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Acres of Knowledge

What about a flexible cash rent lease

Corn fields near Royal, Illinois. Author: Daniel Schwen. Licensing: GFDL. Original cropped.

In August, my office phone lights up with calls from farmland owners wanting to know about the direction of cash rent values for farms here in east-central Illinois. This is never easy to answer because no one can accurately forecast the future. Currently, we are looking for average to above yields for the area’s corn and soybean crops. The price outlook for this fall's corn and soybean crops is better than was anticipated earlier in the year due to weather problems in other parts of the world as well as the United States.

Trying to forecast corn and soybean crop revenue a year in advance has led many farmland owners and operators to shift from the more traditional cash rent farmland lease to either a flexible cash rent lease or a hybrid "base rent + bonus" cash rent type of lease. These types of leases allow for increased cash rent if cash grain incomes rise.

At the 2020 Virtual Illinois Farm Economics Summit, Dr. Gary Schnitkey, and Dale Lattz, Department of Agricultural and Consumer Economics, University of Illinois, described a form of variable cash rent for high productivity farmland that sets a base rent of $200 per acre. If the per acre cash revenues plus any government payments times a rent factor exceeds the base rent, then an additional cash payment is due.

As an example, a farm with a 5-year corn yield average of 220 bushels per acre with a 6-month average price for corn (spring – fall) of $5. The rent factors used in this rent formula are 33% for corn and 40% for soybean. This would result in a total rent of $363 per acre or an additional $163 on top of the base rent of $200. Rent: 220 X $5 X 0.33 = $363.

University of Illinois’s farmdoc has fillable cash rent lease forms that can be used for either straight cash rent or a flexible type of rent. Fact sheets on each of the various farmland lease types are available at Farm Leasing Fact Sheets. Additionally, the FAST Tools section has a Farm Rent Evaluator and Cash Rent with Bonus Worksheet.

The Iowa State University Flexible Farm Lease Agreements publication describes the basics of these leases. This Flexible Cash Rent document can help you analyze different yield and price scenarios to come up with an equitable lease for both parties.