your assessor(s) is the earliest expected use. page 26

19 How does it change the CSR for my land?

20 How does it change the CSR for my land? SMU Soil Name CSR CSR2 8B Judson silty clay loam, 2 to 5 percent slopes Marshall silty clay loam, 0 to 2 percent slopes B Marshall silty clay loam, 2 to 5 percent slopes C2 Marshall silty clay loam, 5 to 9 percent slopes, moderately eroded 9D2 Marshall silty clay loam, 9 to 14 percent slopes, moderately eroded 11B Ackmore-Colo-Judson complex, 2 to 5 percent slopes C2 Exira silty clay loam, 5 to 9 percent slopes, moderately eroded D2 Exira silty clay loam, 9 to 14 percent slopes, moderately eroded C2 Clarinda silty clay loam, 5 to 9 percent slopes, moderately eroded Clarinda silty clay loam, 9 to 14 percent slopes, moderately D2 eroded 822D2 Lamoni clay loam, 9 to 14 percent slopes, moderately eroded 15 13

Soils Aren t Equally Distributed Map Unit Acres Percent of Symbol in AOI AOI 11B 118.1 19.10% 9B 113.2 18.30% 222D2 112.8 18.

21 Soils Aren t Equally Distributed Map Unit Acres Percent of Symbol in AOI AOI 11B % 9B % 222D % 9C % 99C % 9D % % 99D % 222C % 822D % 8B % CSR 59.3 CSR2 71.1

22 Leasing Practices 10th land ownership survey since 1958 Phone survey conducted by the Center for Survey Statistics and Methodology and the ISU Statistical Department Survey selection is based on 40 acre parcel; all owners are surveyed. This year allows some discussion of owners not just acres 69% response rate

23 Distribution of Iowa Farmland Acres by Operation Type, 2012 Crop Share, 12% Other crop rent, 0% Other rents*, 1% Owner Operated, 37% Cash rent, 42% Other Conservation, 1% Custom, 3% CRP acres, 5%

24 Crop Share Lease Tenure 1 2 to 5 6 to to 20 > 20 Average Years tenant has rented the land 5% 12% 20% 28% 35% 15.5 Cash Lease Tenure 1 2 to 5 6 to to 20 > 20 Average Years tenant has rented the land 4% 22% 30% 27% 17% 11.3 yr.

25 100% Distribution of Iowa Farmland by Type of Operator Tenure 75% 50% 25% 0% Owner operated Cash rent lease Crop share lease Other type of lease

25% Others, 5% Sole owner, 18% Tenancy in common, 6%

26 Percent of Farmland Acres Managed by a Professional Farm Manager by Type of Ownership, 2012 Corporation, 25% Others, 5% Sole owner, 18% Tenancy in common, 6% Trust, 44% 7% of acres are managed by a professional farm manager

27 35% 30% 25% 20% 15% 10% Distribution of Iowa Farmland Based on the Age of the Owner 23% 14% 11% 4% 5% 5% 14% 22% 26% 22% 17% 12% 30% 0% < >

28 Distribution of Iowa Farmland by Type of Owner, 2012 Multiple, 24% Single, Male, 20% Couple, 40% Single, Female, 16%

29 Distribution of Crop Share Acres Based on the 50%of Costs Paid by the Owner 100% 90% % 70% 60% 50%

31 AgLetter Federal Reserve Bank of Chicago

32 Realtors Land Institute March 2013 Survey

33 Average Values all grades $9,000 $8,000 $8,296 $7,000 $6,708 $6,000 $5,000 $5,064 $4,468 $4,371 $4,000 $3,908 $3,000 $2,629 $2,914 $3,204 $2,000 $1,958 $2,066 $2,147 $218 $234 $221 $229 $238 $243 $251 $269 $277 $261 $267 $276 $291 $318 $354 $397 $409 $419 $430 $482 $635 $834 $1,095 $1,368 $1,450 $1,646 $1,801 $1,691 $1,357 $948 $787 $875 $1,054 $1,139 $1,214 $1,219 $1,249 $1,275 $1,356 $1,455 $1,682 $1,837 $1,801 $1,781 $1,857 $1,926 $2,083 $2,275 $1,000 $

