8/2/2019 Pages 23-28 CLEANER Water, Nutrient Reduction: PAGE 100 - - PDF document

8/2/2019 1

FARMLAN

ARMLAND

LEA

EASING SING & M

& MAN

ANAGE GEMEN MENT

WOR

ORKS KSHOP HOP

Melissa O’Rourke B.S., M.A., J.D.

FARM & AGRIBUSINESS MANAGEMENT SPECIALIST Housed at ISU Extension—Winneshiek County

www.extension.iastate.edu/agdm

morourke@iastate.edu Office phone: 563-382-2949

Key Topics:

► Trends in -- Farmland values & Cash rental rates ► 2018 Farm Bill Resources, Decisions – and upcoming education programs ► Costs of crop production -- resources ► Negotiating a fair cash lease rate ► Farms & financial Stress ► 2020 Farm Leasing Considerations: – Legal issues & Communication – Conservation considerations . . . and much more!

The Goal?

• You leave here today with

increased knowledge and confidence to assist you to - - – Review current farmland & management arrangements – Take steps to plan for the future . . . and – Know where to go for resources and assistance.

Let’s get familiar amiliar with ith you

• ur

r Far armland mland Leas Leasing ing Ar Arrangements angements book: book:

Resources you’ll want to read & study:

Page 13: Page 3:

8/2/2019 2

PAGE 100

Iowa Nutrient Reduction Strategy

• Addressing Iowa’s

contribution to Gulf hypoxia

• Voluntary, science-based
• Cities, industry &

agriculture

• A practice-based approach

to show meaningful and measureable progress

• 45% reduction in nitrate-N

and P

• 41% for N and 29% for P

for non point sources

• A framework for innovation

Pages 23-28 – CLEANER Water, Nutrient Reduction:

• Improved water quality in streams, rivers, lakes & local source water.
• Reduced N and P loads leaving Iowa, heading to Gulf of Mexico.
• Economic development opportunities -- conservation infrastructure, reduced need

for treatment, improved recreation and habitat

Benefits of meeting INRS goals?

From Christianson and Helmers, 2011 Illustration by John Petersen (www.petersenart.com)

Bioreactors remove about 43% of the nitrate load

Edge of Field Nitrate Reduction Practices

Nitrate Removal Wetlands

Wetlands remove an average of 52% of the nitrate load when tile water is routed into the wetland.

• Wildlife habitat
• Esthetic benefits
• Long-term economic

incentives in areas that may be marginal

8/2/2019 3

Sa Satur urated ed Bu Buffer ers

• Enhancement

to existing or new buffers

• Must meet

certain soil, slope and bank characteristics.

3 chamber control box

• Saturated buffers

remove about 50%

• f the nitrate load
• The buffer provides

wildlife habitat

SAMPLE

cover crop lease insertion. I have a few copies – or you can find it from The Nature Conservancy:

www.nature.org

Pages 87-90 in your book: Article and sample language for conservation practices.

Talk to your area Field Agronomist for information about cover crops and other strategies:

Terry Basol tlbasol@iastate.edu 641-426-6801 641-435-4864 Brian Lang bjlang@iastate.edu 563-387-7058 563-382-2949

8/2/2019 4

► Provides assistance to farmers & ranchers directly impacted by tariffs, resulting in loss of traditional export markets. ► Payment for non-specialty crops, dairy, hogs, & specialty crops. ► Assistance for non-specialty crops based on a single-county payment rate multiplied by a farm’s total plantings of MFP-eligible crops in aggregate in 2019. Per-acre payments are not dependent

• n which of those crops are planted in 2019.

► Total payment-eligible plantings cannot exceed total 2018

• plantings. County payment rates range from $15 to $150 per acre,

depending on the impact in that county. MFP payments will be made in 3 portions (August, late fall, winter). See farmers.gov/mfp.

• Statewide Extension meetings with FSA planned

for late Fall 2019 (regional, not in every county).

