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Considering different leasing arrangements

Crop share, fixed cash rent, and flexible cash leases on agricultural land have advantages and disadvantages. Michael Langemeier, an ag economics professor with Purdue University, says landowners and operators should consider different options for the 2021 growing season.   

“I just encourage people to look at a flexible cash rent lease—it’s a way to reduce the market cash rent down to the base,” he says.

He says flexible cash lease arrangements provide a base cash rent plus a bonus, which typically represents a share of gross revenue in excess of a certain base.

Langemeier says the crop share lease is not as attractive right now.

“Because there is quite a bit of uncertainty and risk in agriculture right now,” he says.  

In crop share arrangements, crop production, government payments, and crop insurance payments are shared between the landowner and operator. It also typically includes sharing a portion of crop expenses.

Langemeier says the main thing to consider is risk.

“If you’re really relying on that cash rent to pay bills then you probably want to stick with the fixed cash rent,” he says. “However, if you’re willing to take a little bit more risk and you want to get in on potential higher gross revenue that may occur down the road then perhaps look at the flexible cash rent.”  

Considering a case farm in west central Indiana, Langemeier says the average net returns to land from 1996 to 2019 from a landowner perspective were similar among these three lease arrangements. The flexible cash lease mimicked the ups and downs of the crop share lease, but the upward and downward spikes for the flexible cash lease were less pronounced than the crop share lease.