Farm Leasing Arrangements

Transcription

1 Farm Leasing Arrangements July 2014 The Farm Leasing Arrangements booklet offers many farmland leasing publications and resources in a single document. It is designed for use by farmland owners, tenants, and agricultural professionals. The book complements farmland leasing meetings, the Farm Leasing Arrangements online course, and provides a comprehensive set of current leasing publications.

2 Table of Contents Improving Your Farm Lease Contract 3 Iowa Farm Leases Legal, Economic, and Tax Considerations (footnotes not included) 13 Reducing Nutrient Loss: Science Shows What Works 26 Surveys Farmland Value Survey (Iowa State University) (2013) 30 Farmland Value Survey (Realtors Land Institute) (April 2014) 35 Cash Rental Rates for Iowa 2014 Survey 37 Iowa Farmland Rental Rates, (USDA) 49 Farm Building Rental Rate Survey (North Central Farm Management Extension Committee) 50 Iowa Farm Custom Rate Survey (2014) 52 Survey of Iowa Farm Leasing Practices 54 Worksheets Computing a Cropland Cash Rental Rate 62 Flexible Farm Lease Agreements 66 Data Cash Corn and Soybean Prices (July 2014) 70 Iowa Corn and Soybean County Yields 72 Estimated Cost of Crop Production in Iowa Historical Costs of Crop Production 89 Iowa Production Cost Report (Bi-weekly June 2014 report) 91 Example Written Forms Iowa Cash Rent Farm Lease (Short Form) 92 Notice of Termination of Farm Tenancy 95 Appendix Leasing Glossary 96 ISU Extension Farm and Campus Farm Management Specialists 99 The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann Kress, Vice-President for Extension and Outreach, Iowa State University of Science and Technology, Ames, Iowa.

3 Ag Decision Maker Improving Your Farm Lease Contract File C2-01 A guide to help you better understand the business of farmland leases Importance of Leasing More than half of Iowa s farmland is rented to tenant operators. In parts of central and northern Iowa half to two-thirds of the land is tenant-operated. On the other hand, in south central and southeast Iowa, slightly less than one-half of the land is farmed by a tenant. The trend over the past several decades has been for more of Iowa s farmland to be leased rather than operated by its owners. In many cases, retired farmers or their heirs wish to continue to own farms, but do not want to operate them. Farmers with limited capital also find that they can more easily reach an efficient scale of operation by renting rather than owning. Leasing farmland involves a business agreement between the owner and the operator. A farm lease is a legal instrument that describes that agreement. The lease provides the basis for combining the landlord s and the tenant s resources of land, labor, capital, and management to efficiently produce farm commodities. Variations in leasing arrangements occur because of the differences in the productive capacity of the land and improvements, the contributions made by each party, and the personal goals of the tenant and owner. Rental terms need to be revised periodically to keep them up to date. The lease agreement also protects the legal rights of all parties involved. Reasons for Farm Leases Land is an expensive resource. A large capital investment is required to purchase enough land to provide the farm family an opportunity to earn a satisfactory living. A typical full-time farmer in Iowa today operates more than 800 acres. The average value of Iowa farmland is over $8,000 per acre. Therefore, the land investment for a commercial farm today can easily exceed $6 million. Many young farm families cannot afford to purchase farmland because they do not have enough capital for a down payment, or the income will not be sufficient to meet the financing payments. Young families often have labor, some operating capital, machinery and management ability that they wish to use in a farm business to produce income for living expenses and future investment or debt reduction. If they are not in a position to purchase land, they can rent land and build equity for a future purchase. A common trend is to operate a combination of owned and rented land. This allows the operator to have a home base with machinery and grain storage while leasing additional acres. Many individuals or institutions that own land are looking for someone to farm it to provide a return on their investment as well as maintain its productivity. Land ownership can also provide a hedge against inflation through appreciation in land values over time. Many landowners are former farm operators who have retired and who wish to retain their investment in the land for security, retirement income, income tax deferral, and sentimental reasons. Common Types of Leases The four most common types of leases used in Iowa are the fixed cash lease, the flexible cash lease, the crop-share lease, and the custom farming contract. The common terms of these leases are described below. Fixed Cash Lease Under a fixed cash lease the tenant pays a given amount of cash rent per acre per year for the use of the farm resources. The landlord may put some restrictions on what crops can be grown, or what tillage, conservation and pest control practices can be used. Other than this, the tenant has a free rein in planning the crop and livestock production program FM 1564 Revised July

4 Page 2 on the farm unit, and receives all the crop and USDA commodity program payments. Flexible Cash Lease A variation of the fixed cash lease is a flexible lease, in which the actual rent to be paid depends on the actual yields attained and the selling prices available during the lease period. This ensures that the rent paid is in line with the profitability of the crops grown that year. Sometimes government payments and crop insurance benefits are also included in calculating the gross revenue. The landowner shares some of the risk of low yields or declining prices, but also shares in the extra profits when prices and/ or production exceed expectations. Some flexible leases also take into account crop input costs when determining the final rent or bonus. Publication FM 1724 (AgDM C2-21), Flexible Farm Lease Agreements has more details. Crop-share Lease The distinguishing characteristic of a crop-share lease is that the owner receives a share of the crop and USDA payments as a return for the land resources used, but no cash payment. In Iowa, a typical division for corn and soybeans is for the landlord to receive one-half of the grain. A recent variation is a crop-share lease with a small cash payment to offset some of the seed technology fees or reduced tillage. In other regions where farmland values are lower, the owner may receive only 25 or 30 percent of the crop. The owner s share of a hay crop varies, depending on how the costs for establishing the seeding were shared. In some cases, the tenant pays a cash rent for land in pasture or hay. There may be a separate rental charge for a good set of buildings or grain storage facilities. The owner normally furnishes land and buildings and pays half of the costs of inputs such as fertilizer, seed, and pesticides when the crop is divided Owners are usually responsible for drying, storing and marketing their share of the crop, as well. The tenant usually furnishes all the labor, fuel, equipment, and the other half of the shared expenses. Many variations on sharing of expenses Improving Your Farm Lease Contract exist, however. Publication FM 1811 (AgDM C2-15), Survey of Iowa Farm Leasing Practices, provides more details about the sharing of expenses under a crop-share lease. Custom Farming Contract Under a custom farming contract the operator supplies all the labor and equipment needed to perform tillage, planting, pest control, harvesting and storing of crops. The landowner pays all other expenses, and receives all the crop and USDA payments. The custom operator receives a fixed payment per acre from the owner, or a fixed payment for each operation performed. Some agreements pay the custom operator a bonus for meeting certain planting date or yield goals. Others provide for the operator to receive a percentage of the crop instead of a cash payment, generally from 20 to 25 percent. This is sometimes referred to as a net share lease. If the custom operator takes responsibility for purchasing and delivering crop inputs, the cash payment or share of the crop is generally higher. Publication FM 1823 (AgDM A3-15) Custom Farming: an Alternative to Leasing has more details. Advantages and Disadvantages of Different Types of Leases All types of leases have advantages and disadvantages to each party. The tenant and owner should consider them before choosing the type of lease and the terms that should be incorporated in it. Fixed Cash Lease Advantages of a fixed cash lease are: The lease is simple with relatively few chances for misunderstanding. The owner is relieved of making day-to-day operating decisions. The owner has very little financial risk. The tenant has maximum freedom in planning and developing the cropping and livestock programs. The tenant has fewer records to keep when multiple landlords are involved. 4

5 Improving Your Farm Lease Contract Disadvantages and potential problems of the fixed cash lease are: A fair cash rental rate may have to be renegotiated each year. Cash rents are likely to be too low in times of rising prices and increasing yields, and too high in times of low prices or low yields. Selling prices and production costs may be higher or lower than anticipated when the rental rate is set. Tenants are required to supply more operating capital. Tenants bear all the risk of production shortfalls. Flexible Cash Lease Advantages of a flexible cash lease are: The amount of rent to pay increases or decreases automatically from year-to-year as prices and yields change. The need for the owner and tenant to renegotiate the rental rate each year is significantly reduced. Disadvantages and potential problems of the flexible cash lease are: Both parties must agree on a formula for setting the cash rent each year. Both parties must agree on how to determine the prices and yields to include in the formula. There is uncertainty about how much the tenant will pay and the owner will receive each year. Crop-share Lease Advantages of a crop-share lease are: Risks associated with price and yield variations are shared. The owner is more involved in making decisions and marketing the grain during the year. Both parties share the benefits from adoption of yield-increasing technology, or unexpected high yields or prices. The owner receives more information about yields and inputs used each year. A second USDA payment limit is created. Disadvantages or potential problem areas of a cropshare lease include: The landlord and tenant must agree on how production expenses will be shared. Page 3 Adjustments for sharing costs for storage and drying facilities, herbicides that reduce field work, or fertilizer and pesticide application may have to be made. The cropping plan to be followed and whether or not the farm participates in government programs must be agreed on. Added cash rent for the use of buildings and storage facilities may have to be negotiated. If the owner s and tenant s grain is stored in the same bin, marketing decisions have to be made jointly. The landowner may be considered a material participant, and farm income will be subject to self-employment taxation. Custom Farming Contract Advantages of a custom farming contract are: There is very little financial risk for the operator. The owner benefits from any unexpected high prices, yields or government program payments. Only one party is responsible for marketing grain and making production decisions. Agreements are usually fairly simple to negotiate. Disadvantages and potential problems of custom farming contracts are: The owner bears all the risk of low yields or prices, or high input costs. The number and timing of field operations to be done each year may have to be modified, depending on weather conditions. The operator has to set priorities among the custom farmed land and other rented or owned land. The owner must communicate to the custom operator the cropping system, fertility program, and type of pest control to be used. Crop inputs such as seed, fertilizer and pesticides must be purchased and delivered in a timely manner. The landowner may be considered a material participant, and farm income could be subject to self employment taxation. 5

6 Page 4 Key Areas of Decision Making There are certain key areas in developing a farm lease that should be given very careful consideration by both parties. The answers to these questions will depend on the intent of the parties in the leasing arrangement and the bargaining position of each. Sharing Costs A question that frequently comes up is the landlord s responsibility in sharing herbicide costs for weed control that may be a partial or complete substitute for cultivation or other tillage methods. Most landlords agree to furnish half of the cost of these materials under a crop-share lease. Some feel that where no-till or minimum tillage practices are used they should not have to pay a full 50 percent of the cost of herbicides. See publication FM 1811 (AgDM C2-15), Survey of Iowa Farm Leasing Practices for more information. There are many variations in how the costs for custom application of fertilizer and pesticides are divided. Therefore, it is advisable to discuss these items in advance and state in the lease whether or not the landlord will share in any of these costs. Harvesting How will costs associated with combining, drying, transporting, and storing crops be shared under a share lease? When the corn drying facilities are part of the rental unit, the landlord often furnishes the dryer and storage facilities. If the corn drying unit is portable it may be jointly owned, or either party may own it and charge the other party an established amount for its use. The fuel and power costs for drying are normally shared in the same proportion as the crop is divided. In some cases the tenant is paid extra for delivering the owner s share of the crop from farm storage to an elevator or processor. Removing Corn Stover Under Iowa law a farm tenant has the right to remove stover (stalks, leaves, cobs) left in a field after harvesting unless the lease states otherwise. Stover can be used as feed or bedding, or sold off the farm. Tenants and landowners can specify a different arrangement in a written lease, or limit the amount of stover removed. Improving Your Farm Lease Contract Maintaining Fertility Farm owners often worry about whether a tenant will maintain or improve the level of fertility on the farm. Regular soil testing can establish whether additional nutrients are needed. While tenants should be discouraged from mining the soil, applying additional fertilizer (especially phosphorus and potassium) when levels are already testing high or very high not only wastes money, it contributes to nutrient run off and downstream pollution. Applying lime to soils contributes to productivity by controlling the acidity of the soil. Since lime applications usually last for several years, their cost is usually the responsibility of the landowner, and is reflected in the rental rate of the land. Tenants may pay for the lime and pro-rate the cost of the lime over future years with the landlord agreeing to reimburse the tenant if the tenant doesn t rent the land in future years. Some long-term crop-share tenants may divide the cost of lime. Controlling Weeds and Maintaining Buildings Weed control in crops has improved considerably in recent years with the introduction of herbicide resistant seeds. However, many landowners also place a high value on controlling weeds along fence rows, in ditches and around building sites. Indeed, cutting or spraying weeds classified as noxious is required by law. Iowa Code Section (amended 2010) prohibits mowing ditches before July 15, except within 200 yards of dwellings and in certain other situations. Maintaining the appearance and functionality of farm buildings and fences is often a high priority for landowners, as well. Even if some buildings provide no substantial benefits to the tenant, he/she may be able to provide labor and machinery for carrying out repairs at a considerable savings to the landlord. Owners should generally pay for materials and supplies, especially if the tenant is providing labor. While such practices may have little economic payoff for a tenant, they can contribute to a longer and more harmonious leasing agreement, and often require a minimal amount of time and cost. 6

7 Improving Your Farm Lease Contract Financing Improvements There are three ways to handle the costs of making permanent improvements to a farm property such as buildings, storage structures, conservation structures, fences, waterways, and drainage tile. Option 1. The landlord provides the improvement as part of the rental agreement with an understanding that the rental rate will be increased as a result. Option 2. The cost of the improvements is shared by the landlord and tenant in some form. If the improvement is constructed on the farm, the tenant may furnish labor and machinery for the job, and the owner may pay for materials. It is useful to negotiate a provision in the lease for the tenant to be reimbursed by the landlord for the undepreciated value of the improvements if the lease period ends before the useful life of the improvement is over. Option 3. The entire cost of the improvements is paid by the tenant. As in Option 2, a provision for reimbursing the tenant for the undepreciated value of the investment is important. For more information see: AgDM C Lease Supplement for Investing in Improvements on a Rented Farm AgDM C Lease Supplement for Obtaining Conservation Practices & Controlling Soil Loss AgDM C Lease Supplement for Drainage Participating in Government Programs Most crop producers in Iowa participate in some of the commodity programs offered by the U.S. Department of Agriculture. They are usually designed to reduce price or production risk for major grain crops. Every few years new farm legislation is passed which requires landowners and tenants to make decisions about program participation. Under a cash rent lease the farm program benefits usually are paid to the operator, because that is the Page 5 person bearing the risk. With a flexible cash lease, the commodity program payment can be included in the gross revenue used to determine the rental rate each year. Under a crop-share lease the owner and tenant usually share in the program benefits in the same proportion as they share the crop. If there is a cost to participate in the program, the owner and tenant must carefully analyze the potential benefits to each party. Government program decisions can affect the rental value of a farm for several years. Conservation programs may offer short-term payments for following certain practices, as well as long-term benefits in the form of reduced erosion, increased fertility, and cleaner water. If the incentive payments do not completely offset any extra costs or reduced income to the tenant for following the conservation practices, he or she may be reluctant to participate. If the lease has only a short duration, such as one year, the long-term benefits of the practices do not offer much incentive to the tenant. The landowner may have to reduce the cash rent to offset the tenant s short-term loss of net income. Setting the Length of Lease Many farm leases are in effect for only one year at a time. In fact, in Iowa oral leases cannot be valid for more than one year. However, a recent survey showed that 43 percent of cash rent leases and 66 percent of crop-share agreements had been in effect between the same parties for more than 10 years. The maximum fixed term for a lease contract in Iowa is 20 years, but leases can be routinely renewed if both parties agree. Multi-year leases provide owners and operators with an incentive to invest in long-term improvements to the land and maintain soil fertility and conservation structures. They also avoid the uncertainty of building new relationships frequently. In Iowa, significant beginning farmer income tax credits are available to owners who rent to qualified tenants under a 2- to 5-year lease contract. In determining whether or not a lease is fair and equitable to both parties, it is necessary to consider the lease in total rather than looking only at individual provisions or sections of the lease. One 7

