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Farm leases under a microscope

Agriculture.com Staff 02/23/2007 @ 11:06am

The volatility and bullish market action in corn and soybeans has caused a change in leasing practices in the Corn Belt. Several farmers and landlords have discussed a sort of variable lease, or cash rent plus bonus arrangement.

Of course, the problems with leases began back in late summer, as rents were negotiated before September 1st. The remarkable corn price rally picked up a head of steam just after that date, and left many landowners with a bad taste in their mouth. Of course, many tenants were worried as well. An upset landlord is not a good thing! The more flexible leases were thought to "share the wealth" and reduce the tension.

The problem is the FSA has a rigid set of rules for defining cash rent leases and share leases. Cash rent leases are only those with a guaranteed, fixed cash payment or a fixed number of bushels. Share leases are everything else, from true 50/50 leases to cash rent leases with a bonus for yield and/or price. Simply paying a landlord more than is stated in the lease is also a problem, because the lease and the CCC-502 need to match.

County FSA directors and attorneys are sounding the alarm, as government payments are at risk. The tenant has perhaps the greatest risk, because an incorrect CCC-502 could result in the farmer losing all government payments.

The sad part of this situation is that the tenant seems to bear the risk. He has the most to risk at the FSA office. In future years, he may have the burden of paying higher cash rent than he might have otherwise. And, worst of all, young, beginning farmers may be hurt by this inflexibility. The FSA needs to rethink the rules in this age of volatility.

The risk of loss in trading commodities can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial situation.

The volatility and bullish market action in corn and soybeans has caused a change in leasing practices in the Corn Belt. Several farmers and landlords have discussed a sort of variable lease, or cash rent plus bonus arrangement.

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