34 Southwest $7,015 up 18.8% up $1,110 high $8,818 med $6,732 low $4,484

35 90% 80% 70% 60% 50% 40% 30% 20% 10% Positive Factors 0% affecting land values 80% Commodity Prices (Higher) 63% Favorable Interest Rates 15% 14% 12% 10% Cash/Credit Availability Good Farm Economy / Return to Land Safe Investment / Lack of Others Land Availability (Limited Supply)

36 Negative Factors affecting land values 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 43% 18% 18% 15% 14% 13%

37 Who Purchased Farmland New Farmers 3% Others 1% Investors 18% Existing Farmers 78%

38 Who Has Purchased Farmland 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Farmers Investors New Farmers Other

39 Change in sales activity from previous year More 64% Less 5% Same 31% More 64% Less 8% Same 28% More 52% Less 23% Same 25% More 65% Less 14% Same 21% More 59% Less 12% Same 29% More 51% Less 18% Same 31% More 63% Less 13% Same 24% More 30% Less 38% Same 32% More 41% Less 11% Same 48%

40 Source: ISU Extension Economics, Dec and May 2012 Land Value & Cash Rental Rate Trends Averages 2012 Land Value: $8,296/A 2013 Cash Rent: $270/A

41 2013 Iowa Cash Rental Rate Survey William Edwards, Extension Economist

42 Response Sent out 6,000 surveys 1,703 county observations received Ag Lenders, 8% Prof. Managers, 13% Other, 2% Farmers, 50% Landowners, 27%

43 Timing and Purpose Questionnaires sent out in March Summary ready in May Purpose: provide information to tenants and landlords to use as a starting point for estimating a fair cash rent.

44 Questions What do you think typical cash rental rates are in your county? Half paid in advance, half after harvest For corn and soybean land High 1/3, medium 1/3, low 1/3 productivity Based on farm yields reported to NASS Oats, hay, pasture, cornstalks, hunting

45 Average Corn/Soybean Rent $280 $240 $252 $270 $200 $176 $184 $214 $160 $120 $80 $124 $131 $135 $110 $119 $120 $102 $119 $117 $122 $128 $135 $105 $148 $183 $40 $

46 State Average Values, $/acre $325 $300 $275 $250 $225 $200 $175 $150 High quality third Medium quality third Low quality third

47 $283 $294 $281 $294 $297 $284 $257 $210 $229 Average corn/soybean rent/acre

48 State Average Values, $/acre $200 $190 $180 $170 $160 $150 $140 $130 $120 $110 Alfalfa Hay Oats Grass legume Hay

49 Oats, Hay, Hunting Rights Crop Reporting District Alfalfa Grass Hay Oats Hunting Rights NW $242 $159 $219 $17 NC $227 $154 $198 $11 NE $278 $209 $216 $20 WC $190 $141 $229 $10 C $185 $129 $177 $15 EC $217 $157 $166 $19 SW $145 $100 $128 $ 8 SC $126 $ 96 $109 $ 9 SE $157 $109 $178 $14

50 State Average Values, $/acre $80 $75 $70 $65 $60 $55 Improved Pasture Un- improved Pasture $50 $

51 Pasture, Corn Stalk Grazing Crop Reporting District Improved Pasture Unimproved Pasture Pasture per AUM Corn stalk Grazing NW $84 $60 $13 NC $65 $44 $22 $ 9 NE $66 $47 $19 WC $92 $64 $20 $ 9 C $75 $52 $12 EC $84 $56 $21 $11 SW $76 $57 $ 7 SC $80 $51 $12 SE $68 $42 $26

52 Cash Rent as % of Gross Revenue (Iowa avg. Oct-Dec Cash Price) 60% Soybean Average = 37% 50% 40% 30% 20% 10% Soybeans Corn Corn Average = 25% 0%

53 Cash Rent as % of Gross Crop Income Iowa Average Yield x Oct.-Dec. Cash Price Source: ISU Extension Economics, Dec thru Dec. 2011

54 Other Factors Fertility and drainage Size and shape of fields, % tillable USDA program bases and yields Local grain prices and basis Seed production contracts Manure application contracts Longevity of lease Extras done by tenant

55 Influences on 2014 Rental Market Grain prices Increased acres Price of crude oil (ethanol demand and price) Export demand Livestock feeding Reduced crop yields in 2012, including forages New farm bill provisions Supply and demand will ultimately set the rents.