• ARC versus PLC Program (by crop, by FSA Farm #)

– 2-Year Election & Enrollment begins in September; decisions by FSA Farm Number & Crop – PLC likely choice if National Average Cash Prices fall below $3.70/bu corn or $8.40/bu soybeans effective reference prices – A 2019 payment, if made, not received until October 2020.

• PLC Yield Update

– One-time opportunity, landowner decision – Updated Yields for Corn and Soybeans = Average farm yield for the 2013-2017 crop years X 81% – New PLC yields can be used starting with the 2020 crop

New Farm Bill: 2019 thru 2023 Crops

• Later today, we’ll use

the 2019 Cash Rent Survey (page 37) and consider methods to set rents.

• Farmers, landowners,

ag lenders, and professional farm managers supply information based on their best judgments about typical cash rental rates for high, medium, and low quality cropland in counties for which they have knowledge about multiple parcels of farmland.

2019 Survey Responses:

• 1,262 responses
• 47% farm operators
• 30% landowners
• 8% ag lenders
• 12% professional farm managers & realtors
• 2% other professions
• Respondents indicated being familiar with
• ver 1.6 million cash rented acres across

Iowa.

• On average, that’s about 1,268 acres per

respondent.

8/2/2019 5 Does the cash rent survey tell you what your rent should be?

► It’s a tool that can be a starting or reference point for determining an appropriate cash rental rate for a particular farm. ► It is not intended to be the sole source for determining cash rents.

No, nope, it sure does not.

ww www.exte tension.iasta tate te.edu/a /agdm

Get familiar with Ag Decision Maker!!

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SE CB MO

Lucas

TE SJ RD GW

Farm Management Field Specialists

We can answer questions, refer you to resources,

• r refer you

to someone with the expertise you need.

Financial Analysis Expertise?

• Farm Financial Planning: Confidential, private service.
• Computerized financial analysis using FINPACK software.
• For anyone who wants a more complete picture of farm finances.
• Takes guesswork out of whether a change would increase profitability

and improve cash flow.

• FINPACK analysis provides more in-depth evaluation, which many

lenders are requiring before further credit extension.

• Helps evaluate farm business, determine whether change is desirable.
• Provides in-depth plan so operator & lender can make decisions.
• Answers basic questions of sound farm business management:
• Where am I today? Where do I want to be? How do I get there?
• Looks at profitability, liquidity, solvency, and risk-bearing ability.
• Considers alternative plans such as addition, expansion, or phasing
• ut a livestock operation, or buying, selling, or renting land.
• Evaluate ways to correct negative cash flow, profitability problems.

How does it work? What’s the cost?

• Trained extension associate meets with family – farm

business owners to discuss the analysis and possible effects if changes are made.

• May introduce other farm and family financial materials or

information about outside sources of help.

• Cost?? No charge. Funded by the Ag Credit School, a

program of ISU Extension and Iowa Bankers Association.

• Who performs the analysis? Farm Financial Management

associates are part-time extension employees with college degrees and special training in farm budgeting and financial analysis. They have farm backgrounds so they understand the current farm situation.

LOCATIONS of FINANCIAL ASSOCIATES shown on the map. Clients may travel to these locations, or may be able to arrange meetings at ISU Extension offices.

8/2/2019 6

If you want more information

• n this no-cost financial

analysis program . . .

• Talk to me – I can help you arrange

the contact and meeting.

• VISIT the ISU Extension website

that describes the program and lists contact information:

• www.extension.iastate.edu/farmanalysis/
• Page 99 – more information:

Are you – or r some someone you know w – feeling st stress ss on

• n

the the farm? m?

There are a variety of resources available to help. IOWA CONCERN HOTLINE:

1-800-447-1985

• Available 24/7
• Free
• Confidential
• All kinds of

concerns – financial, legal, family, stress- related

Also 24/7: Iowa Concern On-Line CHAT

• Just Google

“Iowa Concern” and click on the link for On-Line Chat

• Available 24/7
• Free and

Confidential

Resources

• n

managing Farm & Family Stress

8/2/2019 7 Don’t hesitate to call – Iowa Concern Hotline:

1-800-447-1985

Program Purpose

• Created in 2007 to encourage

agricultural asset owners to lease to qualifying beginning farmers.

