We have 50-50 share lease ground. It became an issue because we have crop insurance, but landlords don’t. We likely would have taken prevented planting on a few fields, but we didn’t because it would have left them with no income. To avoid a repeat, should we offer cash rent instead, or should we urge landlords to buy crop insurance?
The Profit Planners panel includes David Erickson, farmer, Altona, Ill.; Mark Evans, Purdue University Extension educator, Putnam County, Ind.; Jim Luzar, retired Extension educator and landowner, Greencastle, Ind.; and Steve Myers, farm manager, Busey Ag Resources, LeRoy, Ill.
Erickson: Insurance is a personal decision based on ability to assume risk. While crop insurance helps you manage risk, so does a 50-50 crop share lease. You can share financial comparisons with your landowners, but the decision is ultimately theirs to make. It’s likely your landowners can accept a higher level of risk due to their financial position.
Has this ever been an issue previously, or is this year the only time? Your answer will tell you how much of a problem you have and what you should do to address it.
Evans: Obviously, you can’t afford this situation year after year. However, the probability of prevented planting again the following year would be small. Still, there is risk should there be delayed planting or some other missed insurance benefit you want to mitigate. Sitting down and meeting with your landlords would certainly be the most important first step.
The knowledge and understanding of landlords will vary considerably. Meet each where they are with their understanding for the best relationships and positive advancements. Cash rents inherently give you more risk than a 50-50 lease, should there be other issues that limit yield but would not trigger insurance benefits.
Luzar: Most 50-50 crop share discussions note that crop insurance premiums are paid by each respective party. This wild cropping year saw some productive land not able to overcome excessive wetness, and landlord share income was at risk. In 2012, some landlords in western Indiana saw zero income for their uninsured crop share. Retired farmer-landlords sometimes get it that their crop share income isn’t automatic.
Prevented planting is a component of the insurance policy. You were considerate in thinking of the landlord’s potential income. This scenario certainly would test one’s communication skills with landlords. Would a very low-income year result in you losing the lease? You might have optimized a tough situation for future concerns.
Looking ahead for 2020, review your 50-50 leases and see where that takes you in landlord discussions. If you continue the 50-50 lease, explain your risk management planning and see what risk preference they have with respect to crop insurance. If they self-insure, they need to be mindful of potential outcomes.
Myers: Time will tell which was the correct decision to make in this unprecedented year. Ask landowners why they don’t take crop insurance currently. Perhaps they have a logical reason or simply didn’t understand what options are available. Cash rent is an option, and that has its own full set of pros and cons for both landowners and operators. Consider a hybrid with a 50-50 lease, and you pay their crop insurance.