Farmland rental rates have increased dramatically in the last few years as commodity prices have reached record levels and remain high compared to historic averages.
When grain prices go lower, rental rates often lag and do not decline as rapidly. This can leave farmers with high rental rates locked in which will create a loss for the year.
One way to share the risks and rewards with the landlord is to enter into a flexible land rental agreement. In Minnesota over 20 percent of all cash leases are flexible.
Flexible leases have several advantages:
A common type of flexible agreement is a Share of Gross Revenue. What have the Minnesota cash rents been compared to the percentage of gross revenue?
The table below uses FINBIN data for farmers across southern Minnesota in the Adult Farm Management programs from the University of Minnesota and Minnesota State College and Universities. Average prices and yields and cash rents paid in the Southwest, South Central and Southeastern Minnesota were used for this analysis.
Average southern Minnesota cash rent as a percentage of gross revenue| Year | Avg. cash rent paid per acre | Avg. gross rev. $/acre - corn | Avg. gross rev. $/acre-soy | Avg. cash rent-% of gross rev. - corn | Avg. cash rent-% of gross rev. - soy | Corn price | Soybean price |
|---|---|---|---|---|---|---|---|
| 1995 | 84.51 | $330.47 | $246.69 | 26% | 34% | $2.74 | $5.78 |
| 1996 | 91.17 | $329.89 | $282.20 | 28% | 32% | $2.46 | $6.84 |
| 1997 | 94.89 | $321.49 | $272.32 | 30% | 35% | $2.37 | $6.37 |
| 1998 | 97.04 | $287.29 | $254.93 | 34% | 38% | $1.77 | $5.15 |
| 1999 | 95.61 | $269.76 | $228.68 | 35% | 42% | $1.73 | $5.10 |
| 2000 | 98.31 | $267.31 | $237.56 | 37% | 41% | $1.75 | $5.11 |
| 2001 | 97.89 | $228.38 | $208.52 | 43% | 47% | $1.75 | $5.15 |
| 2002 | 101.57 | $344.09 | $258.52 | 30% | 39% | $2.18 | $5.31 |
| 2003 | 103.74 | $358.05 | $246.81 | 29% | 42% | $2.23 | $6.85 |
| 2004 | 105.9 | $351.40 | $228.30 | 30% | 46% | $2.00 | $5.45 |
| 2005 | 110.4 | $375.47 | $300.10 | 29% | 37% | $2.03 | $5.65 |
| 2006 | 114.83 | $511.27 | $316.05 | 22% | 36% | $2.90 | $6.05 |
| 2007 | 125.44 | $611.21 | $472.76 | 21% | 27% | $3.68 | $9.52 |
| 2008 | 146.55 | $681.06 | $432.32 | 22% | 34% | $3.89 | $9.65 |
| 2009 | 158.86 | $716.55 | $474.32 | 22% | 33% | $3.74 | $9.66 |
| 2010 | 168.25 | $884.41 | $564.02 | 19% | 30% | $4.68 | $10.87 |
| 2011 | 169.32 | $893.43 | $462.95 | 19% | 37% | $5.66 | $11.40 |
| 2012 | 199.88 | $1182.80 | $693.11 | 17% | 29% | $6.50 | $13.77 |
| 2013 | 243.47 | $748.00 | $593.99 | 33% | 41% | $4.45 | $12.63 |
| 2014 | 241.36 | $639.96 | $476.24 | 38% | 51% | $3.93 | $10.15 |
| 2015 | 231.92 | $723.29 | $514.71 | 32% | 45% | $3.52 | $8.60 |
| 2016 | 226.85 | $683.96 | $575.14 | 33% | 39% | $3.34 | $9.39 |
| 2017 | 212.57 | $679.36 | $498.06 | 31% | 43% | $3.22 | $9.22 |
| 2018 | 214.84 | $621.16 | $468.95 | 35% | 46% | $3.47 | $8.71 |
| 2019 | 208.00 | $647.69 | $523.98 | 32% | 40% | $3.64 | $8.60 |
| 2020 | 208.06 | $829.56 | $602.89 | 25% | 35% | $4.05 | $10.32 |
| 2021 | 218.42 | $1,103.63 | $735.59 | 20% | 30% | $5.59 | $12.93 |
Corn cash rental rates were an average of 30 percent of gross corn revenue for the last 10 years from 2012 through 2021 crop years. With soybeans, the average was 40 percent of gross soybean revenue for the same 10 years.
The percentages were much lower due to higher prices and higher gross revenue amounts from 2006 through 2012. This adjusted higher in 2013.
The last two columns in the table show the average price farmers received in Southern Minnesota for the crop sold that year.
Most flexible rental agreements have a base rent component that assures the landlord some income and allows the tenants to cover expenses even after a bad year with good crop insurance coverage. Base rents vary by area, but for Southern Minnesota, the range for base rents could be from $100 to $200. Then a flexible component is added, either based on price, yields, gross revenue, or some combination of these components.
There are many ways to set up a flexible land rental agreement. The farmer and landlord should determine what both are looking for. The higher the base rent the more risk the farmer has, the lower the base rent the landlord is increasing their share of the risk with no crop insurance to protect their revenue.
Rental payments are based on the gross revenue of the farmland. The agreement can include a base payment in the crop year and a final payment after the actual yield and price are determined.
A base rent is paid and then a bonus may or may not be paid, determined by if yields exceed a base goal. Additional bushels would be shared between landlord and tenant. The bonus can also be determined by yield and price together or price alone as well.
The landlord receives a set base number of bushels with additional bushels if yields are higher than was determined for the base payment. This can also be done with a cash payment based on yield and then price at an elevator.
The rental payment is based on crop prices. Often it is an average price of the previous 12 months or a quarterly price that is multiplied times the bushels agreed to. Rental payments can be made at the quarterly price-setting times or half and half or after harvest.
The landlord and the tenant share the profit from the farmland. This agreement is similar to a 50-50 crop share lease that shares crop yields 50% to the landlord and 50% to the tenant and some of the expenses are paid by each party.
Author: David Bau, Extension educator