• Provides asset owner with

credit on Iowa income taxes.

• Beginning Farmer must have

low – moderate net worth. For 2019 – the cap is $680,590 and it’s adjusted annually.

• Financial statement required

with application.

For this Iowa program, the Beginning Farmer must . . .

• Have education, training and/or

experience for the type of farming required for the lease.

• Make all operational & managerial

decisions

• Perform labor necessary to fulfill lease

conditions.

• Have access to working capital, farm

equipment, machinery and/or livestock to fulfill the lease.

• Be responsible for all financial

expenses necessary to lease and manage the property.

Basic Provisions: Tax Credit Calculations for 2019

• Cash lease – 5%
• Cash/flex lease – 15% on

base rent amount (but not the bonus)

• Crop Share –15% of asset
• wner’s share of the crop
• Examples on the website.

Example: xample: Calcula Calculating ting Cas Cash h Rent ent Tax ax Cr Credit edit for

• r 2019

2019

• 160 acres cash rented
• $225 per acre
• $36,000 gross lease

income

• $36,000 x 5% = $1800 Iowa

income tax credit

• Can be used for flexible &

crop-share leases too – see calculation examples

• n the website.

8/2/2019 8 Beginning Farmer LOAN program:

• Purchase ag land, depreciable machinery or

equipment, and breeding livestock.

• Make improvements to existing buildings or

new farm improvements.

• Purchases can be from closely related family

(parents, grandparents, siblings) – but must be financed through a 3rd party lender and sold for at least the appraised value.

• Contract sale is allowed for purchases from

aunts, uncles, cousins, etc.

• IFA issues tax exempt bond to facilitate

purchase of ag assets. Lender or contract seller provides financing at reduced interest rate because interest they receive is tax-exempt: Bank interest = exempt from federal income tax. Contract seller interest = exempt from both federal & state income tax. Lenders & contract sellers typically reduce interest rate around 20-25% when using IADD Beginning Farmer Loan Program. Beginning farmer negotiates loan terms and interest rate with bank or contract seller.

For

• r Mor

More Inf e Infor

• rma

mation ion and and to

• Appl

pply: y:

• PAGE 98 of your book!
• Application forms and

instructions at:

• IowaFinanceAuthority.gov
• For 2019 Crop Year – due on

August 1, 2019 – so for 2020 – apply early.

• Beginning farmer’s financial

statement

• Beginning farmer background

letter

• Fees = start at $300, depend
• n the length of the lease
• Prese

sent ntatio ion n avail ilable le at IowaFina inanc nceAut Author horit ity.gov/IA IA DD DD

► What are some sources of Iowa Farmland Value Data? ► Why is it important for Farmland Owners and Farm Producers to think about farmland values?

County Assessors’ Offices

• Some county assessors maintain public (Pdf or

Excel spreadsheet) document of ag land sales:

• https://siouxcounty.org/departments/assessor/

8/2/2019 9

Realty & Auction Websites

Federal Reserve Bank—Chicago

• www.chicagofed.org

– Quarterly survey of ag lenders by state – AgLetter: Quarterly Newsletter re: ag land values & credit – Go to chicagofed.org and click on publications

Ag Agricultur ricultural al land land values alues f for the

• r the Seventh

enth Feder ederal R al Res eser erve e Dis District trict as as a a whole hole remained emained stable in table in the f the fir irst t quar quarter ter of

• f 2019,

2019, with a ith aver erage ge far armland mland values alues unc unchanged hanged from

• m a y

a year ear ear earlier lier. . Ther here w e was as a a 1 per 1 percent cent increase in “good” farmland values from

• m the f

the four

• urth

th quar quarter ter of

• f 2018

2018 to to the the fir irst quar t quarter ter of

• f 2019,

2019, accor according ding to to the s the sur urvey ey r res espons ponses es of

