Flexible cash leases are gaining in popularity. Some flex lease formulas trigger a cash bonus when actual gross revenue exceeds a pre-agreed gross revenue. The formula and spreadsheet that Paul Stone, Bowling Green, KY, developed, featured here, triggers a bonus when gross revenue exceeds the established cost of production inputs per acre. The bonus is a pre-agreed percentage of the amount gross revenue exceeds production costs.
The lease has both a minimum and a maximum rate per acre. In good years, the bonus will boost the final cash rent closer to the maximum.
Stone’s flex rent spreadsheet first calculates the input costs on a per acre or per farm basis. The input protection value includes the minimum cash rent, plus all other projected expenses, seed, fertilizer, chemical, fuel, crop insurance, operating loan interest and other variable expenses from current year budgets necessary to grow, harvest, haul and dry the crop on a per acre or per farm basis.
Revenue is acres rented, times actual yield times the cash price. The price Stone uses is the average of cash prices on the third Friday of April, June, November and January after harvest. The bonus payment is due after the final price is determined.
The spreadsheet calculations are straight forward. In the negotiating process the owner and operator need to agree on the minimum and the maximum cash rents and the bonus percentages. They need to agree on how yields and prices used to calculate gross revenue will be determined.
They also need to agree on the level of input costs that will be used as the bonus trigger. Previous year’s records should provide insight into fixed costs for machinery and drying facilities. The operator’s biggest challenge may be explaining to the land owner that the level of inputs to be covered is reasonable. You can contact the author at (270) 997-0687 or email at email@example.com.
We're featuring the spreadsheet as our Farm Futures spreadsheet-of-the-month. You can download it by clicking on the link below.
Do you have a spreadsheet that's made a difference on your operation that you'd be willing to share with other readers? Drop us a line at FarmFutures@farmprogress.com with a description of the spreadsheet. We'll pay $75 if we feature your farmer-written noncommercial program as our Spreadsheet of the Month.