8 Page 6 provision in the lease may be favorable to one party, while another provision may be more favorable to the other party, and the two factors may balance out. Factors that Influence Leasing Terms Many factors influence the terms of an individual farm lease. The productivity of the land as measured by historical yields, its corn suitability rating (CSR2) index, satellite photos, drainage maps and soil type. The value of the contributions made by each party in the leasing arrangement, such as labor, land, crop inputs, machinery or management. The bargaining position and bargaining ability of each party, and the competition for rented land in the immediate area. What has been customary in the community in the past. Family considerations that cause lease terms to be highly favorable to a relative when compared with other leases, because the owners do not need as much income, want to help a child get started, or desire to keep the farm in the family. Improvements and facilities on the farm, and the condition and usefulness. Location relative to paved roads, grain processing plants, and grain buyers. The USDA farm program crop acreage bases and proven yields assigned to a particular farm. These will affect the size of some commodity program payments that are paid to the operator and owner. Incentive payments for following certain conservation practices may also be attached to the land unit. Income tax credits that may be available if the land is leased to a beginning farmer. This allows a lower rental rate to be negotiated without reducing the net return to the owner. Contracts for producing seed or other specialty crops, or to receive livestock nutrients. Access to such contracts can enhance the value of a particular property. Improving Your Farm Lease Contract Economic Considerations There are several important economic factors to consider when developing a farm lease agreement. Some of the key economic questions are: Does the lease provide a business framework for the most profitable long-term operation of the farm? Does the agreement encourage the use of the most profitable levels of capital, labor, and management in the farm business, as well as adoption of new technology? Are the returns shared between the landlord and tenant in an equitable manner when the value of the contributions made by each party is considered? Is the level of cash rent to be paid consistent with the current land market and the productivity of this particular tract of land? Is the farming unit large enough to achieve an efficient level of operation and provide a satisfactory return to both landlord and tenant? A larger tract of land may be more attractive to potential renters than a small tract. Legal Considerations Several federal and state laws affect lease terms. Such legal considerations promote an efficient business, ensure that lease provisions are carried out as intended, and protect the interests of each party. Self-employment Income A materially participating landowner must report farm income as self-employment income rather than as passive investment income. As such, it is subject to the normal self-employment tax rate. On the other hand, paying some self-employment tax will boost Social Security benefits in the future. A cash rent lease rarely qualifies a landowner as a material participant, but a crop-share lease may do so. An owner must be in the trade or business of farming in order to deduct certain expenses such as interest on operating capital or applications of fertilizer and lime. 8

9 Improving Your Farm Lease Contract Social Security Benefits Landowners under age 66 or 67 may have their Social Security benefits reduced if they are actively involved. This depends on the amount and timing of the income received. When landowners reach full retirement age there is no limit on the amount of active income that can be earned with respect to Social Security benefits. See AgDM C2-41, Leasing Arrangements and Self-employment (Social Security) Tax, for more details. Estate Tax Valuation Many farm properties can qualify for special use valuation when the estate goes through probate, which often results in a valuation below current market value. This can be advantageous for estates large enough to trigger federal estate taxes. However, one requirement for special use valuation is that the decedent or a family member must have materially participated in the business five out of eight years prior to death, and a qualified heir must materially participate for 10 years after the death of the decedent. Landlord s Liens In Iowa, a statutory (created by state law) landlord s lien exists. The lien is applicable whether the lease is for cash rent or crop-share. The statutory lien is a lien upon all crops grown upon the leased premises, and upon all other personal property of the tenant which has been used or kept thereon during the term and which is not exempt from execution, and gives the landowner preference over other security interests such as those of lenders. The UCC1 form must be filed with the Iowa Secretary of State s office within 20 days of when the lease goes into effect to perfect the landlord s lien. More details on legal issues affecting farm lease agreements can be found in AgDM C2-06, Lease Termination and Other Legal Considerations for Lease Contracts. Page 7 Communication Good communication between tenants and landowners is essential for building a successful leasing relationship. Landowners are concerned about the use and care of their farm. Nonresident owners cannot observe conditions first hand. Some spouses or children who have not been heavily involved in the management of the property may feel unsure about how to proceed with decisions. Provide Reports Tenants can borrow a technique from professional farm managers who provide their clients with written reports on a regular basis. Obviously, a report is more important with a crop-share lease than a cash lease. It may be beneficial for a tenant with a cash lease to develop an abbreviated form of reporting, especially for landowners who have a strong interest in the productivity of the farm. Sending photos to a landowner who is not close enough to observe crop conditions regularly is a very effective communication tool. Digital camera photos or video files can be easily transmitted by , or pictures can be printed and sent by regular mail. Some tenants are setting up password protected websites for individual landowners to provide information such as soil maps, fertilizer tests, and yield data. For a crop-share lease keep the accounting of expenses current. Most input suppliers will invoice each party individually. However, informing the owner beforehand that he or she will be receiving a bill, and its purpose, is recommended. Tenants renting from several owners may purchase supplies in volume and prorate the bill to each of the owners. In this situation a copy of the original invoice should be included. Explain each item on the bill, as names of farm inputs change frequently. The owner may not be familiar with commercial product terms for seed, herbicides, and insecticides, but nonetheless may have to categorize the expenses for income tax reporting. 9

10 Page 8 Crop insurance policies and some USDA programs require information about historical crop yields before a farm can be enrolled. Landowners need to have this information each year for making future decisions about participation in such programs. Have a Written Lease Written leases make the lease terms more definite and leave less chance for disagreement and misunderstanding. People tend to selectively recall only those portions of conversations that reinforce their point-of-view. It protects not only the original parties, but also assignees and heirs in case either party should die, or the farm is sold. A written lease encourages both parties to consider all aspects of the lease before the lease period begins. Decisions are made before the problems occur. In subsequent years, it provides a basis for changing provisions when conditions change. Written leases also provide documentation in case of a tax audit or for settling an estate. Lease agreements that cover more than one crop year are required to be in writing, and leases written for five years or more must be notarized and recorded at the county recorder s office by the tenant. The document should meet at least the following minimum requirements: It should contain an accurate description of the property. It should specify a definite period for which the lease is to run. It should state the kind and amount of rent, and time and method of payment (cash lease). It should specify how production, USDA payments, and input costs are to be shared (cropshare lease). Sample lease forms are available. See publications FM 1538 (AgDM C2-12) Iowa Farm Lease Form or FM 1874 (AgDM C2-16) Iowa Cash Rent Farm Lease (short form). Improving Your Farm Lease Contract Termination of a Farm Lease A farm lease automatically continues from year to year unless either party gives a notice of termination. In Iowa, a lease termination notice must be properly served by September 1, prior to the end of the lease year. This applies to both cash and crop-share leases, but not to custom farming agreements. A written lease may state a date earlier than September 1 for serving a termination notice. The requirement to terminate a farm lease by September 1 does not apply to tracts under 40 acres in size (in Iowa). However, even an oral lease is automatically renewed if it is not properly terminated in time. The termination notice must fix the termination of the tenancy to take place on the following March 1. If notice is not served, the lease continues for another crop year under the same conditions and terms. However, if mutually acceptable to all parties concerned, a lease can be terminated or modified at any time, and can have a different stated expiration date. Iowa law specifies three methods of serving a farm lease termination notice to terminate the tenancy on the following March 1. The following is quoted from the Code of Iowa, Section 562.7: Notice How and when served. Written notice shall be served upon either party or a successor of the party by using one of the following methods: 1. By delivery of the notice, on or before September 1, with acceptance of service to be signed by the party to the lease or a successor of the party, receiving the notice. 2. By serving the notice, on or before September 1, personally, or if personal service has been tried and cannot be achieved, by publication, on the same conditions, and in the same manner as is provided for the service of original notices, except that when the notice is served by publication no affidavit is required. Service by publication is completed on the day of the last publication. 10

11 Improving Your Farm Lease Contract 3. By mailing the notice before September 1 by certified mail. Notice served by certified mail is made and completed when the notice is enclosed in a sealed envelope, with the proper postage on the envelope, addressed to the party or a successor of the party at the last known mailing address and deposited in a mail receptacle provided by the United States postal service. A form titled Notice of Termination of Farm Tenancy is available as AgDM C2-19. Other forms are available from attorneys. Summary A good lease is the first step toward a satisfactory operating relationship between a landlord and a tenant. Although it is difficult to develop a lease that will provide for all possible situations, the parties should try to anticipate areas where problems could arise and include provisions in the lease to handle them. Only the parties involved can determine what is fair to each and what the final agreement should be. Many factors influence a leasing agreement, and each contract should be modified to fit the individual situation. Additional References Publications from Iowa State University Extension and Outreach Available at: store.extension.iastate.edu or Ag Decision Maker files are available at under Whole Farm, Leasing. Rental Rate and Land Value Surveys FM 1728/AgDM C2-09, Iowa Farmland Rental Rates (USDA) FM 1851/AgDM C2-10, Cash Rental Rates for Iowa Survey (Iowa State University) FM 1811/AgDM C2-15, Survey of Iowa Farm Leasing Practices FM 1825/AgDM C2-70, Iowa Farmland Value Survey Leasing Forms FM 1538/AgDM C2-12, Iowa Farm Lease Form Page 9 FM 1874/AgDM C2-16, Iowa Cash Rent Farm Lease (short form) Lease Agreement FM 1801/AgDM C2-20, Computing a Cropland Cash Rent FM 1724/AgDM C2-21, Flexible Farm Lease Agreements FM 1823/AgDM A3-15, Custom Farming: An Alternative to Leasing AgDM C2-03, Do I need a Written Lease? Other Resources AgDM C2-05, Leasing and Land Ownership Terms AgDM C2-06, Lease Termination and Other Legal Considerations for Lease Contracts AgDM C2-41, Leasing Arrangements and Self-employment (Social Security) Tax PM 1947/AgDM C2-33, Considering Sustainable Agriculture on Your Rented Land PM 1982/AgDM C2-31, Adapting Crop Share Agreements for Sustainable and Organic Agriculture Iowa Farm Leases Legal, Economic, and Tax Considerations. ISU Center for Agricultural Law and Taxation at Farm Leasing Arrangements. A home study course on the Internet, is available at: www. extension.iastate.edu/ames. A series of farm lease forms and publications are available from Midwest Plan Service at: www-mwps.sws.iastate.edu or Lease forms for crop land, pasture land, farm buildings and farm equipment can be downloaded at no charge. Ag Lease 101 (aglease101.org) helps both land owners and land operators learn about alternative lease arrangements and includes sample written lease agreements for several alternatives. Ag Lease 101 was created by and is maintained by the North Central Farm Management Extension Committee. 11

12 Page 10 Improving Your Farm Lease Contract... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Revised by Kelvin Leibold kleibold@iastate.edu Originally prepared by E.G. Stoneberg, former extension economist store.extension.iastate.edu 12

13 Iowa Farm Leases Legal, Economic, and Tax Considerations 2321 N. Loop Drive, Ste 200 Ames, Iowa August by Roger A. McEowen* Last Updated May 15, by Kristine A. Tidgren Overview There are numerous concepts associated with creating an effective lease for a farming operation. A good lease can be a useful tool, but a lease that is inadequate can cause uncertainty and create problems. Also, income tax, social security tax, estate and business planning as well as other economic issues are associated with farm leases. Basic Principles Leasing is of primary importance to agriculture, permitting farmers to operate larger farm businesses with the same amount of capital and assisting beginning farmers in establishing a farming business. 1 Farm leases are conveyances of a possessory interest in property for a specific length of time, 2 but are also contractual obligations which must meet the basic requirements of any contract: offer, acceptance, consideration, and capacity to enter a contract. 3 Offer--Party A indicates a willingness to enter into a bargain which leads Party B to believe that Party B s agreement to that bargain is invited and will conclude the bargain. Acceptance--Party B indicates agreement to the terms of the bargain in the manner invited or required by the offer. Consideration--A bargained for promise, performance, forbearance. Capacity--The ability to understand the nature and effects of one s acts. Those with mental illness or defect and minors may void contracts. Should a Farm Lease Be in Writing? Although many farms are leased under oral agreements in Iowa (and an oral farm lease that doesn t exceed one year is enforceable in Iowa) it is preferable to have a written lease. Rather than rely on the selective memories of both parties, a written lease provides a record of the exact terms and conditions agreed to by both the landlord and tenant. In this way, a written lease will clarify the issues if disputes arise between the landlord and tenant. In Iowa, the statute of frauds requires leases of more than one year to be in writing. 4 This means that for farm leases that are longer than one year, an oral agreement is not valid. However, the principles of partial performance, detrimental reliance and promissory estoppel may be utilized, with the right set of facts, as exceptions to the statute of frauds. 5 A Written Farm Lease Basic Elements Thus, for many reasons it is just good business for each party to protect their interests with a written lease. The important elements of an agricultural lease are: 1. An accurate description of the land; Note: An accurate legal description can be critical in determining rights to crop proceeds pursuant to security interests and landlord liens and can help avoid legal battles over boundary locations. A precise legal description can be 13

14 obtained from the abstract of title to the property. The owner should be able to obtain the abstract for the correct legal description of the farmland. Another method of identification that can be used to supplement the legal description is the farm number used by the USDA for federal farm programs. 2. The identity of the parties and their signatures; Note: Iowa law specifies that the person holding the leasehold interest must produce crops or provide for the care and feeding of livestock, including grazing or feeding of livestock on the land. 6 A lease should include a clear identification of the landlord and the tenant by name and address. It is also appropriate to identify the parties by their tax identification numbers (Social Security number for individuals and federal identification numbers for other entities) for the purpose of eligibility for farm program payments. 3. The length or term of the lease; Note: For most leases, the term will be at least one year. Farm leases usually begin on March 1 and end on the last day of February of the next year. Multipleyear leases may not exceed 20 years. 7 From an economic standpoint, tenants may prefer a multiple-year lease if they must invest in long-term improvements. Such leases should be considered carefully by both parties because the lease is a contractual obligation to the undesirable provisions of the lease as well as the beneficial ones. Often, it is better to include an automatic renewal clause and a compensation clause as a means of mutual goal evaluation. Sometimes personal conflicts between the parties arise during a long-term lease period, and the landlord may want a different tenant. In such cases, a landlord may not, three years into a seven-year lease, for example, terminate the lease, based upon that conflict. Absent a material breach by the tenant, the tenant is entitled to possession of the property for the duration of the lease term. Conversely, the tenant will be responsible for damages to the landlord if he abandons the contract during the lease term. 4. The kind and amount of rent and time and place of payment; Note: In many farm leases, it may be wise to include a provision that compensates the tenant for the unused portion of longer-term investments. Example: For example, the application of lime and other soil conditioners may be effective for a period of years. If the tenant applies and pays for the soil conditioner, the lease should provide for a method of calculating payment to the tenant for the unused portion of time the application remains effective. A written lease containing such a provision will prevent one party from reaping the benefit of the other party s long term investment without compensation. 5. Responsibility for building maintenance; Note: The tenant may want the lease to include a provision specifying that the tenant will be compensated for any improvements the tenant makes to the buildings. 6. Indemnification clause liability for negligence; Note: Many leases contain an indemnification provision that states the tenant will compensate the landlord any loss resulting from the tenant s negligence (and vice versa). A written contract should give both parties an idea of who will be liable for any accidents which occur on the farm and specify who is responsible for maintaining insurance coverage. 14

15 7. Personal property remaining on the premises; Note: Iowa does not have any statutory provision concerning how to handle the tenant s personal property that is left behind after the lease terminates. Without a contract provision addressing the issue, the landlord does not have any duty to store or maintain a tenant s personal property, but a constructive bailment (not a true bailment) may be imposed. The landlord s duty of care under a constructive bailment is less than what would be required under an express bailment and requires only minimal care Any special provisions concerning the rights and duties of the parties. It is a good practice to record written leases. After the lease is notarized, it can be recorded, for a fee. If the lease exceeds five years in duration with renewals, Iowa law requires that the lease be recorded. 9 Note: The full lease need not be recorded. Instead, recording a memorandum of the lease is sufficient to satisfy the statutory requirement. If a memo is recorded, the memo must contain: (1) the names and addresses of the parties to the lease; (2) a description of the real property subject to the lease and the interests of the parties in the real estate; (3) the initial term of the lease; (4) a statement concerning whether any party to the lease have or are subject to renewal rights and, if so, a specification of what triggers renewal and the number of renewal terms and their length. Failure to record these leases within 180 days is punishable by a fine not to exceed $100 per day for each day of violation. 10 The increased complexity of farm operations and the conflicts that arise regarding the way they should be operated demonstrates a real need for written farm leases. Note: While many farmers still prefer oral leases and are unwilling to use lawyers, the contracting parties should always consider what the consequences could be if a conflict arises in the future without a written memorial of their agreement. Other Legal Issues A good husbandry provision. A written farm lease will often contain a provision requiring the tenant to farm the land in a good and husbandlike manner. If the tenant fails to do so, the lease typically allows the landlord to enter the property and properly care for the crops and land. Good husbandry is usually defined to include such things as, proper fertilization methods, tilling, weed control 11, control of soil erosion, manure application, and a general requirement that the tenant protect the property and its natural resources from harm or disposal. A landlord may be entitled to damages that can be proven as a result of the tenant s use of improper farming methods. Note: Expert advice is available from Iowa State University Extension specialists for help in determining what constitutes proper farming practices. But, in order to successfully sue for damages allegedly caused by the tenant s poor farming practices, the landlord may need to rely on a good husbandry provision in a written lease. While a tenant may have a general duty to use proper farming techniques, the landlord does not necessarily have an associated right to control and supervise the tenant s farming practices. So, a provision in a written lease detailing the specific farming practices the tenant is to utilize is the best way for a landlord to prevail on a lack of good husbandry claim. 12 Note: Good husbandry is related to the issue of waste. A tenant has a common law duty not to waste the leased premises not cause permanent or substantial damage to the leased premises. Poor husbandry practices are a subset of waste. However, simply having a good husbandry provision in a lease that a tenant breaches does not give the landlord the absolute right to terminate the 15