• f 168

168 Dis District trict agricultur ricultural al bank banker

• ers. T

. The amount he amount of

• f far

armland mland for

• r sale in

ale in the the thr three ee- to to six ix-month period month period ending ending with ith Mar arch 2019 h 2019 was as s slightl lightly higher higher than than in the in the same period ame period ending ending with M ith Mar arch 2018, h 2018, even en as as the demand the demand to pur to purchas hase e agricultur ricultural al land w land was as a a bit lo bit lower er. . Als Also,

• , the number

the number of

• f

far arms ms sold and

• ld and the amount

the amount of

• f acr

acrea eage ge sold

• ld wer

ere e roughl

• ughly the s

the same ame during during the w the winter inter and and ear early s spring of pring of 2019 2019 compar compared ed with a y ith a year a ear ago go. . . . . . . . . . . . .

AgLetter: May 2019

Federal Reserve Bank of Chicago

Realtors Land Institute

– Semi-annual survey (March & September) – Compares land classification by corn production – Most recent survey always available on Ag Decision Maker

March 2019 RLI Survey

8/2/2019 10

http://usda.mannlib.cornell.edu/usda/current/AgriLandVa/AgriLandVa-08-02-2018.pdf

• Dollars/acre

and percent change from 2017

2019 Report will be released on August 6 2019 3:00 PM

Timely topics in Newsletters – free to you on Ag Decision Maker

Iowa State University Farmland Value Survey

– Conducted annually since 1941 – Mailed to 1100 licensed real estate brokers; 500-600 responses – Released annually in mid-December – November 1 to November 1 – Latest and historical surveys found on Ag Decision Maker website – www.extension.iastate.edu/agdm

SEE YOUR BOOK – page 29

“The survey is intended to provide information on general land value trends, geographical land price relationships, and factors influencing the Iowa land

• market. The survey is not

intended to provide a direct estimate for any particular piece of property.”

Page 29 in your book:

http://www.card.iastate.edu/land-value/

8/2/2019 11

Page 36

Northeast counties: 2017 (bottom #)

& 2018 (top #) farmland values

Percent change – 2015 to 2016 (Decreases) Percent change – 2016 to 2017

(Increases)

Percentage change in Iowa Land Values – 2017 to 2018

8/2/2019 12

Page 36

Crop Reporting District 3  Crop Reporting  District 2

Buyers of Iowa Farmland 1989 - 2017 Limited land supply generally holds up land

values.

8/2/2019 13 Several points:

• Modest decline is the 4th over the past 5 years and

represents a 17% decrease from the 2013 nominal peak, or a 24% drop in inflation-adjusted values.

• Decline: Largely attributable to lower commodity

prices, higher interest rates, and to some extent the trade disruptions.

• Magnitude of decline is still very modest and overall

the land market is largely stable.

• Many respondents cited limited land supply, strong

yields, and low interest rates as positive factors influencing the land market.

• In general, survey respondents have an optimistic

view regarding the strength of the future land market both 1 and 5 years from now.

• 82% of Iowa land is debt-free
• 60% of land owned by owners 65+

years old, onethird of land owned by 75+ years old, 13% of land

• wned by women landowner 80+

years old

• Ownership continues to shift from

sole ownership to trusts and corporations

• 53% of Iowa land rented out –

mainly cash rent

• 34% of Iowa land owned by

landlords with no farming experience, 23% of land owned by retired farmers who do not currently farm

• 29% of Iowa land owned primarily

for family/sentimental reasons

Order this der this r repor eport t thr through

• ugh

th the ISU E Exte tensio ion STORE RE

Landlord-Tenant Communication: It’s a 2-way street

• Farmland owners need to be
• pen to learning about current

farming challenges, conditions, costs of productions

• Producers need to listen to the interests and goals
• f farmland owners; and be willing to share

information about inputs, yields, and crop plans

Percent of Farml mland Rented (2 (2017)

Statewide = 51%

Sources: 2017 USDA Census of Agriculture, May 2019

Northeast Iowa – Percent of Farmland Rented, by county.

Why is communication important?

