What you should know about leasing farmland

What you should know about leasing farmland

Leasing farmland is very common.

In Iowa, more than half of farmland is rented to tenants who actually farm on the land. This varies by region, according to Iowa State University Extension and Outreach. Still, it’s become typical for farmland to be leased and farmed by renters instead of being farmed by its owners.

As ISU Extension explains, the reasons for this vary, too. Sometimes retired farmers or people who have inherited farmland want to keep ownership of the land but do not want to continue farming it themselves. Other times, farmers lease their land because they have limited capital.

As leasing farm land continues to be the trend, there are many questions out there regarding the ins and outs of how leasing works.

We’ve compiled the following information that we believe everyone should know about leasing farmland.

How to determine your farmland value and lease rate

The first question you may have or issue you may encounter whenever you have decided to lease farmland is how much you should ask for in rent.

There are a few determining factors that can help you answer this question, as shared by University of Nebraska-Lincoln Institute of Agriculture and Natural Resources, including:

  • Lease rates of comparable land in the area
  • The percent of return on investment you want for the land
  • Survey data showing other rental rates
  • The percentage of gross income from the land
  • As well as others

You should also consider whether there are other assets on the land, such as buildings and grain bins, that may also affect a lease rate. A UNL survey showed grain storage was included in 31 percent of farmland leases. In 40 percent of the leases, the grain storage was rented at an additional rate.

It’s critically important that you do your research when setting a lease rate for your land. Contact an ag loan officer at an area bank, ag real estate professionals in the area and farm managers.

You will also need to know what type of lease agreement you and the tenant will be entering before setting the lease rate.

Types of farmland leases

There are several types of leases when it comes to farmland. Each has advantages and disadvantages.

Fixed cash lease

With a fixed cash lease, the tenant pays a set amount of cash per acre per year to rent the farmland and to use its resources. The landlord can put restrictions on certain aspects of how the land is used, but the tenant has flexibility outside of those restrictions.

Flexible cash lease

Unlike a fixed cash lease, the amount a tenant pays to the land owner under a flexible cash lease depends on yields or selling prices during the lease period. The landlord shares some of the risk with a flexible cash lease.

Bushel leases

Bushel leases are a form of flexible lease. With these, the tenant gives the landlord a fixed number of crop bushels as rent. The landlord then can do what they wish with the grain, whether that’s sell it, store it or use it some other way.

Crop share lease

Landowners receive a share of crop and USDA payments as a return for the land resources used when a crop share lease agreement is in place.The owner’s share can depend on crop type and land location.

Owners sometimes have more responsibility under a crop share lease. When the share is 50-50, the owner typically furnishes land and buildings and pays some costs, such as fertilizer, seed and pesticides. The owners also are normally responsible for drying, storing and marketing their share of the crop. Tenants are often responsible for labor, fuel, equipment etc.

Crop share lease agreement details vary, though.

Custom farming contract

This type of agreement involves the operator supplying labor and equipment that is needed for tillage, planting, pest control, harvesting and moving crops to storage. The landowner pays the operator a fixed payment, which can be per acre or for each operation.

The landowner pays other expenses and receives crop and USADA payments.

Learn more about farmland lease types

Read more about different farmland lease types and the specific advantages and disadvantages of each at the ISU Extension and Outreach website.

The University of Nebraska-Lincoln also has a valuable FAQ page that can help you learn more about leasing farmland.

Iowa laws affect certain aspects of farmland leases

In Iowa, state laws play a role in how some aspects of farmland leases work.

For example, some state laws determine who exactly owns all parts of a crop, including corn stover or stalks.

Under state law, farm tenancy automatically renews for another year with the exact same terms and conditions of the previous lease unless one party terminates the lease with a written notice.

State law even affects when and how termination notices should be sent in the first place to prevent a lease from auto-renewing.

These are only a few examples of how state law affects farmland leases in Iowa. You can learn more from Iowa State University Extension and Outreach.

Minnesota and South Dakota farmland leases

Though this post focuses a lot on Iowa, as fully licensed farm managers and real estate service providers in Minnesota and South Dakota, we feel it’s important to provide you with resources for leasing farmland in those states, too.

Not every state has the same laws and farmland can differ from region to region. So make sure you do your research based on the state you are located in.

Let Midwest Land Management answer your farmland lease questions

At Midwest Land Management, our staff has experience dealing with farm and leases and contracts. We can help you find answers to your questions about cash rent, bushel leases, crop share, flex leases and custom farming leases.

Whatever your goals and objectives, Midwest Land Management’s services are designed to meet your needs on each specific farm. We are proudly independently owned and always provide personal, professional one-on-one service to each of our clients.

Contact us or call (712) 262-3110 to speak to someone and get answers to your questions about farmland leases or to learn about other services we provide.

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