16 lease and bring a forcible entry and detainer action, if necessary. A forcible entry and detainer action is an equitable remedy. Thus, the courts will typically require that the tenant be treated in a fair manner by, for example, requiring the landlord to give the tenant notice of the breach and a right to cure before the lease can be terminated. 13 A good example of this is the 2012 Iowa case, Mart v. Mart. 14 In this case, the tenant (who was also a co-owner) planted crops on the leased land in violation of federal farm program Swampbuster provisions which triggered a substantial penalty. The other co-owners were ultimately not penalized under the landlord exception for such violations. The written (and recorded) lease was for a 20-year term at a set cash rental rate. The non-farmer co-owners attempted to terminate the lease 10 years into the 20-year term based on the tenant s alleged breach for tilling the designated wetlands in question. They brought a forcible entry and detainer action against the farmer co-owner. However, the trial court dismissed the petition. On appeal, the court agreed that the tenant had breached that part of the lease agreement. The court also determined that the tenant breached the part of the lease requiring the tenant to comply with conservation and environmental plans for the land. On the good husbandry provision of the lease, the court noted that a tenant that was utilizing good farming practices could still be in breach of a good husbandry clause in a written farm lease. Thus, the court concluded that while the tenant was utilizing farming practices that generally conformed to the principles of good husbandry, the tilling of designated wetlands without the landlord s approval was contrary to the principles of good husbandry. However, all of these breaches by the tenant did not mean that the landlords had an automatic right to terminate the lease. Instead, the court noted that the tenant had the right to cure the breaches. Under the facts of the case, the tenant had restored the wetland the following year, and the other co-owners already had been determined to not be in violation of the federal farm programs. As such, termination of the lease was not an appropriate equitable remedy. Permanent improvements. If the tenant erects permanent improvements on the leased property, the general rule, absent language in a written lease to the contrary, is that the tenant is not entitled to remove the improvements at the end of the term of the lease. Permanent improvements include permanent buildings, soil conservation terraces, and improvements to existing structures. In addition, the tenant is generally not entitled to compensation for the value of permanent improvements the tenant places on the property, or the value the tenant adds to existing structures. However, a tenant may remove items that the tenant adds to the property which are not considered to be part of the real estate such as portable buildings and feeders. Environmental issues. It may be a good idea to include an environmental-related provision in a farm lease. Such a provision, for example, could include language specifying that: (1) the landlord assures the tenant there are no environmental problems; and (2) the tenant will comply with all applicable environmental laws. In most instances, the tenant will be liable for violation of environmental laws (state and federal) and environmental contamination that occurs during the tenancy. In some instances, however, a landlord could also be held liable. Aboveground plants. In its 2010 session, the Iowa legislature passed and the Governor signed into law HF The new law, codified at Iowa Code 562.5A, specifies that a farm tenant may take any part of the aboveground plant associated with a crop, at the time of harvest or after harvest, until the farm tenancy is terminated in accordance with Iowa law. Of course, the parties can specify differently in a written lease. The landlord s lien and security interests. Under Iowa law a landlord can obtain a statutory lien (claim against the tenant s property), for the payment of rent, upon all crops grown upon the leased premises as well as the tenant s other nonexempt personal property which is either used or kept on the leased premises during the term of the lease. 15 The lien is applicable whether the lease is a cash rent lease or a crop-share lease, and applies also to any proceeds of the crop the tenant harvests. 16 Exempt property includes: specific personal property, life insurance, social security, disability, pension, alimony and veteran s benefits. Note: If a tenant has more than one lease with a landlord, the landlord may not attach crops from one lease to satisfy a default on rent involving another lease. Under current law, a landlord s lien is subject to treatment as an agricultural lien. That means a landlord s lien, to be perfected, must be filed using 16

17 a financing statement. 17 That s the same document used by a lender to handle a new secured loan. To be effective, the financing statement must be filed when the tenant takes possession of the leased premises or within 20 days after the tenant takes possession. 18 In addition, the financing statement must include a statement that it is filed for the purpose of perfecting a landlord s lien. Once a landlord s lien in farm products is perfected, it has priority over a prior perfected security interest. 19 Note: A purchaser of a farm takes subject to any existing lease, but if the tenant has been in possession for more than 20 days the new owner (as landlord) would take subject to any previously perfected security interests. But, if the new owner files a financing statement, such filing would be sufficient against subsequent lien creditors. Also if the new owner terminates the lease and enters into a new lease, the landlord could get priority over previously filed security interests as for next year s crop if filing is made within 20 days of the tenant taking possession. Lien by contract. A landlord s lien can also be created by a language in a written farm lease. Such a provision can create a contractual lien against the lessee s exempt property that is not subject to the statutory lien. But, for a contractual lien to be valid against third parties, (e.g., subsequent purchasers and existing creditors), the lease must be recorded. Security interests. In some instances, a landlord may want to take the steps necessary to perfect a security interest in the tenant s crops and/or livestock. Lenders and other creditors file security interests in farm products to ensure payment of debts. From the landlord s perspective, however, a security interest may provide greater protection than a landlord s lien, especially if the tenant files bankruptcy. Note: A landlord s lien can be defeated (i.e., goes to the bottom of the list of priorities in the tenant s bankruptcy estate) if the tenant files bankruptcy. Thus, it may be prudent for the landlord to take the necessary steps to gain a security interest in the tenant s crops and/or livestock. That can be accomplished by the landlord making a separate filing to become a secured creditor. Additional protection. For landlords that are concerned about the tenant defaulting on the rent payment, the following suggestions may provide additional protection in addition to those items mentioned above: Require the rent to be paid at the beginning of the lease period. If all of the rent is to be paid up front, the rental rate is normally reduced to account for the additional interest accrued due to the early payment; Use of an irrevocable letter of credit, issued by the lender on behalf of the tenant, for insuring the payment of rent; Have the landlord s name included as the payee on the check for grain and/or livestock. As such, the landlord will be required to sign the check before it can be negotiated. Do changes to the lease have to be in writing? While it is possible to orally modify a written lease agreement, it s always best to make subsequent changes to a written lease in writing. This leaves little doubt, in the future, about the actual terms of the lease and can help to avoid litigation on the issue. Does a crop-share lease form a partnership between owner and operator? The Iowa Supreme Court has found that, in the absence of evidence indicating otherwise, a traditional farm lease does not constitute a partnership. 20 This is important point. If there is not a partnership, the parties cannot be held liable for the other s debts under the theory of joint and several liability. The elements of a partnership are (1) intent by the parties to associate as partners, (2) a business, (3) earning of profits, and (4) co-ownership of profits, property and control. 21 Most boilerplate lease forms contain a provision stating there is no intention to make a partnership. That keeps the landlord/tenant relationship clear to the parties. What other provisions should be included? The parties should add in writing any additional agreements related to the lease, and should tailor the standard form lease to cover individual requirements for their particular situation. Additional provisions should be included in the 17

18 space provided at the end of the lease or in attached exhibits that are incorporated into the lease by reference. In all situations, it is important for both the landlord and the tenant to read and understand the terms of the lease before signing. Consultation with an attorney before executing the lease may be necessary in some instances. Easements If a third party has an easement interest in the property that is being leased, it is important for the parties to understand the third party s rights and not interfere with them. Certainly, any easement rights should be clearly detailed in the lease agreement. Most easements are affirmative easements which entitle another party to limited use or enjoyment of the land upon which the easement exists. 22 A common example is the right to use a roadway across another s land. Less common are negative easements, which entitle the owner of the easement to prevent a landowner or tenant from making certain uses of the land. An example might be a negative easement owned by a neighbor which restricts the height of structures built on the farm. Either the tenant or the landlord could be subject to litigation if a third party s easement rights are interfered with. What about Joint Owners? It is often the case that an owner will die, leaving the property to multiple parties as tenants in common (this is a type of concurrent ownership, and has nothing to do with a lease). In such cases, one tenant in common often lives on the farm, while the other tenants in common are off-farm tenants. Iowa law requires the on-farm tenant to give a rental share to the off-farm tenants. 23 If the on-farm tenant refuses, the off-farm tenants can sue for and recover their shares. They can also file a partition action to have a judge separate the property into individually-owned tracts. A question arises, however, whether under Iowa law one tenant in common can bind other co-tenants in common in a long-term lease with a lessee. An Ohio federal court recently ruled that an off-farm co-tenant in common could seek a partition that would terminate a lease that the minority co-tenant in common had made with a lessee. 24 The result under similar facts in Iowa is not certain, although there appears to be some support for the proposition that a minority cotenant cannot bind a majority co-tenant in a lease where the lessee has notice of the majority cotenant s objection. 25 Iowa courts have long held, however, that where there is a valid lease, no decree can be entered to interfere with a lessee s right of possession. 26 Even if a partition is granted to a co-tenant in such a case, it must be granted subject to the rights of an existing lessee. 27 Liability for Injuries on the Leased Premises In general, the tenant is responsible for injuries that occur to others on the premises or as a result of items that the tenant controls (such as livestock that escape an enclosure and cause injury). It is the tenant s responsibility to maintain the leased premises in a reasonably safe condition. The landlord is generally not liable to either the tenant or third parties for injuries that occur on the leased premises. However, a landlord may be liable if injury results due to an undisclosed danger known to the landlord but not disclosed to the tenant. Also, the landlord is responsible for dangerous conditions to persons not on the leased premises, such as a low-hanging tree branch across a public road. In addition, if the landlord retains control over a part of the premises and injury results on that part, the landlord is responsible. Likewise, if the premises are leased for the public s admission, or the landlord agrees to repair a defect on the premises and either fails to do so and injury results or the repair is made negligently resulting in injury, the landlord is liable. Another exception to the general rule of landlord non-liability for a tenant s acts is if the landlord knows that the tenant is harming the property rights of adjacent landowners (e.g., via the creation of a nuisance) and does nothing to modify the tenant s conduct or terminate the lease. 28 In that situation, the landlord can be held liable along with the tenant. 29 In general, a licensee or invitee of the tenant has no greater claim against the landlord than does the tenant. Thus, a landlord s duty to not wantonly or willfully injure a trespasser is usually passed to the tenant who has control of the property. However, a landlord can be held liable where the landlord knew of defects that were likely to injure known trespassers. 18

19 A landlord is also usually not held responsible for injuries occurring on the leased premises caused by animals that belong to the tenant. Termination of Farm Leases A party wishing to terminate an oral or written farm lease at the end of an agreed term must carefully abide by Iowa s strictly-construed statutory provisions for lease termination. Even if a written lease, for example, says that it will terminate on March 1 of the following year, statutory termination procedures must be followed to avoid an automatic renewal of the lease under Iowa law. If a lease is not terminated with properly served notice, Iowa law provides that it will automatically renew for another year on the same terms and conditions as the original lease, even if the written lease specifies a termination date for the lease or even if the oral lease was for a one-year term. 30 Through June 30, 2013, the automatic renewal provision did not apply to mere croppers or tenants on acreages of less than 40 acres. Thus, such leases could be terminated with notice being given at least 30 days before March 1. But, the provision created enough uncertainty in the law that the legislature, effective July 1, 2013, removed the 40-acre distinction. Note: The new provision does not apply to mere croppers or tenants leasing acreages of less than 40 acres where an animal feeding operation is the primary use of the acreage. The 40-acre distinction no longer applies to crop leases. 31 The required notice. A lease may contain provisions outlining the procedure for termination of the lease, but these provisions will likely not override statutory notice requirements. If, for example, the contract sets forth a termination notice date of November 1, courts would still require the September 1 notice to avoid the automatic renewal provision of the statute. Even if a written lease provides for waiver of termination notice, notice must still be served (following the strict requirements set forth below) on the other party (or the party s successor) on or before September If notice is properly served, the lease terminates the following March Note: If it is mutually acceptable to all parties concerned, after formation of a lease, a lease can be terminated or modified at any time. 34 However, if the parties mutually agree to terminate the lease, the statutory procedure for lease termination must still be followed. In what appears to be the first case of its kind, the Iowa Court of Appeals held that a lease was terminated without the requirement of statutory notice where the parties allegedly entered into an oral agreement to terminate. 35 Even if a landlord and a tenant enter into a valid oral agreement to terminate a lease, statutory notice provisions should be followed to avoid unnecessary litigation. It is also important to note that a party cannot unilaterally terminate a lease contract before it starts. If for example, a tenant and landlord sign in July a lease contract to begin the following March, the landlord cannot terminate the lease by giving statutory notice to the tenant by September 1 of that same year. Iowa s statutory notice may be properly served as follows: 36 By delivery of the notice on or before September 1, with acceptance of the service to be signed by the party to the lease or a successor of the party receiving the notice. By serving the notice, on or before September 1, personally, or if personal service has been tried and cannot be achieved, by publication, on the same conditions and in the same manner as is provided for the service of original notices, except that when the notice is served by publication no affidavit is required. Service by publication is completed on the day of the last publication. By mailing the notice before September 1 by certified mail. Notice served by certified mail is made and completed when the notice is enclosed in a sealed envelope, with the proper postage on the envelope, addressed to the party or a successor of the party at the last known mailing address and deposited in a mail 19

20 receptacle provided by the United States postal service. Note: Iowa courts strictly construe the statutory notice requirements. Where the code requires notice by certified mail, for example, notice by regular mail will not suffice. Failure to comply with the statutory notice provisions for terminating a lease will result in the lease being extended for another year. This is true even if the tenant had actual notice of an attempted termination. Procedures for removing the tenant. If a farm lease has been properly terminated and the tenant does not vacate the farm by March 1 of the following year, what can the landlord do? Forfeiture. Initially, if a written lease exists, the terms of the lease should be examined. Is forfeiture allowed? If forfeiture is allowed, it may occur either immediately or at some point in the future. But, if the tenant has substantially complied with the lease, forfeiture may be avoided equity abhors a forfeiture. 37 However, if the tenant pays rent after forfeiture has occurred, the forfeiture is not thereby negated. 38 Whether the landlord can collect for rent paid that is for a time period after the forfeiture depends on the terms of the lease. If the lease specifies for acceleration of rent upon default, the acceleration clause is enforceable if it results in reasonable damages to the landlord. 39 In any event, forfeiture must be conducted in the manner specified in the lease there is no statutory procedure. 40 Forcible entry and detainer. If a farm lease has been properly terminated and the tenant does not vacate the farm by March 1 of the following year, the landlord may utilize the Iowa statutory forcible entry and detainer procedure. 41 Also, a forcible entry and detainer action is also available if the tenant does not pay rent when due, but notice to terminate has not been given. But, before such an action can be brought, three days written notice must be given to the tenant. Note: A forcible entry and detainer action can be held in small claims court. 42 The hearing on the matter is to be held within seven days from the date of the order and personal service on the defendant must occur at least three days before the hearing. If personal service cannot be completed after at least two attempts, the original notice can be posted on the real estate at least three days before the hearing. The two attempts to serve process can occur on the same day. 43 Foreclosure sale. A foreclosure action involving farmland that is subject to a lease can raise interesting legal issues. For example, in an 1889 Iowa Supreme Court case (that is still good law), 44 a party bought farmland at a foreclosure sale that had growing (matured) crops on the land at the time the sheriff's deed was executed. The court held that the tenant was entitled to the crop. The court indicated that the issue turned on whether the crop still required nurture from the soil at the time the sheriff's deed was executed. On that point, the evidence showed that the crop was mature at the time the deed was executed. Thus, the crop was the tenant's property and title did not pass to the buyer. The case supports the argument that a tenancy does not terminate upon foreclosure and sale. The court did not refer to the doctrine of emblements for their decision - which would indicate the tenancy is over with the issue becoming which party is entitled to a growing crop at the time the tenancy ends. Also, the general and wellrecognized rule is that the buyer of property takes subject to an existing lease and must follow state law to terminate the tenancy. Procedures for removing the tenant s property. If the tenant leaves the premises after the lease has ended, but leaves personal property behind, certain statutory procedures apply for removing the abandoned property. Under Iowa Code 555B.2, the landlord can store the property if notice is given to the county sheriff. The sheriff, upon the landlord's request, is to notify the property owner personally (if the property owner can be determined) or by publication in a newspaper of general circulation in the county where the property was abandoned (if the property cannot be determined). Once notice is provided, the property 20

