Rapidly Changing Trends in Leasing

March 02, 2013

The once dominant lease term in Illinois was the traditional crop share lease. The trend is toward custom designed leases that fit the unique qualities of each farm and the landowner’s goals and objectives.

The Illinois Society of Professional Farm Managers and Rural Appraisers conduct an annual survey of its membership concerning farmland leasing in Illinois. There are three main lease types:

  1. Crop Share Lease – Landowner and farmer share in crop revenues and crop expenses.
  2. Cash Rent Lease – Landowner receives a rent payment, farmer receives all crop revenue and pays all crop expenses.
  3. Custom Farming Arrangement – Landowner receives all crop revenue and pays all crop expenses. Landowner pays tenant for field operations.

Lease arrangements used by farm managers in 2013:

  • Crop Share - 43% (traditional 16%, supplemental rents 13%, additional costs, supplemental tenant payments 14%)
  • Cash Rent - 48% (traditional 31%, variable 17%)
  • Custom Farm - 9%

Not too many years ago, the traditional crop share lease was the dominant lease type in Illinois. With the increase in the value of crops and the increase in size and efficiency of farming operations, the returns to landowners, under alternative lease arrangements, became increasingly popular and profitable. What came about was a wide variety of lease arrangements which could take into account each farm and farm owner’s unique situation.

Traditional crop share leases now make up 16% of lease arrangements. Landowners and farm managers are modifying the crop share lease to add additional cash rent or are having the farmer pay for more of the purchased crop input. These adjustments to the crop share lease allow landowner and tenant to each share in the reward of good income years, share in the risk of poor income years, and generally increase return to landowners to be more competitive with cash rents.

Traditional cash rent leases now make up 31% of lease arrangements. With the increased cost to produce crops and great volatility in gross farm incomes, variable cash rents have become increasingly popular. The method of calculating a bonus above the base rent also varies widely, taking into account each farm and landowner’s unique situation.

Variable cash rent leases now make up 17% of lease arrangements. Typically, with variable cash rent, a base rent is set at a level lower than aggressive set cash rent with additional bonus clause. There are many forms of bonus calculations, some are based on gross revenue, and some are based on price only or bushels of production only.

We recommend a bonus that takes into account cost of production and gross income. We discuss the cost of production and potential gross income scenarios with the landowner to custom design a variable cash rent that meets the owner’s needs and objectives.

We review lease terms with our landowners each year outlining the risk and rewards of each lease type. Each farm has unique characteristics, and each landowner has their personal goals and objectives. We custom design our leases to fit the rapidly changing economics of today’s farm operations.

Please feel free to contact us, and we can work together to design a lease that reflects today’s rapidly changing farm economy with your unique goals and objectives

We keep abreast on many of the current issues facing rural landowners, these trends and topics are highlighted in our “Field Notes” newsletter. Below are some key topics for owners and farmers.