56 Hardin

57 Hardin County Average Corn Yield Avg. Soybean Yield 172 bu. 51 bu. Average Row Crop CSR Index 80

58 Hardin County Typical Cash Rent for Corn and Soybeans Overall average $328 High quality third Average response $394 Range of responses $275 - $500 Medium quality land $325 ($250 - $425) Low quality land $266 ($150 - $375)

59 Hardin County Typical corn yield, bushels per acre High third acres 194 Middle third acres 173 Low third acres 146

60 Hardin County Rent per bu. of corn yield = $328/172 bu = $1.91 Rent per bu. of soybean yield = $328/51 = $6.43 Rent per CSR index point = $328 / 80 = $4.11 Useful for adjusting rent to a specific farm.

61 Other Crops (Central CRD Averages) $ per acre Alfalfa hay (established) $185 Grass hay (established) $129 Oats $177 Improved permanent pasture $ 75 Unimproved pasture $ 52 Cornstalk grazing $ 12 Hunting rights (per year) $ 15

62 Estimating a Cash Rental Rate Ag Decision Maker information file C2-20 Decision Aid file C2-20 (spreadsheet) Flexible Cash Leases Ag Decision Maker information file C2-21 Decision Aid file C2-21 (spreadsheet)

63 Calculating a Weighted Average Corn Suitability Rating Ag Decision Maker -- Iowa State University Extension and Outreach To learn more about this spreadsheet see Information File C2-87, Computing the Corn Suitability Rating for Your Farm Place the cursor over cells with red triangles to read comments. Enter your input values in shaded cells. Owner's Name Random Farm Name Random Location Montgomery County Legal Description Total Acres 619 Cropland Acres 619

64 Map Unit Corn Acres Percent of Corn Yield Symbol Soil Type Yield in AOI AOI by Soil Type 8B Judson silty clay loam, 2 to 5 percent slopes % Marshall silty clay loam, 0 to 2 percent slopes % 6,499 9B Marshall silty clay loam, 2 to 5 percent slopes % 22,753 9C2 Marshall silty clay loam, 5 to 9 percent slopes, % moderately eroded 16,878 9D2 Marshall silty clay loam, 9 to 14 percent slopes, % moderately eroded 9,322 11B Ackmore-Colo-Judson complex, 2 to 5 percent slopes % 23,266 99C2 Exira silty clay loam, 5 to 9 percent slopes, % moderately eroded 13,778 99D2 Exira silty clay loam, 9 to 14 percent slopes, % moderately eroded 3, C2 Clarinda silty clay loam, 5 to 9 percent slopes, % moderately eroded 683 Clarinda silty clay loam, 9 to 14 percent slopes, % 222D2 moderately eroded 11, D2 Lamoni clay loam, 9 to 14 percent slopes, moderately % eroded % 108,617 Weighted Average Corn Yield (per acre) 175.3

65 Map Unit Soybean Acres Percent of Soybean Yld Symbol * Soil Type Yield in AOI AOI by Soil Type 8B Judson silty clay loam, 2 to 5 percent slopes % Marshall silty clay loam, 0 to 2 percent slopes % 1,870 9B Marshall silty clay loam, 2 to 5 percent slopes % 6,566 9C2 Marshall silty clay loam, 5 to 9 percent slopes, % moderately eroded 4,912 9D2 Marshall silty clay loam, 9 to 14 percent slopes, % moderately eroded 2,678 11B Ackmore-Colo-Judson complex, 2 to 5 percent slopes % 6,732 99C2 Exira silty clay loam, 5 to 9 percent slopes, % moderately eroded 4,010 99D2 Exira silty clay loam, 9 to 14 percent slopes, % moderately eroded C2 Clarinda silty clay loam, 5 to 9 percent slopes, % moderately eroded 195 Clarinda silty clay loam, 9 to 14 percent slopes, % 222D2 moderately eroded 3, D2 Lamoni clay loam, 9 to 14 percent slopes, moderately % eroded % 31,398 Weighted Average Soybean Yield (per acre) 50.7

