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Flexible Rents Make Sense In Long-Term Settings

Flexible Rents Make Sense In Long-Term Settings
How will you handle fertilizer on cash-rent farms?

After listening to Lance and Del Unger, Sullivan, talk about using flex leases of various types with some landowners at the Farm Management Tour, one person in the audience had a question. He was none other than Howard Doster, former Purdue University ag economics professer of now an independent farm management consultant and coach. He works with his wife, Barbara, also retired, who taught in the Purdue University School of Business.

The Ungers believe in applying as much fertilizer as the crops remove. Their goal is to be least cost per bushel producers, not least cost per acre producers. So they apply lots of fertilizer, even on some rented land. Part of that land is cash rented. Today, they are pushing toward more flex leases with their landowners. The landowner gets a set payment guarantee to him or her, then has bonus bushels to sell if the crop produces above a set, reasonable level.

Doster's question is what do people in such situations do about making sure they don't spend lots of money on fertilizer on rented land that they might not get to get the value from. That could happen if the landowner decides to lease to someone else in the future.

Doster, a thinker and creator of ideas, is kicking around possible ideas for those in such a situation. Two possible options are obvious. On would be to insist on a multi-year lease. That would allow them to reap the benefit of the fertilizer they spend money on to be applied on someone else's land.

The only problem with that theory is that if they continue applying large amounts of fertilizer every year, they still will have considerable money tied up in fertilizer in the year when the landowner shifts to a new tenant, even if it's after 3 or 5 years. They could avoid that by cutting back on fertilizer if they're sure that this will be the last year that they farm that land.

Another solution might be to work out some repayment plan with the landowner should the lease be terminated in the future for whatever reason. It could be possible to tie that to soil test results, crop removal and replenishment of P and K for crop removal, or both.

Stay tuned to see what ideas Doster might come up with for someone who wants to apply fertilizer for top yields, yet be sure they won't sacrifice lots of money in fertilizer left behind if they can no longer farm the land.

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