21 owner has six months to claim the property or the property will be sold at public auction. If the property is reclaimed, the owner must pay for any storage costs and other costs the landlord incurs with respect to removing and storing the property. If the property is sold at auction, the costs of sale are paid from the sale proceeds along with any lien on the property with the balance paid to the county treasurer. A good faith buyer of the property takes the property free of any interests in the property. As an alternative to utilizing the sheriff, the landlord can bring an abandonment action in the district court in the county where the leased premises is located. 45 This provision applies only if there is no lien on the personal property (except for a tax lien). The action is an equitable action, and once the petition is filed, a hearing is to be held within two weeks. If a judgment of abandonment is entered, the landlord is also entitled to any monetary damages that may apply. Agricultural Leases as Personal Services Contracts Another issue that can arise under an oral agricultural lease involves the question of what happens when either the tenant or landlord dies during the lease term. If the landlord dies, the outcome is fairly straightforward. The landlord s heirs assume the responsibilities that the decedent had before death. If the lease is to be terminated, the heirs will have to follow the statutory notice of termination rules. Indeed, Iowa law specifies that when a landlord dies, the estate s executor takes possession of the real estate 46 and must follow the termination statutes to terminate the tenancy. 47 If the tenant dies, however, the outcome may be different. Some courts hold that the lease is a contract for services to be performed by the tenant and no one else. Upon the tenant s death, these courts hold that the oral contract ends and no statutory notice of termination is required. 48 However, the Iowa Supreme Court ruled in 1970 that a farm lease creates an interest in the real estate in the tenant. 49 While the court noted that Iowa common law generally regards a farm lease as a personal services contract, the court determined that the common law rule was materially restricted by the statutory notice of termination provisions. Under the facts of the case, the tenant had an oral lease with the landlord and in the fall of 1968 planted 20 acres to wheat for harvest in The tenant died on November 27, 1968, after the deadline for receiving statutory notice of termination (which, at the time, was Nov. 1). The court held that the landlord s failure to give the statutory notice extended the existing leasehold rights that the decedent held lease through the 1969 crop year (terminable on March 1, 1970). Thus, according to the court, when the tenant died, those rights vested in his estate. Note: The Iowa Supreme Court s reasoning is questionable. A lease creates merely a possessory interest in the tenant. It does not create any type of ownership interest. In addition, the tenant s death constitutes a surrender of the possessory interest and, thereby, a surrender of the leasehold. What the tenant s heirs succeed to are the rights that the tenant had in the wheat crop under the lease, not the right to continue to occupy the premises until receiving statutory notice of termination. Exceptions to statutory notice. Iowa law distinguishes between croppers and tenants. A person is a cropper and not a tenant if the landowner supplies the land and the inputs, controls the operation of the farm and pays a portion of the crop to the person raising and harvesting the crop. In that situation, the farmer has no legally enforceable interest in the crop or land involved, only has a contract right for compensation in-kind for their labor, and is basically an employee of the landowner (i.e., a wage earner) that is hired to produce a crop. 50 Therefore, because a cropper does not have any property right in the leased premises, the cropper is not entitled to statutory notice of termination 51 - there is no interest to be terminated. Instead, a cropper s lease terminates upon harvest of the crop. However, farmers with crop-share leases are tenants they are not croppers, and the statutory notice of termination requirement applies. 52 Note: Historically, the statutory notice requirement did not apply to pasture leases. But, that is no longer the rule. Iowa law now defines farm tenancy as a leasehold interest in land held by a person who produces crops or provides for the care and feeding of livestock on 21

22 the land, including by grazing or supplying feed to the livestock. 53 Another exception from the statutory termination notice requirement is for leases involving less than 40 acres where an animal feeding operation is the primary usage of the acreage. 54 These exceptions may be overcome by incorporating a notice requirement into a written lease. Iowa courts also recognize certain legal doctrines which may make notice unnecessary. These doctrines include: (1) agreement; (2) waiver and estoppel; and (3) abandonment and surrender. These doctrines are based on the conduct of the parties. Parties should be careful, however, not to rely on such doctrines to prospectively terminate a lease. Best practice dictates always serving statutory notice. A landlord can terminate a lease without giving the statutorily required notice if the tenant breaches the lease such as for non-payment of rent. 55 Courts require the breach must be positively established. So, it s a good idea for the landlord to notify the tenant of the conduct that is considered a breach, and the landlord s intent to terminate the lease. This may prevent the default termination from looking like an excuse for missing the notice date. When should termination notice be given? Because there may be uncertainty as to a tenant s ability to continue to rent ground because of financial problems, a landlord may want to give notice of termination every year. This will avoid being locked into another year with a questionable tenant. A landlord will then be free to lease to another party or enter into a lease with the current tenant once that tenant can assure the landlord that rents will be paid. Annual termination may also be advisable when land values are changing rapidly. Cancellation and renegotiation of a new lease with an updated rental amount to reflect current rental values may help the landlord (and/or the tenant) manage risk. What is the landlord s right of entry and inspection? The lease may have a provision allowing the landlord (or someone else) to enter the property after termination of the lease to conduct tilling or fertilization after harvest. The landlord may do this even if the date of entry is prior to the termination of the lease. The landlord may also enter the property at any reasonable time for the purpose of viewing, seeding, preservation of crops, making repairs or for other reasonable purposes. General Concerns Economics and Risk Allocation What is the difference between a cash lease and a crop-share lease? The primary distinction between a crop-share or cash lease involves how the lease allocates risk between the parties. On that point, here are the major concepts to keep in mind: 1. Cash rent leases allow a farm tenant to pay a specific amount of money for the use of part or all of the described farmland. Cash rent leases will vary in the amount of cash rent per acre and will also vary in the due date for payment of the rent. The tenant may pay a slightly lower rent per acre in exchange for payment of all of the cash rent up front. Typically, the risk is balanced between the parties by having the lease payments paid in installments, one installment in the spring and one or more at harvest. It will benefit both parties to have the times for payment set out in writing so there will be no conflict about when payment is due. 2. Crop-share leases allow the farm tenant to pay shares of the crop as rent. Crop-share leases and cash rent leases can also be combined to utilize both methods of payment. Crop share leases should allow the owner and the tenant/operator to share in the total farm profits in the same proportion as they contribute resources. 56 This principle implies that if a landowner contributes 50 percent of total resources and the tenant contributes 50 percent, then profits should be shared 50/50. Typically, the allocation of government program payments is similar to the allocation of the crop profit and crop input expenses. 57 Due to the fact that the government program payments are often a significant portion of the total return from the farm operation, the lease should determine the agreement of the parties regarding the participation in government programs. Resources and profits are not always shared 50/50. This could be due to high land values or low tenant inputs and costs resulting from 22

23 practices like minimum tillage and other input differences. When should a crop-share lease be considered? While most farm leases in Iowa are cash leases, there are situations that merit at least a consideration of the utilization of a crop-share lease. The parties should consider the relative advantages and disadvantages of a crop-share lease before executing such an agreement. Advantages of crop-share agreements: 1. Less operating capital may be tied up by the tenant due to the landowner sharing costs compared to cash rents. 2. Management may be shared between an experienced landowner and tenant, resulting in more effective decisions. 3. Allows an inexperienced landlord or tenant to take advantage of the experience of an established landlord or tenant. 4. Sales of crops may be timed for tax management and purchased inputs may be timed to shift expenses for tax purposes. This is also true to some extent with cash rent leases. 5. Risks due to low yields and/or crop prices are shared between the two parties as well as the profits from high yields or prices. Disadvantages of crop-share agreements: 1. Landowner income will be variable because of yield and price variation as well as changes in shared input production costs. 2. Accounting for shared expenses must be maintained. 3. Marketing decisions must be made by landowner. 4. The need for tenant and landowner to discuss annual cropping practices and become involved in management on a continuing basis. 5. The lease may need to be reviewed and changed on a yearly basis because of market fluctuations and so on. How should the crop be shared between the landowner and tenant? The crop should be shared on a percentage basis in a manner that recognizes the inputs (capital, labor, etc.) contributed by each respective party. The landlord s return is based on the land value, real estate taxes and insurance costs. If the landlord has a mortgage on the farm, the landlord will want a return sufficient to service the loan. The tenant will expect the rental rate to be within a normal rate of return on land value. The tenant s percentage return is based on his or her labor and management of the farm. How should the cost of shared inputs be divided between the landowner and tenant? A crop-share lease commonly allows yield increasing expenses, such as fertilizer application, to be shared by the landlord and tenant in the same percentage as the share of crop profits. Sharing a variable cost in the same percentage as the crop is shared encourages the parties to use the amount of that input which maximizes net returns to the total operation. Farm Leases and Farm Program Benefits The type of lease can also impact eligibility for farm program payments. In general, to qualify for farm program payments, an individual must be actively engaged in farming. Each person who is actively engaged in farming is eligible for one payment limit of federal farm program payments. A tenant qualifies as actively engaged in farming through the contribution of capital, equipment, active personal labor or active personal management. Likewise, a landlord qualifies as actively engaged in farming by the contribution of the owned land if the rent or income for the operation s use of the land is based on the land s production or the operation s results (not cash rent based on a guaranteed share of the crop). In addition, the landlord s contribution must be significant, must be at risk, and must be commensurate with the landlord s share of the profits and losses from the farming operation. A landlord who cash leases land is considered a landlord under the payment limitation rules and may not be considered actively engaged in farming. In this situation, only the tenant is considered eligible. Under the payment limitation rules, there are technical requirements that restrict the cash-rent tenant s eligibility to receive payments to situations in which the tenant makes a significant contribution of (1) active personal labor and capital, land or equipment; or (2) active personal management and equipment. Leases in which the rental amount fluctuates with price and/or production (so called flex leases) can raise a question as to whether or not the lease is 23

24 really a crop-share lease which therby entitles the landlord to a proportionate share of the government payments attributable to the leased land. Under Farm Service Agency (FSA) regulations, 58 a lease is a cash lease if it provides for only a guaranteed sum certain cash payment, or a fixed quantity of the crop (for example, cash, pounds or bushels per acre.) All other types of leases are share leases. In April 2007, FSA issued a Notice stating that if any portion of the rental payment is based on gross revenue, the lease is a share lease. 59 However, according to FSA, if a flex or variable lease pegs rental payments to a set amount of production based on future market value that is not associated with the farm s specific production, it s a cash lease. 60 Note: Beginning with the 2009 crop year, FSA s position is that any arrangement entered into by a landlord and tenant will not convert what is otherwise a cash lease to a crop-share lease. Estate and Business Planning Implications While material participation can cause problems with respect to Social Security benefits, material participation is required for five of the last eight years before the earlier of retirement, disability or death if a special use valuation election is going to be made for the agricultural real estate included in the decedent-to-be s estate. 61 The solution, if a family member is present, may be to have a nonretired landlord not materially participate, but rent the elected land to a materially participating family member or to hire a family member as a farm manager. The solution, if a family member is not present, is to have the landlord retire at age 65 or older, materially participate during five of the eight years immediately preceding retirement, and then during retirement rent out the farm on a nonmaterial participation crop-share or livestock-share lease. Tax Considerations When considering the type of farm lease to utilize, an issue that is sometimes overlooked is the impact that a particular type of lease will have on estate and business planning goals and objective for the parties involved (particularly for the landlord) as well as the income tax implications of the lease. Self-employment tax concerns. From the landlord s perspective, rents from real estate and from personal property leased with real estate are excluded from the definition of earnings from selfemployment. Likewise, income from crop-share and/or livestock-share rental arrangements for landlords who are not materially participating in the farming operation are not classified as selfemployment income subject to Social Security tax. Only if the rental income is produced under a crop or livestock-share lease where the individual is materially participating under the lease does the taxpayer generate self-employment income. Income received under a cash rental arrangement is not subject to self-employment tax, nor does such income count toward eligibility for Social Security benefits in retirement. An exception to this rule exists if the lessor leases land to an entity in which the lessor is materially participating. 62 IRS has won several cases in which they have successfully attributed the lessor s material participation in the entity to the leasing arrangement with the result that passive cash rent income is transformed into material participation income subject to selfemployment tax. 63 But, in the U.S. Circuit Court of Appeals for the Eighth Circuit (which includes Iowa), if the rental income represents a fair market rate, the rental income is not subject to selfemployment tax. 64 The key concept for farm landlords attempting to qualify rental income as self-employment subject to Social Security tax is material participation. Rental income is self-employment income if it results from a material participation lease. If the lease is a material participation lease, the income is subject to SE tax. If it is not such a lease, the income is not subject to the tax. A lease is a material participation lease if (1) it provides for material participation in the production or in the management of the production of agricultural or horticultural produces, and (2) there is material participation by the landlord. Both requirements must be satisfied. While not required, a written lease does make a material participation arrangement easier to establish. Agricultural program payments that are received under a crop-share or livestock-share lease are considered to be SE income for Social Security purposes if the landlord materially participates under the lease. 24

25 Note: Managing earned income in retirement years can be important, and may have an impact on the leasing arrangement. Persons age can receive an unlimited amount of income without loss of Social Security benefits. For persons under full retirement age (presently age 66), however, the earnings limit in 2011 is $14,160. For excess amounts, benefits are reduced $1 dollar for every $2 over the limit. Thus, for retired farm landlords under full retirement age, they may not be able to receive full Social Security benefits if they are materially participating under a lease. Income tax considerations. There are several important income tax concepts to keep in mind when leasing farm land. USDA cost sharing payments. Under certain federal farm programs, especially those programs designed to provide environmental benefits, the USDA shares in part of the expense associated with complying with the program. If certain requirements are satisfied, a farmer that receives cost-share payments can exclude them from income. Crop-share and livestock-share landlords are eligible to exclude cost-share payments from income. Soil and water conservation expenses. Taxpayers engaged in farming can deduct soil and water conservation expenses in the year incurred under a one-time election, rather than capitalizing the expenditures. One of those requirements is that the taxpayer be engaged in the business of farming. A farm operator or landowner receiving rental income under a crop-share or livestock-share lease satisfies the test. But, a landlord collecting rental income on a cash rent basis is not eligible to deduct soil and water conservation expenses on the associated real estate. The landlord must materially participate in the farming operation. Fertilizer and lime. A taxpayer can deduct fertilizer and lime costs by making an election on the tax return, if the taxpayer is in the trade or business of farming. For farm landlords, the lease must be a crop-share or livestock-share lease. A landlord under a cash rent lease cannot deduct the cost of fertilizer and lime. A farm landlord must be materially participating under the lease. Interest. Most farm interest is fully deductible as business interest. Crop-share and livestockshare leases with substantial involvement in decision-making by the landlord are deemed to be businesses for this purpose. Farm income averaging. Income averaging is available for farmers and fishermen, and allows current farm income to be averaged over three prior base years. The provision is available by election (by filing Schedule J) and provides the benefit of applying lower income tax rates from the prior base years. Iowa income tax issues. Effective January 1, 2007, there is an important provision in Iowa law that is intended to create an incentive for landlords to lease land to individuals with relatively low net worth. Beginning farmer tax credit. Beginning in 2007, a credit against Iowa income tax is available for landlords who lease agricultural assets to a beginning farmer. 65 This provision can have the potential to entirely eliminate Iowa tax for individuals that lease farm property to a beginning farmer for several years. Under the provision, the lease must be from two to five years and must be with a tenant who has a net worth of less than $343,000 (eff. Jan 1, 2012). It is not necessary that the tenant be a first-time farmer, but the tenant must be at least 18 and can be either a family member or non-family member of the landlord. The amount of tax credit for the landlord depends on the type of the lease. The credit is five percent of the gross amount received under a cash lease, and 15 percent of the gross amount received under a crop or livestock-share lease. If the landlord does not have enough income to fully utilize the credit in any given year, the unused amount can be carried forward for up to five years. The credit cannot be transferred to any other person, but it can be transferred to the taxpayer s estate or trust upon the taxpayer s death. 66 * Leonard Dolezal Professor in Agricultural Law, Iowa State University, Ames, Iowa, and Director of the ISU 25

