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Cash rent questions sometimes require creative answers

Cash rent questions sometimes require creative answers
Insight when the landowner wants something besides just cash rent.

Cash rents lag land prices in coming down when land prices sag. Purdue University Extension economists have made that clear. Land prices are soft based on Purdue surveys earlier this year. Cash rents may not be as quick to follow suit.

Related: Cash rent standoff

Some are looking for other alternatives besides cash rent. Even some landowners aren't satisfied with straight cash rent in all cases. Word of more flex rent opportunities being explored is spreading this fall.

With the often-recognized deadline of Dec. 1 for changing tenants approaching, more farmers and landowners are asking about cash rent.

Rent questions: Now is the time to nail down rental terms for land for the 2016 crop.

Here is a question from a reader. He would rather rent his land on a percentage of total income than on a cash rent basis. This would mark a change from what he has done in the past. Percentage of total income would usually mean a percentage of total revenue per acre. The landowner stipulates that he doesn't want to pay out any costs, and doesn't want to do paperwork. The land is flat and typical of the area.

The question is this: Is 40% a high, low, or reasonable return to the owner who will pay nothing but property taxes on the land?

Where did the 40% figure come from? Apparently some landowners have said that's what they are getting in similar situations.

We asked Michael Langemeier in the Purdue Center for Commercial Agriculture to help answer this question. Here his is response.

"Using long-run cash rent and share rent information, and assuming a corn/soybean rotation, an equitable share rent percentage when the landlord is not covering any of the costs except property taxes is 35%."

Traditionally in some areas where land quality isn't as good, one-third, two-third leases have been used. The tenant would pay all costs and get two thirds of the revenue. The landlord would get one-third, or 33%.

Related: Lower cash rents – but will it be enough?

One question not addressed here is who gets farm program payments if there are any? Is the landowner even willing to do that since it involves paperwork?

Overall, past tradition, current practice and expert advice seems to pinpoint the range at 33% to 40%.

TAGS: Extension
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