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Why not share rent?

Agriculture.com Staff 02/08/2016 @ 11:38pm

I have watched with puzzlement all of the recent discussion concerning cash rent rates. I understand that share rents have fallen out of favor in the past few years. Renting on shares is a is a very logical way to avoid the problems with having to adjust rental rates every time input costs and output prices change.

When I began farming in 1969, almost all land was rented with 50/50 shares. Land owners and renters shared input costs and returns equally. In the 34 years I rented land, I had only two farms with cash leases. One was so small (23 acres) that dividing the crop was not practical. The other was owned by a retired farmer who hated making marketing decisions, even tough for a time he managed a grain elevator. We had a very open agreement that changed several times to reflect changing conditions.

Several times during the course of renting land the owners looked at changing to cash leases. In every case they made the decision to stick with shares. In two cases the reason was economic. In one case it was simply personal preference.

Obviously there are advantages to cash rent agreements. They are simple. The operator does not have to keep track of each farm individually. The owner does not have to deal with farm expenses and grain sales. The down side is that income only adjusts after the fact. In the most recent price rally, it may take until the fall of 2008 years, since in some states leases are considered in effect unless changed by September 1. For the 2006 and 2007 crops the automatic adjustment is worth a lot of money to the land owner unless the grain was forward priced very early.

I considered the time I spent cultivating relationships with land owners the most valuable time spent farming. I kept records of each farm individually. I gave each owner a professional-looking invoice for their share of inputs. I have a truck scales and gave an equally professional-looking settlement sheet after harvest. In many cases I did the marketing for them. I did all of the farm program sign up. In one case, a land owner did a careful study and concluded that he was getting more return from his farm under our agreement than anyone would have paid him in cash rent.

When Sharon settled her mother's estate, she and her sisters kept the home farm. We were advised that cash rent was the simplest way to manage the partnership. Instead we went to a simple share agreement where I pay all of the input costs and get 60% of the crop proceeds. That arrangement had worked well for several prior years with other landlords. It is simple to calculate and easy to manage. In most years it generates a return approximately equal to high end cash rent. For the 2007 crop, the partners are going to get a check about double what prior years have been.

I am not necessarily recommending this particular rental arrangement. The share lease is attractive from the standpoint of always adjusting for changes in the financial situation. From the comments about farm managers on the Farm Business Talk page, it seems that I was doing for my landowners what they might have paid a farm manager to do. I considered it just part of being a good tenant. And, it did not cost the owners a penny of his or her rental income.

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