26 Reducing Nutrient Loss: Science Shows What Works Iowa has been working for decades to protect and improve water quality. However, progress measured toward reduction targets at the watershed scale has been challenging, and many complex nutrient-related impacts in Iowa s lakes, reservoirs, and streams remain to be addressed. The Iowa Nutrient Reduction Strategy is a science and technology-based framework to assess and reduce nutrients to Iowa waters and the Gulf of Mexico. It directs efforts to reduce nutrients in surface water from both point and nonpoint sources in a scientific, reasonable, and costeffective manner. reductions, and estimating implementation costs. The assessment shows that broad implementation of a combination of practices will be needed to reach desired load reductions. A Closer Look The need to increase voluntary efforts to reduce nutrient loss is one of the key points related to agriculture in Iowa s Nutrient Reduction Strategy. It was prompted by the 2008 Gulf Hypoxia Action Plan that calls for Iowa and other states along the Mississippi River to develop strategies to reduce nutrient loadings to the Gulf of Mexico. The plan established a goal of at least a 45 percent reduction in total nitrogen and total phosphorus loads. The science assessment identified effective nutrient reduction practices in three categories nitrogen and phosphorus management, land use, and edge-of-field. (See charts on pages 3-4.) The Iowa strategy is a coordinated approach for reducing nutrient loads discharged from the state s largest wastewater treatment plants, in combination with targeted practices designed to reduce loads from nonpoint sources such as agriculture. Management practices involve application rate, timing, and method, plus the use of cover crops and reduced tillage. Success can be achieved using the tools known to work, such as targeted, voluntary conservation measures, in conjunction with research, development, and demonstration of new approaches. The goal is application of proven practices in fields and cities across Iowa. Science Provides Guidance Land use practices include perennial energy crops, extended rotations, grazed pastures, and land retirement. Edge-of-field practices involve drainage water management, wetlands, bioreactors, buffers, terraces, and sediment control. Some practices that have the greatest potential are highlighted here. Management Practices Nitrogen The strategy related to farmland is built on a scientific assessment of practices and associated costs to reduce loading of nitrogen (N) and phosphorus (P) to Iowa surface waters. Rate Reduction: Matching N application rates with the Corn Nitrogen Rate Calculator, a university developed online tool, has potential to reduce nitrate-n loss. This tool estimates optimal N rates based on fertilizer and corn prices. (Find the calculator here: The College of Agriculture and Life Sciences at Iowa State University and the Iowa Department of Agriculture and Land Stewardship partnered to conduct the scientific assessment. The science team consisted of 23 individuals representing five agencies or organizations. itrification Inhibitor: Research shows a corn yield increase N plus a nitrate-n loss decrease when using a nitrification inhibitor (Nitrapyrin) with fall applied anhydrous ammonia. The only cost associated with this practice is the material. There is a corn yield increase of approximately 6 percent. The objective of the science assessment was to identify and model the effectiveness of specific practices at reducing N and P reaching the Gulf of Mexico. Sidedress: Sidedressing N can be done in different ways and with different sources of N, yet the concept of applying fertilizer after corn emergence is consistent. This strategy includes applying N during plant uptake, as well as timing to reduce the risk of loss from leaching events. Sidedressing also allows the N rate to be optimized by either soil sampling or crop canopy sensing. The assessment involved establishing baseline conditions, reviewing scientific literature, estimating potential load 26

27 Management Practices Phosphorus Consider Soil-Test P: This practice involves not applying P on fields where the Soil-Test P (STP) values exceed the upper boundary of the optimum level for corn and soybean in Iowa. The practice would continue until the STP level reaches the optimum level. Cover Crops: Planting a late summer or early fall seeded cover crop can reduce P loss. For example, winter rye offers benefits of easy establishment, seeding aerially or by drilling, growth in cool conditions, initial growth when planted in the fall, and continued growth in the spring. Cover crops also are effective at reducing N loss. Edge-of-Field Practices Nitrogen and Phosphorus Wetlands: Wetlands targeted for water quality benefits show great potential for nitrate-n reduction. Wetland costs include design, construction, buffer seeding, maintenance, and land acquisition. In addition to water quality benefits, these wetlands provide other benefits such as improved aesthetics and habitat. ioreactors: Subsurface drainage bioreactors also show good B potential for nitrate-n reduction. Bioreactor costs include control structures, woodchips, design, construction, seeding, additional tile, management, and maintenance. Reduced Tillage: Conservation tillage, where 30% or more of the soil surface is covered with crop residue after planting, or no-till, where 70% or more of the soil surface is covered with crop residue after planting, reduces soil erosion and surface runoff. Reduced erosion and runoff also reduces P transport. Land Use Practices Nitrogen and Phosphorus Buffers: Edge-of-field technologies such as buffers are designed to settle sediment and sediment-bound N and P, along with retaining nitrate-n and dissolved P. Buffers also provide wildlife habitat, sequester carbon, reduce greenhouse gas emissions, stabilize stream banks, and potentially reduce flood impacts. Costs of buffers can vary greatly depending on width, type of vegetation, and the amount of earthwork required. E xtended Rotations: Extended rotations reduce the application and the loss of both P and nitrate-n. If a shift to extended rotations is significant, the amount of corn and soybean produced in Iowa would be reduced, along with an increase in alfalfa production that could support increased livestock production for alfalfa feeding. Another benefit would be improved soil quality. What s Next? Iowa s Nutrient Reduction Strategy is a key step toward improving Iowa s water quality while ensuring the state s continued economic growth and prosperity. From it, operational plans are being developed through the Water Resources Coordinating Council. The strategy document will evolve over time as new information, data, and science are discovered and adopted. The path forward to reducing nutrient impacts will not be easy, as it will require a high adoption rate of multiple practices to achieve the goal of cleaner water and a profitable agriculture. To learn more about the practices that may be right for your farm, attend a field day, contact the Iowa Department of Agriculture and Land Stewardship, or Iowa State University Extension and Outreach, or a certified crop adviser. Energy Crops Replacing Row Crops: Although there is not a current large market for perennial biomass crops as a source for energy or transportation fuel production, there are local and regional markets. Replacing row crops with energy crops or integrating energy crops within the rowcrop landscape decreases erosion, surface runoff, and leaching losses in the area implemented; therefore, the loss of both P and nitrate-n is reduced. An added benefit is an increase in wildlife habitat. More information on Iowa s Nutrient Reduction Strategy is available at 27

28 Iowa Strategy to Reduce Nutrient Loss: Nitrogen Practices This table lists practices with the largest potential impact on nitrate-n concentration reduction (except where noted). Corn yield impacts associated with each practice also are shown as some practices may be detrimental to corn production. If using a combination of practices, the reductions are not additive. Reductions are field level results that may be expected where practice is applicable and implemented. Nitrogen Management Practice Comments % Nitrate-N Reduction + % Corn Yield Change ++ Average (SD*) Average (SD*) Moving from fall to spring pre-plant application 6 (25) 4 (16) Spring pre-plant/sidedress split Timing Compared to fall-applied 5 (28) 10 (7) Sidedress Compared to pre-plant application 7 (37) 0 (3) Sidedress Soil test based compared to pre-plant 4 (20) 13 (22) ** Source Liquid swine manure compared to spring-applied fertilizer 4 (11) 0 (13) Poultry manure compared to spring-applied fertilizer -3 (20) -2 (14) Nitrogen rate at the MRTN (0.10 N:corn price ratio) compared to current estimated application rate. Nitrogen (ISU Corn Nitrogen Rate Calculator Application Rate can be used to estimate MRTN but this would change 10-1 Nitrate-N concentration reduction) Nitrification Nitrapyrin in fall Compared to fall-applied Inhibitor without Nitrapyrin 9 (19) 6 (22) Cover Crops Rye 31 (29) -6 (7) Oat 28 (2) -5 (1) Living Mulches e.g. Kura clover Nitrate-N reduction from one site 41 (16) -9 (32) Land Use Perennial Energy Crops Compared to spring-applied fertilizer 72 (23) Land Retirement (CRP) Compared to spring-applied fertilizer 85 (9) Extended Rotations At least 2 years of alfalfa in a 4 or 5 year rotation 42 (12) 7 (7) Grazed Pastures No pertinent information from Iowa assume similar to CRP 85 Edge-of-Field Drainage Water Mgmt. No impact on concentration 33 (32) Shallow Drainage No impact on concentration 32 (15) Wetlands Targeted water quality 52 Bioreactors 43 (21) Buffers Only for water that interacts with the active zone below the buffer. This would only be a fraction of all water that makes it to a stream. 91 (20) + A positive number is nitrate concentration or load reduction and a negative number is an increase. ++ A positive corn yield change is increased yield and a negative number is decreased yield. Practices are not expected to affect soybean yield. * SD = standard deviation. Large SD relative to the average indicates highly variable results. ** This increase in crop yield should be viewed with caution as the sidedress treatment from one of the main studies had 95 lb-n/acre for the pre-plant treatment but 110 lb-n/acre to 200 lb-n/acre for the sidedress with soil test treatment so the corn yield impact may be due to nitrogen application rate differences. 28

29 Iowa Strategy to Reduce Nutrient Loss: Phosphorus Practices Practices below have the largest potential impact on phosphorus load reduction. Corn yield impacts associated with each practice also are shown, since some practices may increase or decrease corn production. If using a combination of practices, the reductions are not additive. Reductions are field level results that may be expected where practice is applicable and implemented. Phosphorus Management Practices Practice Phosphorus Application Source of Phosphorus Placement of Phosphorus Comments % P Load Reduction a % Corn Yield Change b Average (SD c ) Average (SD c ) Applying P based on crop removal Assuming optimal STP level and P incorporation 0.6 d 0 Soil-Test P No P applied until STP drops to optimum 17 e 0 Liquid swine, dairy, and poultry manure compared to commercial fertilizer Runoff shortly after application 46 (45) -1 (13) Beef manure compared to commercial fertilizer Runoff shortly after application 46 (96) Broadcast incorporated within 1 week compared to no incorporation, same tillage 36 (27) 0 With seed or knifed bands compared to surface application, no incorporation 24 (46) 0 Cover Crops Winter rye 29 (37) -6 (7) Conservation till chisel plowing compared Tillage to moldboard plowing 33 (49) 0 (6) No till compared to chisel plowing 90 (17) -6 (8) Land Use Change Perennial Vegetation Energy Crops 34 (34) Land Retirement (CRP) 75 Grazed pastures 59 (42) Erosion Control and Edge-of-Field Practices Terraces 77 (19) Buffers 58 (32) Control Sedimentation basins or ponds 85 a - A positive number is P load reduction and a negative number is increased P load. b - A positive corn yield change is increased yield and a negative number is decreased yield. Practices are not expected to affect soybean yield. c - SD = standard deviation. Large SD relative to the average indicates highly variable results. d - Maximum and average estimated by comparing application of 200 and 125 kg P 2 O 5 /ha, respectively, to 58 kg P 2 O 5 /ha (corn-soybean rotation requirements) (Mallarino et al., 2002). e - Maximum and average estimates based on reducing the average STP (Bray-1) of the two highest counties in Iowa and the statewide average STP (Mallarino et al., 2011a), respectively, to an optimum level of 20 ppm (Mallarino et al., 2002). Minimum value assumes soil is at the optimum level. f - P retention in wetlands is highly variable and dependent upon such factors as hydrologic loading and P mass input. SPONSORS Iowa State University Extension and Outreach programs are available to all without regard to race, color, age, religion, national origin, sexual orientation, gender identity, genetic information, sex, marital status, disability, or status as a U.S. veteran. Inquiries can be directed to the Director of Equal Opportunity and Compliance, 3280 Beardshear Hall, (515) SP 435 August

30 File C2-70 January Farmland Value Survey The survey was initiated in 1941 and is sponsored annually by the Iowa Agriculture and Home Economics Experiment Station, Iowa State University. Only the state average and the district averages are based directly on the ISU survey data. The county estimates are derived using a procedure that combines the ISU survey results with data from the U.S. Census of Agriculture. The survey was conducted by Michael Duffy. The survey is intended to provide information on general land value trends, geographical land price relationships and factors influencing the Iowa land market. The survey is not intended to provide an estimate for any particular piece of property. The survey is based on reports by licensed real estate brokers and selected individuals considered to be knowledgeable of land market conditions. Respondents were asked to report on more than one county if they were knowledgeable about the land markets. The 2013 survey is based on 476 usable responses providing 674 county land values estimates. The number of respondents was down 2 percent compared to last year s survey but the number of county values increased by 2 percent. Participants in the survey are asked to estimate the value of high, medium and low grade land in their county. Comparative sales and other factors are taken into account by the respondents in making these value estimates. Major Factors Influencing the Real Estate Market Most of the survey respondents (88 percent) listed positive and/or negative factors influencing the land market. Of these respondents almost 83 percent listed at least one positive factor and 77 percent listed at least one negative factor. The respondents listed multiple factors in most cases. There were 7 positive factors listed by over 10 percent of the respondents who provided at least 1 positive factor. The most frequently mentioned factor was low interest rates, mentioned by 56 percent of the respondents. High commodity prices were the second most frequently mentioned positive factor, being mentioned by 37 percent of the respondents. Other frequently mentioned positive factors included, strong farm income and economy (24 percent), land availability (15 percent), cash/credit availability (14 percent), good yields (13 percent), and a strong demand for land (11 percent). There were 6 negative factors listed by more than 10 percent of the respondents who identified at least one negative factor. The most frequently mentioned negative factor on land values was the lower commodity prices, mentioned by 76 percent of the respondents and the weather was the second most frequently mentioned negative factor (21 percent). A closely related factor mentioned was poor yields (13 percent). The remaining negative factors were government programs (11 percent), long term interest rates (10 percent) and general uncertainty (10 percent). Figure 1. Average value per acre of Iowa farmland. $9,000 $8, $8,000 $7,500 $7,000 $6,500 $6,000 $5,500 $5, $4,500 $4,000 $3,500 $3,000 $2, $2,000 $1, $1,000 $ $ Source: Iowa State University Extension and Outreach Land Values Survey 30 Michael D. Duffy, extension economist , mduffy@iastate.edu

31 Page 2 File C2-70 Number of Sales Compared to Previous Year Almost half, (48 percent) of the respondents reported lower sales in 2013 relative to On the other end of the spectrum, just 16 percent reported more sales and 36 percent reported the same level of sales in 2013 relative to Land Sales by Buyer Category Respondents were asked what percent of the land was sold to the following four categories of buyers. Existing farmers represented 77 percent of the sales. Investors represented 18 percent. New farmers represented 3 percent. Other purchasers represented 2 percent. Sales to existing farmers by Crop Reporting Districts ranged from 86 percent in Northwest to 63 percent in South Central. Sales to investors were highest in South Central (27 percent). Southeast reported the lowest investor activity (12 percent). Interpretation of Survey Results The Iowa State University land value survey reported a 5.1 percent increase in Iowa farmland values. This is the ninth time in the past 10 years land values have increased. Except for 2009, the 2013 increase is the first time values have increased less than double digits since The 2013 survey also revealed different land value changes within the state. This was only the second time in the past ten years where some counties reported lower land values than the year before. In 2009, 85 counties reported lower land values and in 2013 there were 14 counties that reported lower land values. Except for 2009 and 2013, since 2004 all county land values have increased each year. The slowing or even reversal of the rate of increase in land values is supported by data from other surveys. The Realtors Land Institute reported land values up 9.4 percent from September 2012 to March 2013 but only up 1.2 percent from March 2013 to September The Federal Reserve Bank of Chicago reported Iowa land values up 9 percent from October 2012 to October But, the same survey reported Iowa land values decreased by 1 percent from July to October, Other results from the Iowa State study show the changing situation with respect to Iowa farmland values. The percent of respondents who reported fewer Table 1. Recent changes in Iowa farmland values. Value Dollar Percentage Year per acre change change sales than the year before was the highest it has been since With the exception of 2009, the percent of respondents who reported an increase in sales was the lowest it has been since The 2013 survey also reveals the shift that occurred in regions of the state. For the past three years, , O Brien County reported the highest land values in the state. In 2013, Scott County reported the highest land values. Land values in O Brien County actually dropped the most of any counties reporting lower values. Scott County increased the most. It is interesting to note that from 1950 to 1973 Scott County had the highest land values in the state. Then from 1974 to 1977, Humboldt County had the highest land values. From 1978 to 2009 Scott County once again had the highest land values. The only time Scott County hasn t had the highest land values was during the two boom periods covered by the Iowa State University survey. 31