• In some counties -- close to 70% of land is under a

form of rental agreement.

• Overall, 51% of Iowa land is rented.
• Cash rent = 68%
• Flexible cash rent = 14% Crop share = 17%
• 34% of Iowa land owned by landlords with no

farming experience (much of this inherited).

• 23%: owned by retired farmers (don’t currently farm)
• Owners want to know and understand happenings
• n the land.
• Producers need to share information with owners

about costs, methods of production.

8/2/2019 14 Co Comm mmun unica ication tion Method Methods: s:

• Newsletter
• E-mail
• Facebook, Twitter, blog
• Phone calls
• Stop by for a cup of coffee
• Annual or periodic meetings
• KEY: Don’t limit

communication to annual rent payment and rent negotiations.

Winning Communication Strategies:

• Communicate regularly, not

just once a year

• Producers: Take time to

share and educate Owners about current trends in agriculture, farm costs

• Provide regular crop reports

during growing season

• Maintain farm appearance
• Treat landowners like family

– with respect and kindness.

New ewsl slet etter ers ca can be n be si simpl mple e

• r fancy

y . . . . Post

• sted

ed on

• n a

a websi bsite, e, sent sent by by Emai mail or

• r US

Mail ail . . . . Or thr hrou

• ugh

gh ot

• the

her so social me media si sites. es.

• Page 91:
• Annual Reports:
• Own

wner r agrees: Info provided by the Tenant is kept co confi nfide denti tial. al.

• Proprietary

business information needs to be shared to negotiate lease terms – but it is not to be shared in the “coffee shop.”

Negotiation Process Tips:

• Start early, use data – facts.
• Producers: Know your costs,
• overhead, breakeven points
• Producers: Understand challenges landowners

face with declining revenues

• Producers: Share information on yields, prices,

records, satellite photos, fertility records, government payments, crop insurance

• Landowners: Know your costs, know what you

need

• Landowners: Learn about production costs

8/2/2019 15

Communication

Comments—Questions?

Far armland mland Leas Leasing ing & & Owner nership: hip: A A Few ew Le Legal gal-Rela elated ted Pointer

• inters
• Info on - - -
• Iowa Hemp Law
• Available lease

forms (in your book

& on AgDM)

• Legal issues,

including lease termination

The status of Iowa’s

HEMP LAW

• 2018 (Federal) Farm Bill legalized Hemp as an ag commodity – and

gave states & federal government shared regulatory authority over hemp production. The Iowa Hemp Act was signed on May 13, 2019.

• It’s NOT legal to grow hemp! Production may be legal in the 2020

growing season, at the earliest.

• IDALS will develop a state plan to license and regulate hemp

production and submit it to USDA for approval—which then has 60 days to accept or reject the Iowa plan.

• Hemp growers will be required to obtain a license from IDALS.
• Growers should research and confirm there is a viable, profitable

market for commercial hemp production before investing in seed and equipment.

• More info at – https://iowaagriculture.gov/hemp

Ag Decision Maker Farm Lease Forms:

• Both “short” (3-page)

and “long” (11-page) forms available on AgDM.

• “Short” form is in your

book at page 84.

• Fillable-PDF forms.
• Forms can be adapted

to your needs.

• Consult with your legal

adviser.

Why hy sh should a farm m lease se be written?

• Provides more assurance

that the parties understand one another.

• Lease of more than 1 year

must be in writing to be enforceable.

• Lease of 5 years or more

must be in writing and recorded at the county recorder’s office.

Shouldn’t a handshake be good enough? • Don’t rely on selective

memory.

• Be sure that you cover

all the provisions that you intend to cover.

• Define meaning of terms.
• Put things in writing

because you value the relationship . . . and because you don’t want there to be later misunderstandings!

8/2/2019 16

A Few E w Examp mples les . . . . . . .

• Fencing issues
• Hunting rights
• Crop residue

(stover) (belongs

to producer unless a written lease says

• therwise).

Written leases cover and clarify these topics – helps to avoid later misunderstandings.

