George Haynes, Ph.D. MSU – Bozeman Agricultural Policy Specialist.

George Haynes, Ph.D.MSU – Bozeman Agricultural Policy Specialist

Cropland Leases◦ Crop share lease principles◦ Cash lease principles

◦ Example

Livestock Leases◦ Livestock lease considerations

◦ Example

Summary

Crop-share lease

◦ 1/3 – landlord ---------------2/3 – tenant

Livestock lease

◦40% – cow owner ----------- 60% - caretaker

Is it written? (Montana handshake) Is the crop shared in the same % as

resource contributions? Does it encourage proper amounts of yield

increasing expenses? Does the tenant have potential for profits? Does it promote conservation? Does it plan for needed improvements? Are lease duration and conditions

understood?

O'Brien, D.M. Kansas State Research and Extension

Variable expenses that are yield increasing should be shared in the same proportion as the crop share.

◦ Goal – maximize net returns for the operation

All crops are shared alike.


Both parties should share in total returns in the same proportion as they contribute resources.

◦ Landowners: Land Crop inputs Management (perhaps)

◦ Tenants Labor Machinery Crop inputs Management


When new technologies or crops are adopted, leases often need adjustment.◦More intensive crop rotations

More reliance on herbicides and less on tillage

New GMO seed/herbicide


Tenants should be compensated at lease termination for the unexhausted portion of long-term investments.◦Fences, buildings, irrigation, etc.

Current (ongoing) communication is essential between the landlord and tenant


Risk & rewards are shared

Management may be shared

Less operating capital “tied up” for tenant

Tax management timing opportunities with crop sales and input purchases

Landowners may prove material participation (versus cash rental)◦ Social security implications


Variable landowner income

More records

Landowner may participate in marketing and management

Need to keep reviewing lease arrangements for equity


Landowners◦ Fewer farm decisions◦ No price or yield risk◦ No crop marketing decisions◦ No material participation

Tenants◦ More control of decisions◦ More income for best farmers◦ Benefit of windfall profits


More difficult to renegotiate

Landowners◦ No “good year” windfall profits◦ Few income tax management opportunities◦ Risk of tenants “mining” land◦ Harder to establish Social Security base

Tenants◦ Have all yield and price risk◦ Higher expenses / higher lending needs


See Handout◦Methods and Procedures of Estimating Rent for Crop Share and Flexible Cash Leases

Tenant LandlordTotal Ownership and Operating Costs by Share $334,326 $103,047

Total Costs For Both Landlord and Tenant $437,373

Percent of Total Contributions Made be Each Party 76.4% 23.6%

Total Acres Leased 2500Total Revenue From All Enterprises As Calculated Above $646,020

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RUN THE NUMBERS!!!DO NOT COUNT ON

TRADITION

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Based on cost contributions approach

◦ Both parties should share in total returns in the same proportion as they contribute resources.

Cow owners (in our example) Livestock ownership Other inputs

Tenants Feed Livestock care and handling Facilities and equipment Ownership

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Length of Lease◦ Long Enough To Provide Continuity in The Livestock

Herd (Operation) How Are Replacements Provided How and When Are Cows Culled and Sold How and When Are Calves Sold Death Loss Percentage Allowed Incentives for Lower Death Loss and Higher

Calving Percentage Provisions for Drought and Disasters

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If replacement are raised and the tenant (person running the cows) pays for development costs.

Do NOT include depreciation for the cow herd in the lease calculations.◦ Individual cows are “wearing out” but the asset (cow

herd) is not depreciating◦ Tenant is paying the costs of developing replacements

Revenue shared is …?????

See handout◦ Cost of production estimates for commercial cow-

calf enterprise

Lease Percent

based on cost share

Cow Owner share of Total Cost of Production 16.76%Tenant's Share of Total Cost of Production 83.24%

Crop-share lease

◦ 1/3 – landlord - - - - - - - - - - 2/3 – tenant

Livestock lease

◦ 40% – cow owner ----------- 60% - caretaker

Volatility in crop/livestock markets makes procrastination in lease reviews very costly

George Haynes, Ph.D. MSU – Bozeman Agricultural Policy Specialist.

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