32 File C2-70 Page 3 It is important to remember that the Iowa State University survey is an opinion survey covering the time period from November 2012 to November When comparing surveys be sure to consider the time period covered. This can be especially relevant in times like these when the land values are not exhibiting a uniform change. An opinion survey is just that. It represents the collective opinion of the survey respondents. Most of the respondents will use actual sales to formulate their opinions but each person can choose to weight or discount particular sales as they deem necessary. A study comparing the Iowa State University opinion survey and actual sales data in Iowa showed that the differences were not statistically significant. Some years the opinion was higher and vice versa. For some counties the differences were greater in one year and less in another. So, even though the opinion survey averaged higher than the sales it was not a difference that was significant. Outlook for Land Values The current situation with respect to Iowa land values was described by one of the respondents as being a plateau. He based this comment on his observation there had been some very strong sales in his area but there had also been some weak or no sales at recent auctions. This was a sentiment echoed by many of the respondents. Strong and weak price sales occurring at the same time indicate a market in flux. The key question is if this shows the market is going to settle into a plateau, if it is just pausing before another takeoff in values or if the market has peaked and due for a correction. The single biggest factor to assess land value movement is gross farm income. Any asset held in perpetuity is valued by income divided by a capitalization rate. The capitalization rate is important but income or expectations for income appear to have the major influence on land values. A majority of the survey respondents were concerned about income. Over three-fourths, 76 percent, of the respondents cited lowers commodity prices as a negative factor affecting the land markets. Data show the rate of increase in land values slowed and commodity prices started dropping after June In Iowa corn and soybean price movements are good indicators of gross farm income movement. There was a 33 percent drop in the Iowa average corn price from October 2012 to October 2013 and there was an 11 percent drop in soybean prices over the same time period. The November estimated price for Iowa corn was 39 percent lower than the November 2012 price. Soybean price were 11 percent lower. The gross value added for the Iowa agricultural sector increased 28 percent from 2008 to 2012 and net farm income increased 40 percent over the same time period. Projections for 2013 are not available at the state level but the current national forecasts show that cash projections are lower but total gross income and net farm income both increase, albeit at a lower level than the past few years. Marketing year prices for both corn dropped 12 percent from 2008 to 2009 and soybean prices decreased 7 percent over the same time. The year 2009 is significant because it was the last time land values dropped statewide in Iowa. We are in a situation similar to 2009 where commodity prices dropped. Will commodity prices rebound as they did in 2010 or will they continue down? This is the key to which way land values will go. There are many competing forces that will influence prices over the coming years. For now it appears there are more factors that will lead to lower prices as opposed to returning to levels of the past few years. What land values will be supported by $4.00 corn remains to be seen. Given the variances in the weather of the past few years and world economic conditions will prices settle into a trading range or will there be wide swings? The impact of this situation on land values isn t known. The odds are against a major collapse in land values. But, if projections of a new lower level for commodity prices hold then we should expect land values to drop. The impact of lower income and declining land values will depend on the individual situation. In the 1980s the collapse impacted almost everyone. What will happen this time will be a slower adjustment to the new price/income realities. Some people will be hard hit by the lower cash flow and income but that depends on how they are situated financially. There have been three golden eras for Iowa land values over the past 100 years. The first one ended in a long, drawn out decline in land values from 1921 to 1933, the second golden era ended with a sudden collapse from 1981 to 1986, how this third golden era will end isn t known at this time but it would appear that it will be a more orderly adjustment rather than the sudden collapse. 32

33 Page 4 File C2-70 Table 2. Average value per acre of Iowa farmland listed by crop reporting districts and grades of land. Year State North- North North- West East South- South South- Avg west Central east Central Central Central west Central east All grades High grade Medium grade Low grade

34 Page 5 File C2-70 Figure Land values by county. 10,875 11,295 9,798 10,176 11,002 11,426 Sioux Clay O'Brien 12,296 12,502 12,384 12,862 Woodbury Monona 10,931 11,072 9,539 9,475 9,088 8,637 9,466 9,215 9,753 9,142 Montgomery 8,955 8,280 8,021 7,416 Dallas 8,576 8,220 Union 5,564 5,094 5,487 4,972 Ringgold Taylor 6,674 6,171 Clarke 5,116 4,689 4,549 4,124 Mahaska Marion 7,079 6,352 Lucas 4,228 3,791 Decatur 4,010 3,584 Wayne 3,628 3,242 Jones 3,845 3,436 8,332 7,619 10,175 9,189 Iowa 5,150 4,627 3,820 3,414 9,105 8,226 Jefferson 5,904 5,318 5,903 5,319 Davis Appanoose 9,763 8,774 7,007 6,330 Wapello 9,566 8,545 Muscatine Jackson 7,481 7,003 Clinton 8,153 7,426 Van Buren 5,406 4,854 5,070 4,553 Scott 12,413 11,039 9,076 8,112 Washington Keokuk 7,366 6,636 Monroe Johnson 8,116 7,454 8,138 7,465 8,375 7,643 7,420 6,748 8,957 8,584 Cedar Poweshiek Jasper Warren 7,542 6,953 9,805 9,290 Linn 9,826 9,134 9,145 8,527 8,976 8,339 10,566 9,930 9,174 8,524 Madison Benton Tama Dubuque Delaware 10,113 9,479 11,239 10,511 Marshall Polk 9,718 9,152 6,884 6,425 Adams 7,260 6,713 Page Fremont 10,225 9,614 9,556 9,206 Adair 8,494 7,984 Story 7,814 7,542 Buchanan Black Hawk 10,931 10,253 9,844 9,498 Clayton 9,080 8,652 10,348 9,745 Grundy 5,910 5,705 Fayette Bremer 9,904 9,387 Hardin 10,907 10,514 Boone Guthrie Cass Pottawattamie Mills Greene Audubon 9,719 9,252 10,586 10,207 8,700 8,202 Butler 9,717 9,606 Hamilton 10,270 10,401 Shelby Harrison Webster 10,856 10,530 Carroll Crawford 8,292 8,005 10,786 10,659 Calhoun Sac 10,281 10,197 10,499 10,375 10,530 10,580 Franklin 7,712 7,354 Chickasaw 9,863 9,203 Allamakee Winneshiek 7,824 7,380 Floyd 10,020 9,611 Wright Howard 9,777 9,123 Cerro Gordo 9,884 9,739 Humboldt Pocahontas 11,148 11,501 Ida 8,426 8,148 9,982 10,199 9,444 9,063 Hancock 10,231 10,407 Mitchell Worth Winnebago 9,263 9,145 Palo Alto Buena Vista 10,581 10,739 11,366 11,266 Kossuth 10,155 10,466 10,372 10,688 Cherokee Plymouth Emmet Dickinson Osceola Lyon Louisa Henry 7,433 6,696 Lee 8,550 7,681 Des Moines 8,035 7,237 7,192 6,454 County estimates of average dollar value per acre for Iowa farmland based on U.S. Census of Agriculture estimates and the Nov. 1, 2013, Iowa Land Value Survey conducted by ISU Extension and Outreach. The top figure is the estimated Nov. 1, 2013, value; the bottom figure is the estimated Nov. 1, 2012, value. Figure Land values by crop reporting district. 12,824 9,918 6,845 11,159 8,824 6,421 11,423 8,573 5,670 $10,960 $9,818 $9,161 Down 3.9% Up 2.7% Up 7.5% 11,591 8,725 5,926 11,803 8,930 5,918 11,631 8,567 5,449 $9,449 $9,877 $9,327 Up 2.5% Up 5.5% Up 10.8% 9,591 7,137 4,592 7,150 4,715 2,843 9,785 6,605 3,651 $7,531 $4,791 $6,994 Up 7.4% Up 11.2% Up 13.3%... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th Estimates of average dollar value per acre for high, medium, and low grade farmland (top row) on Nov. 1, 2013, by Iowa Crop Reporting District; (middle row) the Crop Reporting District average; and (bottom row) the average percentage change from Nov. 1, and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 34

35 File C2-75 April 2014 R Farmland Value Survey Realtors Land Institute T he Iowa Farm & Land Chapter #2 Realtors Land Institute has released the results of its March 2014 Iowa Land Trends and Values Survey. The Realtors Land Institute is an arm of the National Association of Realtors and is organized for realtors who specialize in farm and land sales, management and appraisal. All participants in the survey deal almost exclusively in farmland. Participants were asked to estimate average values of farmland as of March The estimates are for bare, unimproved land with the sale price on a cash basis. Pasture and timber land values were also requested as supplemental information. Kyle J. Hansen, ALC Hertz Real Estate Service

36 Page 2 File C2-75 Table 1. Survey of farmland values (dollars per acre). Iowa Farm & Land Chapter #2, Realtors Land Institute Area in Iowa Land classification by potential corn production High quality crop land Medium quality crop land Low quality crop land Non-tillable pasture Timber Sept. March Sept. March Sept. March Sept. March Sept. March Change in tillable cropland values past 6 months Central $11,890 $11,305 $9,062 $8,432 $6,139 $5,569 $2,641 $2,656 $2,131 $2, % East Central 11,732 11,283 8,744 8,337 5,736 5,387 2,890 2,788 2,418 2, % North Central 11,938 11,208 9,536 8,850 6,809 6,175 2,383 2,313 1,958 1, % Northeast 12,950 12,203 9,675 8,894 6,178 5,661 2,743 2,771 2,444 2, % Northwest 13,534 12,930 10,438 9,843 6,740 6,706 2,816 2,816 2,586 2, % South Central 8,644 8,056 6,345 6,228 3,569 3,618 2,450 2,494 2,408 2, % Southeast 11,402 10,698 8,044 7,216 4,500 4,016 2,225 2,353 1,922 1, % Southwest 10,813 10,744 8,031 7,981 5,767 5,367 3,093 3,393 1,900 2, % West Central 12,165 11,510 9,458 9,126 6,629 6,392 2,844 3,039 2,125 2, % State Average 11,674 11,104 8,815 8,323 5,785 5,432 2,676 2,736 2,210 2, %... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 36

37 Cash Rental Rates for Iowa Ag Decision Maker 2014 Survey File C2-10 The cash rental rate information presented in this publication is the result of a survey of farmers, landowners, agricultural lenders, and professional farm managers. They supplied information based on their best judgments about typical cash rental rates for high, medium, and low quality cropland in their counties, as well as for land devoted to production of hay, oats, and pasture. Information about rents for individual farms was not collected. The rental rates summarized in this bulletin do not include the value of any buildings or storage structures, manure application contracts, or seed production contracts. The cooperation and assistance of the landowners, farmers, and agribusiness people who responded to this survey are greatly appreciated. The distribution of the 1,674 responses was 50 percent from farmers, 25 percent from landowners, 15 percent from agricultural lenders, 7 percent from professional farm managers, and 3 percent from other professions. Determining Cash Rents The information in this summary can be used as a reference point for determining an appropriate cash rental rate for a particular farm. Circumstances such as the following may justify a higher or lower than average rent in specific cases: Small size or unusual shape of fields Presence of terraces or creeks that affect the time it takes to plant and harvest crops Difficult or restricted access to fields High or low fertility levels or ph index Existence of contracts for growing seed or specialty grains, or application of manure Above average local grain prices due to proximity to biofuel plants or feed mills USDA program variables, such as crop bases and assigned yields Longevity of the lease Other services performed by the tenant Additional survey information about cash rental rates by county is available from the National Agricultural Statistics Service (NASS) at the following website: Publications/County_Estimates/index.asp. Details about setting a fair cash rent can be found in the following Ag Decision Maker Information Files, located under Whole Farm, Leasing, at the following website: Computing a Cropland Cash Rental Rate (File C2-20) Computing a Pasture Rental Rate (File C2-23) Flexible Farm Lease Agreements (File C2-21) Definitions Number of responses number of individuals who reported typical rental rates for each county average yields based on farm level data collected by National Agricultural Statistics Service (NASS) for each county. Average row crop CSR2 index average corn suitability rating 2 (CSR2) for the highest rated acres in each county, up to 110 percent of the number of acres planted to corn and soybeans in that county. Note: values were converted to the CSR2 system in High, medium and low quality third land quality of land planted to corn and soybeans, using typical corn yields as a reference for land quality within the county. Typical corn yields average yields for the high third, medium third, and low third productivity farms in each county as reported to NASS. Average rents per unit overall average rent for corn/ soybean land in each county, divided by the five-year average corn yield, the five-year average soybean yield, and the average row crop CSR2 index value for each county. Improved permanent pasture pasture that contains both grasses and legumes and is regularly fertilized. Unimproved pasture pasture with mainly bluegrass that receives little fertilizer or renovation. Pasture, $/AUM rent charged per animal unit month. One AUM is equal to a beef cow and calf or equivalent grazing for one month. Cornstalk grazing includes grazing of cornstalks in fall or winter, but not mechanical harvesting. Hunting rights rent charged to allow hunting on land, per year. FM 1851 Revised May

38 Page 2 Overall Average of Typical Cash Rents Corn and Soybean Acres District 1 $188 $224 $267 $283 $270 District District District District District District District District State $184 $214 $252 $270 $ and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Prepared by William Edwards, extension economist Ann Johanns, extension program specialist Jordan Neighbor, student assistant Farm Management Field Specialists store.extension.iastate.edu 38

39 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 1 County District Average Buena Vista Cherokee Clay Dickinson Emmet Lyon O Brien Osceola Palo Alto Plymouth Pocahontas Sioux Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $270 $298 $294 $258 $240 $234 $266 $269 $281 $259 $280 $271 $289 Irrigated land average $375 $379 High quality third Average response $324 $370 $334 $305 $293 $275 $339 $334 $351 $302 $332 $303 $352 Range of responses Medium quality third Average response $271 $286 $308 $259 $234 $232 $273 $265 $291 $256 $278 $279 $292 Range of responses Low quality third Average response $215 $238 $239 $208 $193 $196 $188 $210 $201 $220 $230 $230 $224 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.51 $1.73 $1.62 $1.46 $1.40 $1.34 $1.43 $1.45 $1.52 $1.47 $1.65 $1.55 $1.58 Rent per bu. of soybean yield $5.38 $6.21 $5.55 $5.16 $5.00 $4.98 $4.93 $5.08 $5.51 $5.51 $5.60 $5.77 $5.25 Rent per CSR2 index point $3.10 $3.31 $3.23 $2.93 $2.70 $2.75 $3.33 $2.83 $3.19 $3.08 $3.37 $3.23 $3.25 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $219 $183 $257 $233 Grass hay, established $163 $178 $146 Oats $223 $247 $220 Improved permanent pasture $82 $59 $108 $108 $89 Unimproved perm. pasture $57 $50 $63 $71 $61 Pasture, $/AUM NA Cornstalk grazing $11 $8 Hunting rights $27 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 39

40 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 2 County District Average Butler Cerro Gordo Floyd Franklin Hancock Humboldt Kossuth Mitchell Winnebago Worth Wright Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $270 $285 $274 $225 $286 $289 $275 $269 $248 $266 $245 $304 Irrigated land average $323 High quality third Average response $322 $341 $327 $265 $342 $351 $329 $324 $296 $316 $297 $354 Range of responses Medium quality third Average response $272 $286 $278 $225 $287 $290 $289 $266 $248 $272 $247 $304 Range of responses Low quality third Average response $215 $228 $216 $185 $230 $226 $209 $218 $199 $210 $192 $253 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.60 $1.68 $1.71 $1.36 $1.67 $1.70 $1.65 $1.51 $1.47 $1.56 $1.45 $1.80 Rent per bu. of soybean yield $5.69 $5.82 $5.96 $4.69 $5.96 $6.15 $5.85 $5.49 $5.28 $5.66 $5.33 $6.47 Rent per CSR2 index point $3.22 $3.39 $3.30 $2.62 $3.36 $3.57 $3.20 $3.24 $2.85 $3.28 $2.95 $3.62 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $208 $225 Grass hay, established $138 Oats $197 Improved permanent pasture $71 $75 Unimproved perm. pasture $50 $58 $57 $39 $51 $41 Pasture, $/AUM NA Cornstalk grazing NA Hunting rights NA * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 40