Clarify whether this is a farm tenancy— in situations where this could be a

• question. For example . . . .
• Rural residential acreage where

there may be livestock – but not the primary purpose.

• Porter v. Harden (Iowa Supreme

Court (March 2017))– said a 6-acre residential acreage where tenants grazed 1 horse was not a “farm tenancy” under Iowa farm lease law.

If you are leasing a rural residential acreage (either as the

• wner or as the tenant) determi

mine whether this is intended to be a residential lease, or if a farm tenancy is intended. This should be reflected in a written lease – see your attorney to use the correct lease form. .

As Assuri uring ng the he Ren ent is is Paid aid

• How can

parties assure

• ne another

that the rent will be paid?

First st Step tep? ? --

• - Use

se a wr writt tten lease se.

And, be sure that: (1) Legal description and parcel number in lease is accurate. (2) Parties to lease are properly identified. (3) Lease terms are clear.

When agreements are in writing, people tend to ask questions and clarify issues.

Cas Cash h up f up front

• nt (on
• n the

he barrelhead) on

• n Mar

arch h 1: 1:

• Pr

Producer-te tenant t has to to borrow th the mo money – so th the

• wner-landlord needs to

to ta take th this into to considerati tion in sett tting th the rent t (reducti tion).

• What if the tenant doesn’t pay on March 1?
• Working with the tenant to reach a solution is

probably the best approach. Confront the problem early!

• Lease may contain provisions on how the landlord

must terminate a lease for nonpayment.

• Landlord should issue a notice of default and provide

an opportunity to cure.

• Landlord may initiate eviction proceedings under

Iowa Code ch 648 (requires the landlord first serve the tenant with a 3-day “notice to quit.)

• Consult attorney to follow proper procedure.

Ad Additional ditional tools tools to to as assur ure e rent ent pay payment ment may may inc include: lude:

• Require irrevocable letter of credit

from the Producer/Tenant’s lender.

• Require Landlord’s name be

included as Payee on checks for crops.

• File and perfect a Landlord Lien –

this includes recording the lease – seek professional legal assistance for this.

8/2/2019 17

Farm m Lease Termi mination: Does

s lease se termi mination me mean the end of the Owner–Tenant relationsh ship?

• Not necessarily – but it means

either the Owner (or the Tenant) want to make some changes for the next year.

• See your book: Page 95 – for

an easy-to-use form.

 Without written notice of termination, lease automatically renews under the same terms and conditions for the following crop year.

Farm Lease Termination:

• Iowa Code 562.6: Amended in 2016 to clarify that

whether the lease is oral or written, the termination notice must be in writing!

• Notice cannot be contained within the lease – it must

be a separate written notice.

• Serve written notice on or before September 1 (this

terminates the current lease on the following March 1).

• Serve in person (have them sign the notice and keep

a copy); or by Certified US Mail (keep copy of receipt, return receipt optional); or by publication if neither in- person or mail can be accomplished.

If you want more in-depth information on agricultural legal issues . . .

• Visit ISU’s Center for Ag Law & Taxation (CALT) and

click on The Ag Docket to find articles on various positions of ag law related to farmland leasing.

• Consult with your own legal adviser.
• www.calt.iastate.edu

Turn to to page 37 in your r book

• We’ll look at the 2019

Cash Rental Rate survey – and walk through some calculations and ways to think about how to arrive at a number that is fair to both the Owner and the Producer.

• When you have time,

read through this page that explains the survey methodology and information.

Overall – steady to slight declines in average rents reported. CRD#9 showed slight increase.

www.card.iastate.edu/tools/ag-risk/cash-rental-rates/

Interactive Resource Tool

8/2/2019 18 We’re focusing on counties in Crop Reporting Districts 2 or 3

Average/Typical Cash Rents for Corn & Soybean Acres – p 38

Estimated Costs of Production Page 68

Released late December or early

January each year

Numbers from several sources:

 Iowa Farm Business Association  ISU Department of Ag & Land Stewardship  Survey of input suppliers around Iowa  Production and costs data from the Departments of Economics, Agricultural and Biosystems Engineering, and Agronomy at Iowa State University  Guidelines, planning purposes, costs can vary by farm.  Land, Inputs, Machinery, Labor

Example— page 69: Review the input categories – which include machinery costs, labor, and cash rent equivalent.