66 Cash Rental Rate Estimation Ag Decision Maker -- Iowa State University Extension See Information File C2-20, "Computing a Cropland Cash Rental Rate" for information. Place the cursor over cells with red triangles to read comments. Enter your input values in shaded cells. Name: Montgomery County Random Field Gross Income Corn Soybeans Acres in Each Crop Expected Yield Expected Price $4.86 $11.74 USDA Direct Payments Total annual payment OR payment per acre $0.00 $- $- Total Gross Income for Crop, per acre $ $595.22

67 Farm Bill 2012, 2013, 2014? Nothing happens Continuation of current farm program (probably without direct payments) More changes for crop insurance (lowering of subsidies for those with high incomes) New Farm (Food and Nutrition) Bill with a program similar to ACRE

68 Production Costs (For Tenant's Residual or Crop Share Equivalent approach, only) Seed $ $45.00 Fertilizer $ $60.00 Lime $10.00 $10.00 Herbicides $25.00 $17.00 Insecticides $- $- Crop Insurance $20.00 $10.00 Miscellaneous $9.00 $9.00 Interest on Input Costs length of period (months) 8 interest rate 6.0% $11.76 $6.04 Custom Hire $- $- Fuel, Repairs $41.00 $31.00 Cost per bu. $51.00 Cost per bu. $41.00 Machinery Ownership Drying $0.15 $26.30 $- $- Storage $0.03 $5.26 $0.03 $1.52 Transportation $0.10 $17.53 $0.10 $5.07 Labor: Wage rate $12.00 /hour Hours/acre Hours/acre Total hours hrs. or enter hr/a 2.6 $ $27.00 Desired return to tenant for management and profit $60.00 $60.00 Total of all non-land costs, per acre $ $322.63

69 Power Machinery Cost and Investment Cost (Per Acre) 500 Mach & Power Cost Mach & Power Investment

70 Direct Corn Expenses Seed Insecticide Herbicide Fertilizer & Lime Drying & Storage

71 Direct Bean Expenses Seed Insecticide Herbicide Fertilizer & Lime Drying & Storage

Soybeans Corn after Corn Total Cost Expected Yield bu/a

72 Source: Duffy, ISU Extension Economics, July 2013 Early 2014 Crop Cost Estimates Soybeans after Corn Corn after Soybeans Corn after Corn Total Cost Expected Yield bu/a Cost Per Bushel $ $11.40 $ $4.43 $ $5.17

73 Share of Gross Income Corn Gross income $ x 25% = $ $/acre rent Soybeans Gross income $ x 35% = $ $/acre rent Average Weighted Rent = $ $/acre rent Yield Potential Corn Potential yield bu./acre x $1.72 per bu rent = $ $/acre rent Soybeans Potential yield 50.7 bu./acre x $5.90 per bu rent = $ $/acre rent Average Weighted Rent = $ $/acre rent

74 Percent of Land Value Current market value of land $ 5,500 per acre x 4% return = $ $/acre rent Tenant s Residual Corn Gross income $ minus tenant's costs $ = $ $/acre rent Soybeans Gross income $ minus tenant's costs $ = $ $/acre rent Average Weighted Residual = $ $/acre rent

75 Crop Share Equivalent Corn Owner's share of income $ minus owner's costs $ = $ $/acre return Soybeans Owner's share of income $ minus owner's costs $ = $ $/acre return Average Weighted Return = $ $/acre return

76 Flexible Cash Lease Rent is paid in cash Actual rent paid each year is determined by a formula that includes any or all of: Actual price Actual yield Costs of production Also called variable cash leases

77 Reasons for Flexible Leases Fewer landowners and tenants want to be involved in crop share leases Still recognize a need for sharing risk Prices and yields have been volatile in recent years Cash rents have lagged behind profits in crop production Neither party enjoys renegotiating annually

78 Prevalence of Flexible Leases Iowa land tenure surveys 1993: 3.5% of cash rented acres 2003: 11% of cash rented acres 2007: 12% of cash rented acres 2012: 16% of cash rented acres Ohio 1999: 8% of cash leases Illinois 2012: 32% of cash leases under professional management