41 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 3 County District Average Black Hawk Bremer Buchanan Allamakee Chickasaw Clayton Delaware Dubuque Fayette Howard Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Winneshiek Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $277 $251 $304 $307 $272 $242 $258 $301 $312 $276 $243 $278 High quality third Average response $336 $334 $349 $366 $329 $286 $328 $375 $363 $339 $286 $338 Range of responses Medium quality third Average response $278 $249 $312 $311 $269 $255 $258 $299 $314 $278 $242 $277 Range of responses Low quality third Average response $216 $171 $252 $245 $220 $186 $187 $229 $259 $210 $200 $220 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.62 $1.49 $1.84 $1.76 $1.63 $1.44 $1.48 $1.76 $1.76 $1.63 $1.44 $1.60 Rent per bu. of soybean yield $5.49 $5.02 $6.20 $6.02 $5.55 $5.04 $4.78 $5.79 $5.67 $5.52 $5.17 $5.67 Rent per CSR2 index point $3.44 $3.18 $3.58 $3.53 $3.24 $2.85 $3.49 $3.81 $4.39 $3.33 $2.93 $3.48 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $265 $226 $277 $234 $273 $299 $263 $273 Grass hay, established $202 $179 $168 $155 $236 $198 $223 Oats $235 $231 $275 $260 $216 Improved permanent pasture $75 $50 $68 $83 $71 $91 Unimproved perm. pasture $47 $39 $37 $53 Pasture, $/AUM $16 $14 Cornstalk grazing $9 Hunting rights $8 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 41

42 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 4 County District Average Audubon Calhoun Carroll Crawford Greene Guthrie Harrison Ida Monona Sac Shelby Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $288 $281 $265 $297 $312 $282 $230 $284 $314 $294 $307 $295 $291 Irrigated land average $325 $333 $308 $331 High quality third Average response $339 $341 $302 $338 $375 $324 $278 $332 $366 $352 $350 $358 $349 Range of responses Medium quality third Average response $288 $284 $271 $304 $305 $282 $226 $285 $317 $295 $313 $292 $288 Range of responses Low quality third Average response $236 $219 $221 $247 $257 $241 $186 $233 $260 $237 $259 $236 $235 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Woodbury Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.74 $1.76 $1.67 $1.84 $1.81 $1.75 $1.58 $1.70 $1.73 $1.79 $1.84 $1.70 $1.76 Rent per bu. of soybean yield $6.00 $5.62 $6.02 $6.19 $6.12 $6.27 $5.11 $6.17 $6.04 $6.26 $6.40 $5.78 $6.06 Rent per CSR2 index point $3.65 $3.60 $3.05 $3.58 $4.11 $3.28 $2.77 $3.84 $3.78 $4.26 $3.45 $4.04 $4.10 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $222 $180 $216 Grass hay, established $172 $141 Oats $214 Improved permanent pasture $84 $88 $64 $87 $78 $94 Unimproved perm. pasture $57 $62 $56 $51 $50 $67 Pasture, $/AUM NA Cornstalk grazing $7 $7 $8 $7 $8 $5 Hunting rights $12 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 42

43 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 5 County District Average Boone Dallas Grundy Hamilton Hardin Jasper Marshall Polk Poweshiek Story Tama Webster Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $284 $270 $265 $330 $308 $286 $266 $282 $275 $260 $301 $279 $289 High quality third Average response $336 $315 $311 $386 $354 $346 $330 $336 $338 $303 $359 $330 $323 Range of responses Medium quality third Average response $286 $271 $276 $326 $309 $287 $261 $287 $274 $260 $298 $281 $299 Range of responses Low quality third Average response $231 $223 $207 $279 $262 $226 $207 $222 $213 $216 $246 $227 $245 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.73 $1.63 $1.71 $1.85 $1.95 $1.66 $1.63 $1.66 $1.77 $1.57 $1.88 $1.66 $1.75 Rent per bu. of soybean yield $5.72 $5.74 $5.64 $6.00 $6.70 $5.61 $5.32 $5.22 $5.61 $5.00 $6.27 $5.26 $6.28 Rent per CSR2 index point $3.30 $3.07 $2.94 $3.75 $3.58 $3.33 $3.33 $3.32 $3.02 $3.17 $3.46 $3.24 $3.40 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $186 $212 $159 $185 $169 $206 Grass hay, established $138 $152 Oats $167 $169 Improved permanent pasture $71 $63 $73 $53 $74 Unimproved perm. pasture $53 $53 $53 $57 $46 $43 $57 $65 $56 Pasture, $/AUM NA Cornstalk grazing $20 Hunting rights $11 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 43

44 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 6 County District Average Benton Cedar Clinton Iowa Jackson Johnson Jones Linn Muscatine Scott Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $273 $294 $267 $275 $264 $266 $249 $269 $280 $252 $318 Irrigated land average $338 $338 High quality third Average response $337 $350 $326 $331 $320 $322 $318 $337 $360 $318 $388 Range of responses Medium quality third Average response $272 $301 $257 $272 $261 $267 $251 $269 $284 $250 $307 Range of responses Low quality third Average response $212 $230 $220 $223 $211 $210 $178 $202 $197 $188 $260 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.65 $1.80 $1.52 $1.58 $1.62 $1.67 $1.52 $1.60 $1.68 $1.59 $1.96 Rent per bu. of soybean yield $5.26 $5.76 $4.85 $5.19 $5.18 $5.22 $4.98 $5.08 $5.60 $4.94 $5.78 Rent per CSR2 index point $3.34 $3.46 $3.07 $3.77 $3.30 $3.75 $2.90 $3.41 $3.22 $3.00 $3.57 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $213 $220 $237 $182 $200 Grass hay, established $167 $129 $191 $178 $155 Oats $170 $158 $186 Improved permanent pasture $83 $79 $78 $87 Unimproved perm. pasture $56 $44 $55 $64 $59 $53 $79 $48 Pasture, $/AUM $24 $20 Cornstalk grazing $9 $9 Hunting rights $13 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 44

45 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 7 County District Average Adair Adams Cass Fremont Mills Montgomery Page Pottawattamie Taylor Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $249 $191 $259 $268 $241 $248 $254 $250 $272 $254 High quality third Average response $301 $223 $324 $322 $287 $301 $316 $308 $317 $312 Range of responses Medium quality third Average response $248 $195 $246 $279 $241 $251 $252 $244 $275 $247 Range of responses Low quality third Average response $197 $156 $207 $202 $196 $191 $194 $197 $225 $204 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.64 $1.34 $1.80 $1.69 $1.53 $1.53 $1.61 $1.70 $1.62 $1.98 Rent per bu. of soybean yield $5.37 $4.24 $5.63 $5.58 $5.13 $5.17 $5.29 $5.56 $5.55 $6.20 Rent per CSR2 index point $3.12 $2.45 $3.60 $3.31 $2.90 $2.95 $3.18 $3.01 $3.44 $3.22 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $134 $115 $91 $196 $141 Grass hay, established $111 $89 $169 $116 Oats $108 Improved permanent pasture $86 $72 $84 $96 $101 $78 Unimproved perm. pasture $61 $52 $67 $55 $67 $63 $60 Pasture, $/AUM $20 Cornstalk grazing $8 $7 $9 $12 Hunting rights $18 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 45

46 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 8 County District Average Appanoose Clarke Decatur Lucas Madison Marion Monroe Ringgold Union Warren Wayne Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $202 $174 $174 $181 $182 $221 $247 $179 $196 $245 $245 $180 High quality third Average response $252 $217 $220 $221 $230 $271 $315 $228 $240 $304 $308 $219 Range of responses Medium quality third Average response $202 $178 $170 $188 $179 $219 $243 $182 $196 $249 $234 $181 Range of responses Low quality third Average response $153 $127 $131 $133 $138 $174 $183 $126 $152 $183 $194 $140 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.74 $1.72 $1.63 $1.63 $1.72 $1.63 $1.75 $1.69 $1.81 $1.96 $1.90 $1.71 Rent per bu. of soybean yield $4.93 $4.83 $4.46 $4.64 $4.79 $5.02 $5.26 $4.59 $4.78 $5.57 $5.33 $5.00 Rent per CSR2 index point $2.58 $2.38 $2.29 $2.45 $2.36 $2.54 $3.05 $2.27 $2.68 $2.92 $2.85 $2.57 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $111 $80 $91 $98 $140 $131 $104 $139 $94 Grass hay, established $83 $64 $68 $75 $113 $96 $82 $74 Oats $118 $126 Improved permanent pasture $71 $69 $64 $74 $67 $114 $76 Unimproved perm. pasture $47 $45 $42 $42 $43 $52 $41 $44 $78 $59 Pasture, $/AUM $25 Cornstalk grazing $10 $9 $10 Hunting rights $13 $19 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 46

47 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY FOR CROP REPORTING DISTRICT 9 County District Average Davis Des Moines Henry Jefferson Keokuk Lee Louisa Mahaska Van Buren Wapello Number of responses* Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $229 $183 $251 $232 $213 $266 $201 $238 $245 $189 $212 $284 Irrigated land average $321 $309 High quality third Average response $297 $261 $325 $294 $271 $345 $258 $314 $315 $236 $281 $363 Range of responses Medium quality third Average response $228 $162 $257 $231 $213 $261 $205 $233 $247 $196 $209 $301 Range of responses Low quality third Average response $161 $125 $170 $170 $156 $191 $140 $167 $174 $136 $147 $190 Range of responses Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.70 $1.74 $1.71 $1.69 $1.75 $1.89 $1.57 $1.58 $1.59 $1.58 $1.68 $1.88 Rent per bu. of soybean yield $4.96 $4.95 $5.12 $4.83 $4.73 $5.54 $4.57 $4.86 $4.90 $4.50 $4.93 $5.68 Rent per CSR2 index point $2.85 $2.51 $2.99 $2.83 $2.63 $3.24 $2.58 $3.01 $2.99 $2.49 $2.62 $3.42 Washington Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $161 $100 $122 $131 $178 Grass hay, established $112 $72 $95 $91 $122 Oats $141 $114 Improved permanent pasture $74 $80 Unimproved perm. pasture $42 $50 $46 $49 $44 $36 Pasture, $/AUM NA Cornstalk grazing $18 Hunting rights $13 $12 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 47

48 Cash Rental Rates for Iowa Survey Page CASH RENTAL SURVEY SUMMARY BY CROP REPORTING DISTRICT County State Average Northwest District 1 Average North Central District 2 Average Northeast District 3 Average West Central District 4 Average Central District 5 Average East Central District 6 Average Southwest District 7 Average South Central District 8 Average Number of responses* 1, Avg. Corn Yield Avg. Bean Yield Avg. Row Crop CSR2 Index Southeast District 9 Average Typical Cash Rent for Corn and Soybeans, $ per tillable acre Overall average $260 $269 $270 $277 $288 $284 $273 $249 $202 $229 Irrigated land average $375 $323 $325 $338 $321 High quality third Average response $316 $323 $322 $336 $339 $336 $337 $301 $252 $297 Medium quality third Average response $261 $271 $272 $278 $288 $286 $272 $248 $202 $228 Low quality third Average response $204 $215 $215 $216 $236 $231 $212 $197 $153 $161 Typical Corn Yield, bu. per acre High third Middle third Low third Average Rents per 5 Year Average Yield or CSR2 Rent per bu. of corn yield $1.66 $1.51 $1.60 $1.62 $1.74 $1.73 $1.65 $1.64 $1.74 $1.70 Rent per bu. of soybean yield $5.42 $5.38 $5.69 $5.49 $6.00 $5.72 $5.26 $5.37 $4.93 $4.96 Rent per CSR2 index point $3.18 $3.10 $3.22 $3.44 $3.65 $3.30 $3.34 $3.12 $2.58 $2.85 Typical Cash Rent for Oats, Hay, and Pasture, $ per acre** Alfalfa hay, established $191 $219 $208 $265 $222 $186 $213 $134 $111 $161 Grass hay, established $143 $163 $138 $202 $172 $138 $167 $111 $83 $112 Oats $175 $223 $197 $235 $214 $167 $170 $108 $118 $141 Improved permanent pasture $77 $82 $71 $75 $84 $71 $83 $86 $71 $74 Unimproved perm. pasture $52 $57 $50 $47 $57 $53 $56 $61 $47 $42 Pasture, $/AUM NA NA NA $16 NA NA $24 $20 $25 NA Cornstalk grazing NA $11 NA $9 $7 $20 $9 $8 $10 $18 Hunting rights NA $27 NA $8 $12 $11 $13 $18 $13 $13 * Number of responses is the number of individuals who provided information about typical rental rates in the county. Rental data was not collected by individual farm. ** No values are reported if fewer than 5 responses were received. 48

49 Iowa Farmland Rental Rates Ag Decision Maker File C2-09 Cropland rental rates averaged $255 per acre in 2013, up $20 per acre from This was the highest value ever recorded. Cash rent for pastures averaged $49 per acre in 2013, up $3 from the previous year. Rent as a percentage of land value was slightly lower than in 2012 at 3.0 percent. For more localized information about cash rental rates, ask for the Cash Rental Rates for Iowa 2013 Survey (AgDM File C2-10) at the ISU Extension and Outreach office in your county or find it online at FM1851.pdf. Estimated Farmland Rental Rates Iowa 1 Cropland Pasture Land Land Cash Rent, Change, Value, Rent as % Cash Rent, Change, Value, Rent as % Year $/acre Percent $/acre of value $/acre Percent $/acre of value , % % % 1, % % % % 1, % % % % 1, % % % % 1, % % % % 1, % % % % 1, % % % % 1, % % % % 2, % % % % 2, % % % % 2, % % % % 2, % % 1, % % 3, % % 1, % % 3, % % 1, % % 4, % % 2, % % 4, % % 1, % % 4, % % 2, % % 5, % % 2, % % 7, % % 3, % % 8, % % 3, % 1 Prepared from data collected by the USDA, National Agricultural Statistics Service.... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Prepared by William Edwards, former extension economist wedwards@iastate.edu FM 1728 Revised September

50 North Central Farm Management Extension Committee Farm Building Rental Rate Survey Farm buildings and livestock facilities often outlast their owner s need for them, but can still provide usable service. Farm operators and livestock producers may be able to make use of certain types of farm buildings but are not in a position to invest in new facilities. Both parties can benefit from a leasing arrangement. However, information about common rental rates for farm buildings is not easily obtainable. The information in this publication was summarized from the results of a survey of farm operators, farm owners, professional farm managers and rural appraisers in the north central region of the U.S. The North Central Farm Management Extension Committee sincerely thanks all the agricultural professionals who contributed. The survey assumed that building tenants would provide labor and management and pay the cost of utilities and minor upkeep. Owners would generally be responsible for major repairs and insurance coverage. Individual rental rates will vary according to the age, condition, size, location and efficiency of the particular building being rented. For more information about determining rental rates and terms see publication NCFMEC-04, Rental Agreements for Farm Buildings and Livestock Facilities. For a sample lease form, see publication NCFMEC-04A, Farm Building or Livestock Facility Lease. Both publications are available for no charge at the following website: Type of Building Number of Responses Unit on Which Rent is Paid Average Rent Paid Range of Rents Paid Average Capacity of Building Beef Finishing, open lot & shed 9 $/head/day $.12 $ head Dairy Milking parlor and cow housing 9 $/cow/mo. $12.16 $ stalls Heifer housing no labor, no feed 3 $/head/day $.31 $ with labor, no feed 3 $/head/day $.67 $ with labor and feed 3 $/head/day $2.28 $ Swine Farrowing 5 $/crate/year $360 $ crates Nursery 7 $/pig through $4.09 $ ,350 spaces Finishing 16 $/ pig finished $12.93 $ ,334 spaces Machinery Storage Machine shed, all 75 $/sq. foot/year $.45 $ ,845 sq. ft. with concrete floor 26 $/sq. foot/year $.53 $ ,927 sq. ft. without concrete floor 36 $/sq. foot/year $.40 $ ,445 sq. ft. with high doors 35 $/sq. foot/year $.52 $ ,474 sq. ft. without high doors 27 $/sq. foot/year $.40 $ ,513 sq. ft. over 10 years old 60 $/sq. foot/year $.43 $ ,928 sq. ft. 1 to 10 years old 6 $/sq. foot/year $.75 $ ,773 sq. ft. NCFMEC-07 May