Plan Planning Ah Ahead for 2020

• Expect 2020 crop cost estimates to be similar to 2019
• Crop futures prices indicate 2020 could be another potential

year for tight profit margins

• Operators should scrutinize most expenses!

– Variable Costs: machinery & equipment repair, hired labor and crop inputs (especially seed, fertilizer, crop protection) – Fixed Costs: land (including cash rent), machinery & equipment and family living expenses. 2019: Losses will be common for tenants on cash rented land; especially where yield losses and/or lack of pre-harvest marketing

• ccurred.

Fixed Cash Leases Determining a “Fair” Rental Rate

8/2/2019 19

On Ag Decision Maker – find interactive Excel Spreadsheet

• - input

variables, estimate cash rents.

• Page 76: Computing

Cropland Cash Rental Rate

• We’ll walk through

calculations – 4 different bases for cash rent calculations:

• 1. What others are

charging

• 2. Average rent for

production (yields)

• 3. Average rent for

CSR

• 4. Return on Value

– Plus consider other factors & flexible methods

Farmland Fact Finding

• 1. Land value estimate for tillable acres ($/acre)
• 2. Number of Tillable Acres (If you don’t know, check

county USDA FSA Office: Form 578 completed annually)

• 3. Corn Suitability Rating? (CSR/CSR2) (See County

Assessor's Office or NRCS Soil Survey)

• 4. Special features? Drainage issues, irregular

field shapes (See tile, terrace maps, aerial photos)

• 5. Most recent 5-Year Actual/Average Yields on

that farm (Corn & Soybeans).

Source: Johnson, ISU Extension, May 2011

Do you know the yields on your parcels – whether you’re the landowner or the producer/tenant? See page 65:

Location: Winneshiek County Tillable Acres in parcel: 75 Acres Corn Yield: 178 bu/Acre Soybean Yield: 46 bu/Acre These are the yields on that farm/parcel – ideally, a 5-year rolling average. Corn Suitability Rating: 82 CSR2

Let’s take an Example . . . a fictional parcel in Winneshiek County: Method #1: What are others charging

• r paying?
• Rumors often inaccurate.
• Compare to many others,

not just one

• Seemingly small

differences in land quality can make a big difference in appropriate rents.

8/2/2019 20

►Sta tart a t at t page 38 to to fi find th the appropria riate te Di Dist strict rict page (1 (1, 2, 3 etc tc) ►Ex Examp mple parcel in Winnesh shiek–p41 p41 ►Determi mine Overall as s well as s High, Middle, Low averages s for county ►Determi mine where your parcel fi fits ►Sel Select an appropriate fi figure fr from m the su survey y informa mation ►Note on “Example” parcel – CSR2 CSR2 is s high, but yi yields s a little below aver erage ge.

Method ethod #1: 1: Typical pical Cas Cash h Rent ent

p 41

Method #1: Typical Cash Rent

. . . continued . . . .

• “Example” parcel: CSR2 (82) is higher than

county average (78)

• Yields (178 & 46) are lower than county

average (194-corn; 54-beans).

• Winneshiek County “high quality” rent

averages $268, medium quality rent is $232.

• Average ($268 + $232) /2 = $250
• We’ll use $250 as a “typical” rent for this

parcel, based only on the ISU survey.