79 Research by Edwards & Hart Compare how different types of flexible leases affect risk sharing between landowners and tenants Monte Carlo simulation with 5,000 draws Yield volatilities derived from YP rates Price and cost volatilities derived from corn, soybean and energy options Rank correlations estimated from historical data (detrended) for yields, prices and costs (energy related)

80 Types of Flexible Leases Flex on yield only Rent = fixed $/bu. x actual yield Rent = base rent x (actual yield / base yield) Flex on price only Rent = fixed bu./acre x actual price Rent = base rent x (actual price / base price)

81 Flex on Both Price and Yield Rent = actual price x actual yield x fixed % (% of gross revenue) Rent = actual price x actual yield x fixed % with a minimum and maximum rent Rent = base rent x (actual yield / base yield) x (actual price / base price) Rent = base rent + fixed % x (actual gross revenue base gross revenue) (bonus)

82 Flex on Yield, Price and Costs Rent = base rent + fixed % x (actual gross revenue base gross revenue) where base gross revenue = cost of prod. Rent = base rent x (actual yield / base yield) x (actual price / base price) x (base costs of production / actual costs)

83 Benchmark Arrangements Fixed cash rent lease crop share lease Custom farming agreement

84 Parameter Values Corn Soybeans Percent of acres 50% 50% Expected yield, bu. per acre Expected price, $ per bushel $5.00 $12.00 Seed, fertilizer & pesticide costs, $ per acre $341 $181 Machinery, drying & labor costs, $ per acre $176 $109 Rent per bushel of actual yield $1.50 $4.00 Fixed bushels per acre used to set rent 50 bu 17 bu % of gross crop value to set rent or bonus 29% 35% Minimum rent per acre $150 $150 Maximum rent per acre $400 $400 Base gross revenue per acre for bonus rent $845 $600

85 Relative Risk Born by Tenant under Flexible Leases (based on standard deviation of profit) Fixed cash rent Fixed $ x yield 100% 97% Fixed bushels x price % of gross crop value Base rent plus bonus 67% 65% 73% Profit share over costs 57% crop share 49% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

86 Downside Risk: Tenant s Probability of a $100 Loss Fixed cash rent 40% Fixed $ x yield 39% Fixed bushels x price 30% % of gross crop value Base rent plus bonus 27% 28% Profit share over costs 21% crop share 15% Custom farming 0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

87 Tenant s $ Loss at 10 th Percentile Fixed cash rent Fixed $ x yield ($311) ($294) Fixed bushels x price % of gross crop value Base rent plus bonus Profit share over costs ($211) ($184) ($236) ($186) crop share ($120) Custom farming ($15) ($350) ($300) ($250) ($200) ($150) ($100) ($50) $0

88 Tenant s Loss at 10 th Percentile with Revenue Protection Insurance ($311) ($294) ($211) ($184) ($236) ($186) ($120) $(99) $(82) $(28) $(35) $(7) $(8) $(15) ($15) $21 Fixed cash rent Fixed $ x yield Fixed bushels x price % of gross crop value Base rent plus bonus Profit share over costs crop share Custom farming ($350) ($300) ($250) ($200) ($150) ($100) ($50) $0 $50

89 Conclusions Flexible cash leases transfer significant financial risk from tenant to landowner. Flexing on yield only has little effect. Flexing on price only has more effect. Flexing on price x yield has more effect. Including production costs has more effect. Setting a minimum rent shifts risk back to the tenant. A crop-share lease still shifts most risk.

90 Conclusions Crop insurance reduces everyone s risk (except the government!) Full article will appear in the 2013 Journal of the American Society of Farm Managers and Rural Appraisers.

91 Hazards for 2014 Interest rate increases Margin compression New farm bill/understanding role of crop insurance

92 Thank You! Tim Eggers Field Ag Economist (712)

93 Our Mission ISU Extension builds partnerships and provides research-based learning opportunities to improve quality of life in Iowa We believe in... Quality Access Diversity Accountability

Cash Rental Rates for Iowa

Cash Rental Rates for Iowa 2003 Survey The cash rental rates presented in this publication are the result of a survey of farmers, landowners, agricultural lenders, real estate brokers, and professional