Flex Lease Yields and Prices
Here are some guidelines you can use.
Compiled by staff
Published: May 20, 2009
Nailing down reliable data to calculate the flex or bonus payment in a flexible cash lease can be challenging.
 Steve Johnson, farm and ag business management field specialist, Iowa State University Extension, suggests using the farm's final yield (dry weight for corn adjusted to 15.5% moisture) and either grain bin measurements, scale tickets, settlement sheets, yield monitor data, grain cart scales, etc.
"The simplest price would be the FSA's Posted County Price for October and November," he says. "With FSA shifting to a 30-day moving average of PCP in 2009, this will be pretty easy to access. However, this amount could underestimate the value of the harvested crop since it uses only the fall pricing period. I don't think the landlord should benefit from the decision of the tenant to store or sell their crop. Prices post-harvest largely reflect basis and futures market carry, and the landlord isn't paying storage or interest on the crop.
Averaging a series of harvest delivery bids as described by farm manager Tom Toohill appearing on Page 10 of the May/June issue of Farm Futures is a good alternative.
Plan for future years
"Going forward, I would begin writing cash rental agreements beginning in 2009 that request actual yield data as required by the Farm Service Agency's ACRE program for Actual Farm Yield Annually," says Johnson. "This will give you a 'one up' on enrolling this farm in the new 2009 Average Crop Revenue Election program. You might also consider receiving cash rent on FSA Certified Planted Acres collected each summer by FSA from your tenant. Thus cash rent could adjust to actual planted acres that year (used by FSA to determined yield per planted acre) and also recognized in the new ACRE program calculations."
The yield would then match up with the Actual Farm Yields by crop as required for the new ACRE program. As a landlord, request a copy of the Acreage Certification (FSA Form 578) by July 15th and the Actual Farm Yields (likely a new FSA form) by December 15th. Collect the first half base rent prior to planting and the second half of base, plus the flex payment on or before December 20th.
"This would put a lot more transparency into planted acres, yields, costs, etc. and allow for this flexible cash lease to continue for all four years of the farm program (2009, 2010, 2011 and 2012)," says Johnson. "The tenant knows he'll get to farm your farm, thus he can work on ACRE enrollment and banking fertility, matching machinery/equipment and benefiting from pre-paid expenses. The December cash rent plus flex payment likely matches the tenant's income tax strategies and keeps the landlord's income in one taxable year.
The landlord is guaranteed a base rent and potential flex payment annually. The landlord would receive a copy of the FSA planted acreage form annually in addition to a copy of the new Actual Farm Yields form. The lease could include an ending date of Feb. 28, 2013. A new lease would need to be renegotiated for 2013 and I'd suggest legal termination in the state of Iowa on or before Sept. 1, 2012.
If crop production costs appear to be too high or too low annually, then changes could be made to: base rent, maximum rent and the flexible cash lease triggers that more accurately reflect cost of production," concludes Johnson.
Permalink: Click here
Tagged: farm, FSA, Harvest, farm futures, Extension
|