• Discussion of this

“What Others are Charging” method can be found in your book - - -

page 76

• Note the

“Potential Pitfalls”

p 41

Method #2: Average Rents per Yield (corn & beans)

• Corn Yield calculation
• Parcel’s average corn yield = 178 bu/A
• Times rent per bushel of Corn yield

$ 1.20

• Average Rent for Corn Acres:

$ 213.60

– 178 X $1.20 = $213.60

• Soybean Yield calculation
• Parcel’s average bean yield = 46 bu/A
• Times rent per bushel of bean yield

$ 4.31

• Average Rent for Bean Acres:

$ 198.26

– 46 X $4.31 = $198.26

8/2/2019 21 Method #2: Average the corn & bean calculations 

• Average Rent for Corn Acres:

$ 213.60

• Average Rent for Bean Acres:

$ 198.26

• ($213.60 + $198.26) / 2 = $205.93 ($206)
• Average Rent, Corn & Soybean Acres: $206
• Discussion of

this “Average Yields” method can be found in your book - - -

page 76

p 41

Method #3: Corn Suitability Rating calculation

• Corn Suitability Rating calculation
• Parcel’s CSR2 = 82
• Times rent per CSR index point $ 2.99
• Average Rent for Corn Acres:

$ 245.18

– 82 CSR X $2.99/CSR point = $245.18

– Rent based on CSR2 only = $245

• Discussion of

this “Corn Suitability Rating” method can be found in your book - - -

page 77

Method #4: Rent based on Return

• n Value/Investment
• Market value of cropland/parcel

= $/acre

• Winneshiek County average:

$6,791 (ISU Survey-Nov 1, 2018)

• “My” Parcel value? = $7,200
• You can pick any number you think is

reasonable—based on data.

• My Desired return on value =

2.9% --Where did this # come from?

• $7,200 X 2.9% = $208.80/acre

($209)

8/2/2019 22

2.9% Return on Value?—where does that come from?? See your book – Page 49 Check the column – Rent as % of Value

• Discussion of

this “Return on Investment” method can be found in your book - - - page

77

Average of all 4 Methods

Method 1: Typical Cash Rent $ 250 Method 2: Average Rent per yield $ 206 Method 3: Average Rent per CSR2 Point $ 245 Method 4: Return on Investment/Value $ 209

$910/4 = $227.50 Average $227.50 /acre

$227.50 /A X 75 Tillable Acres =$17,062.50 But – we don’t stop here. Consider . . . .

Overall Average Method

See p37 p37 in Leasing book: book: Consider a 5th method:

• Calculation based
• n a share of the

Gross Crop Revenue.

• Projected yields X

crop prices to arrive at an estimated gross crop revenue.

• Page 77

Consider costs of crop production:

• Producer must

look closely at all categories.

• Landowners must

understand these costs – and that cash rents are an important aspect

• f the overall

costs.

Page 64: ISU Estimated Costs

8/2/2019 23

• In your book

(p79) and on AgDM – there is a Cash Rent Worksheet.

• Flexible rents?



• See also p83 for

a flexible rent worksheet.

• Cash rent terms should be written into the lease –

see spaces in the example forms. p84

• Flexible lease terms should also be included in the

lease agreement. (See long” form lease on AgDM).

Ad Additional ditional Methods ethods of

• f F

Far armland mland Leas Lease e Valua aluation tion ? – See ee your

• ur

bo book

• k on
• n pa

page 80 ge 80—Fle lexib xible le Far arm m Leas Lease e Ag Agreements eements:

► Share of Gross Revenue ► Base Rent Plus Bonus

Consi sider a Crop Sha Share Equ Equiva valent Method: See book page 78 78 for disc scussi ssion and an examp mple.

• Crop Share

Equivalent method is discussed on page 78.

• This requires

excellent, open communication

• - but can be a

very fair method of setting the rent.

8/2/2019 24 Crop Share Equivalent Rent

Page 78

Base Rent plus a Bonus – page 85:

Other Flexible Cash Rent Examples:

• File C2-22 on

Ag Decision Maker 

Other Resources – page 99

• f Your

Book

Questions?

Thank-you! Please contact ISU Extension

with your Farm Management questions!

Melissa O’Rourke

B.S., M.A., J.D.

FARM & AGRIBUSINESS MANAGEMENT SPECIALIST

Housed at ISU Extension—Winneshiek County in Decorah

www.extension.iastate.edu/agdm morourke@iastate.edu Office phone: 563-382-2949

www.extension.iastate.edu