51 North Central Farm Management Extension Committee Type of Building Number of Responses Unit on Which Rent is Paid Average Rent Paid Range of Rents Paid Average Capacity of Building Grain Storage Grain bin, all 11 $/bushel/month $.027 $ ,635 bu. Grain bin, all 78 $/bushel/year $.14 $ ,919 bu. Up to 10,000 bu. 43 $/bushel/year $.13 $ ,005 bu. Over 10,000 bu. 34 $/bushel/year $.16 $ ,000 bu. Hay Storage Small square bales 4 $/bale $.12 $ ,825 bales Large square bales 5 $/bale $2.81 $ bales Large round bales 3 $/bale $5.24 $ bales Rural Housing House on farm, all 110 $/month $568 $100 1,300 1 to 50 years old 24 $/month $598 $300 1,000 more than 50 years old 56 $/month $509 $100 1,200 2 bedrooms 12 $/month $435 $ bedrooms 40 $/month $499 $ or more bedrooms 22 $/month $626 $200 1,200 Acknowledgements This publication is a product of the North Central Regional (NCR) Cooperative Extension Services of: Illinois Indiana Iowa Kansas Kentucky Michigan Minnesota Missouri Nebraska North Dakota Ohio Oklahoma South Dakota Wisconsin and The USDA National Institute of Food and Agriculture (NIFA) Funding Funding for this project was provided by the North Central Risk Management Education Center ( and the USDA National Institute of Food and Agriculture ( usda.gov). This material is based upon work supported by USDA/NIFA under Award Number NCFMEC-07 May by the North Central Farm Management Extension Committee For more information about this and other leases, visit

52 Ag Decision Maker 2014 Iowa Farm Custom Rate Survey File A3-10 Many Iowa farmers hire custom machine work done in their farm business or perform custom work for others. Others rent machinery or perform other services. The information below is based on survey responses from 195 Iowa farmers, custom operators, and farm managers. For each operation, the average rate and the range reported are shown. Twenty-seven percent of the respondents perform custom work, 12 percent hire work done, and 61 percent indicated doing both. Values below are rates expected to be charged or paid this year and include tractor, implement, fuel, and labor. The average price for diesel fuel was assumed to be $3.25 per gallon. A fuel price increase of $0.50 Tillage Average Range Chopping cornstalks, / acre $ Moldboard plowing, / acre Chisel plowing, / acre Disk/chiseling, / acre Vertical Tillage, / acre Subsoiling (8 to 15 in. deep), / acre V-ripping (over 15 in. deep), / acre V-ripping with tandem disk, / acre Disking, tandem, / acre Disking, offset, / acre Harrowing, / acre Soil finishing, / acre Field cultivating, / acre Rock picking, / acre Cultivating, conventional, / acre Cultivating, ridge-till, / acre Rotary hoeing, / acre Land rolling, / acre Planting Planting - w/ fert & insect. attach., / a. $ without attachments, / acre w/ splitters & attach., / acre no-till planter, / acre no-till planter w/ splitters, / a ridge till planter, / acre Extra charge for seed shut-offs, / acre Extra charge for variable rate seeding, / a Seed tender, / acre Drilling soybeans, / acre Drilling soybeans, no-till, / acre Drilling grass seed, / acre Drilling small grain, / acre Seeding grass, broadcast with tractor, / acre Seeding grass, broadcast with ATV, / acre Spraying (materials not included) Ground, broadcast, tractor, / acre $ Ground, incorporated, tractor, / acre Ground, broadcast, self propelled, / acre Ground, banded, tractor, / acre Ground, road ditches, / hour Aerial, / acre Fertilizer Application (materials not included) Dry bulk - applied, / acre $ strip-till, / acre Liquid - spraying, / acre strip-till, knifed, / acre side dressing, / acre Anhydrous- injecting, w/ tool bar, / acre injecting, w/o tool bar, / acre Spreading lime, / ton per gallon will cause total machinery costs to increase by approximately 5 percent. This rate schedule is intended only as a guide. Actual custom rates may vary according to availability of machinery in a given area, timeliness, operator skill, field size and shape, crop conditions, and the performance characteristics of the machine being used. Rental rates for some machinery items are shown on the following page, along with a worksheet for estimating rental rates for other items. Note: All rates include fuel, repairs, depreciation, interest, labor, and all other machinery costs for the tractor and implement. Harvesting, Drying, and Hauling Grain Average Range Corn combining, / acre $ with chopper head, / acre Soybean combining, / acre with air reel, / acre Small grain combining, / acre Complete harvesting (combine, cart, haul to farm storage) - Corn, / acre Soybeans, / acre Added charge for GPS mapping, / acre Picking ear corn, / acre (seed corn) Picking ear corn, / acre (farm use) Drying corn (includes fuel, electricity, labor) - continuous flow dryer (/ point / bu.) bin dryer (/ point / bu.) Handling grain by auger, / bu Hauling grain - grain cart, corn / acre grain cart, soybeans / acre to farm storage, wagon, / bu farm storage to mkt., wagon, / bu to mkt., truck, / bu., (5 mi. 1-way) to mkt., truck, / bu., (25 mi. 1-way) to mkt., truck, / bu., (100 mi. 1-way) Harvesting Forages Hay - mowing, / acre $ conditioning, / acre mowing/conditioning, / acre raking, / acre windrowing, / acre tedding, / acre Swathing hay or small grain, / acre Hay baling - small square, / bale large square, / bale large round w/o wrap, / bale large round with wrap, / bale Straw or corn stalk baling - large round or square w/o wrap, / bale large round or square w/ wrap, / bale Picking up w/accumulator, / lg. sq. bale Moving lg. round bales to storage, / bale Moving lg. square bales to storage, / bale Hauling round bales, / bale, / loaded mile Hauling square bales, / bale, / loaded mile Silage - chopping, / hr., / header row chopping, / ton chopping, haul, fill silo, / ton Filling silage bags, / foot of bag Haylage - chopping, / ton Earlage or snaplage - chopping, / acre FM 1698 Revised March 2014

53 Miscellaneous Services (labor, fuel, and equipment included) Average Range Removing snow (loader), / hour $ Removing snow (blade), /hr., /ft. of blade Removing snow (blower), /hr., /ft. of blower Grinding, mixing feed, / ton Tub grinding hay, / hour Tub grinding hay, / ton Spreading liq. manure, inject., / 1000 gal Liquid manure w/ drag line, / 1000 gal Loading solid manure, / hour Loading, spreading solid manure, / hour Power washing, / hour Building fence, barb, / hr. (no materials) Building fence, barb, / rod (no materials) Building fence, woven, / rod (no materials) Scouting crops, / acre Soil testing, / sample GPS grid soil testing, / acre Managing stored grain, / bu Vacuuming grain, / bu Shearing sheep, / head Livestock hauling w/ trailer, / loaded mile Livestock hauling w/straight tr., /loaded m Livestock hauling w/semi tr., /loaded mile Bulldozing, / hr., / ft. of blade Digging post holes, / hole Driving steel fence posts, / post Driving wooden fence posts, / post Building terraces, grassed back, / foot Building terraces, narrow base, / foot Trenching, / foot Tiling, tiling machine (ex. materials), / ft Tiling, tile plow (ex. materials), / foot Back hoeing, / hour Clearing land, / hour Building ponds, / hour Chain sawing, / hour Welding machinery, / hour Mowing CRP or pasture, / acre Mowing fence rows, ditches, / hour Mowing lawns, / hour Chopping brush, / acre Using truck scale, / load weighed Custom Farming (tillage, planting, pest control, harvesting, and hauling to farm, no drying) Average Range Corn, / acre $ Soybeans, / acre Small grain, / acre Machine Rental (operator, tractor, and fuel not included) Average Range Tractor, / horsepower, / hour $ Grain drill, / acre No-till soybean drill, / acre Corn head for combine, / acre Soybean head for combine, / acre Grain cart with auger, corn, / acre Grain cart with auger, soybeans, / acre Grain wagon, / bu Grain truck (semi), / bu. / round trip Grain auger, / bu Grain vacuum, / bu Grain cleaner, / bu Liquid manure spreader, / hour Solid manure spreader, / hour Skid loader, / hour Dry bulk fertilizer applicator, / acre Liquid fertilizer applicator, / acre Anhydrous fertilizer applicator, / acre Power washer, / hour Generator, / hour Tub grinder, / hour Bin Rental Average Range Bin dryer, / bu. dried, (no fuel or labor) $ Storing grain, bin rental / bu., / month Storing grain, bin rental / bu., / year Farm Labor Wages for Operating Machinery Average Range Spraying or harvesting, / hour $ Other operations, / hour Example: Estimating a Machinery Rental Rate Tandem Disk 1. Custom charge (includes labor, fuel, tractor) $ /acre $ Percent of custom charge that is for interest, insurance, depreciation, and repairs (excluding fuel and labor) (use 60% for tillage, 65% for planting and harvesting) x % x 60% 3. Rental value, including tractor (1 x 2) = $ /acre = $ Tractor rental value, if tractor is not provided: HP x $ per hp-hour rental rate (see above) / acres/hour = $ /acre $2.70 Ex: 150 HP x $.27 (per hp-hour rental rate) / 15 acres/hour = $ Implement rental value, without tractor (3 minus 4) = $ /acre = $5.82/acre... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326- W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 53 Prepared by William Edwards, retired extension economist wedwards@iastate.edu Ann Johanns, extension program specialist Jordan Neighbor, student assistant Additional machinery management publications are available at: store.extension.iastate.edu/

54 Survey of Iowa Leasing Ag Decision Maker Practices, 2012 File C2-15 The Iowa farmland rental market has undergone considerable change in the past few years. The boom created by the demand for biofuels, changes in technology, and changes in the demographics of farmland owners have created uncertainty with respect to the farmland rental markets. This publication discusses the characteristics of Iowa farmland leases, based on a survey conducted every five years. A separate survey on farmland rental rates is updated annually. The results can be found in Iowa State University Extension and Outreach Publication FM They are also available online from the Ag Decision Maker website, edu/agdm. The percentage of Iowa farmland that is leased has been relatively stable during the past few decades, but the mixture and the types of leases have changed. Major reasons for these changes are the aging farmland owner, increasing farm size, and the shift toward more land being owned by people living outside of Iowa. This publication summarizes the average characteristics found for leased Iowa farmland. The data used to compile this information comes from the 2012 Iowa Land Ownership and Tenure survey. This survey was conducted using random sample telephone interviews of Iowa landowners with 40-acre tracts. Some of the 40-acre tracts have more than one ownership unit, and some ownership units have more than one owner. See the Iowa State University Extension and Outreach Land Ownership and Tenure publication, PM 1983, for more information and a complete discussion of the survey methodology. The survey can be found on the Ag Decision Maker website or at the Extension Online Store. Because the original data is designed to discuss farmland characteristics, the data presented here are based on the percent of leased farmland, not the percent of farmers or leases. Although in most cases the results would be similar, given the nature of the survey it is important to remember that it represents the percent of leased farmland and not individual leases. The survey results are intended for informational purposes only. The characteristics of an individual farm lease should be determined by the landlord and the tenant. Tenure Tenure is defined as the relationship between the tenant and landowner. The distribution of Iowa farmland based on tenure has remained relatively stable since the 2007 survey. The use of flexible cash rents has increased considerably and these types of rents now represent 8 percent of all farmland in Iowa. Table 1 provides a breakdown of Iowa farmland by type of tenure. The results presented in the remainder of this publication will be for leased farmland only. For information on all farmland see the Land Ownership and Tenure publication, PM Table 1. Farmland Tenure in Iowa as a Percent of All Acres STATE OF IOWA 2012 Owner Controlled: 45% Owner operated 37% Custom farmed 3% Government programs and other uses 5% Leased: 55% Cash rent (fixed) 34% Cash rent (flexible) 8% Crop share 12% Other types of leases 1% Total: 100% FM 1811 October

55 Page 2 Lease Characteristics The general lease characteristics for all leased farmland in Iowa are presented in Table 2. Cash leases are the most prevalent, accounting for 42 percent of all farmland and 77 percent of leased farmland. Leased farmland in Iowa was equally divided between cash and crop share leases in The percentage of cash leases changed over time relative to crop share leases. Today 42 percent of the land is farmed using a cash lease. The trend to cash rent and away from crop share slowed between 2007 and Recent changes in demand for agricultural commodities and the shift toward more flexible leases may have slowed the switch to cash rent leases. A few cases reported something other than a cash or crop share lease. These were labor exchanges or something of a unique nature. Because these types of leases were less than.5 percent of all leased land, similarly, some farmland was rented for other purposes. These types of rental arrangements will not be discussed further in this publication. Survey of Iowa Leasing Practices, 2012 Table 2 reveals some of the differences between the cash and crop share leases. The cash lease acres are more likely to have a written lease. Cash rents have been in effect for fewer years compared to crop share leases. But the difference is narrowing. In 2012, there were only four years difference on average, whereas in 2007 there were nine years difference between the length of time a cash rent and crop share lease had been in effect. The narrowing of the gap in length of time between types of leases and in the overall average length of time a lease has been in place reflect the move toward cash rents and toward a more stable, long-term relationship between the tenant and landlord. The crop share lease acres are more likely to be owned by someone who lives on the farm, and they are more likely to be rented to a relative. The use of a professional farm manager is more common for crop share leases. The overall use of a professional farm manager has increased substantially. In 2007, 5 percent of the leased farmland used a professional farm manager. In 2012, 11 percent of the leased acres used a professional farm manager, more than double from Table 2. Characteristics of Leased Iowa Farmland, 2012 Cash Rent Crop Share All Leased Acres Percent of leased acres 77% 23% 100% Written lease used 65% 46% 61% Leased to a relative 33% 40% 35% Professional farm manager used 6% 20% 9% Owner lives on a farm 38% 44% 39% Fixed-term lease 22% 9% 19% Average tenure of current tenant (years)

56 Survey of Iowa Leasing Practices, 2012 Page 3 Table 3. Characteristics of Cash Leased Farmland in Iowa; Percent of Acres, 2012 Fixed Indefinite Length of lease 22% 78% 1 year 2 years 3 years > 3 years Number of years for a fixed lease 17% 28% 31% 24% Yes No Rent amount is flexible 19% 81% Yield Price Price & Yield Nature of flex for flexible rent payments 14% 13% 73% Other Number of rent payments per year 34% 58% 4% 4% 1 2 to 5 6 to to 20 > 20 Average Number of years tenant has rented 4% 22% 30% 27% 17% 11.3 yr. Never Once or Twice Monthly Weekly Daily How often landlord visits farm during year 9% 31% 21% 12% 27% Cash Rent Lease Characteristics Table 3 shows selected characteristics of the cash rented land in Iowa. The majority of the land is leased for an indefinite period. Of the cash rented farmland under a fixed time period lease, over half (55 percent) is for three or more years. This has been a notable change since In that year, only 14 percent of the fixed cash rent leases were for more than three years, but in 2012 almost a fourth (24 percent) of the cash rent acres were rented with more than a three-year lease. The number of fixed leases for one year dropped from 37 percent of the leases in 2007 to just 17 percent in This may be a reflection of the volatility of returns and the desire to secure land for longer periods. Flexible cash rent was used for 19 percent of the cash rented acres. Flexible leases accounted for only 12 percent of the cash rented acres in In 2012 the flexible cash rents were 8 percent of all farmland in Iowa. Almost three-fourths (73 percent) of the flexible leases used both price and yield to determine the rent payment. This is a shift from At that time, 28 percent of the flex cash rents used only yield for the variation. In 2012 just 14 percent of the acres used only yield for the basis of their flexible lease payment. There is a stable cash rent tenancy situation in Iowa. The average length of tenancy was 11.3 years, and 44 percent of the cash rent acres have been rented by the same tenant for more than 10 years. Table 3 shows that 60 percent of the cash rented acres are visited by the owner at least once a month. However, 9 percent of the cash rented acres are never visited by the owner during the growing season. Ninety-one percent of the cash rent acres reported having either one or two payments per year. A two-payment schedule was used in a majority of the cases. The distribution of the payments by number of payments and time of year is shown in Table 4. 56

57 Page 4 Survey of Iowa Leasing Practices, 2012 Table 4. Distribution of Annual Rental Payment Schedules Based on Percent of Cash Rent Acres, 2012 Annual Rent Payment Schedule Percent of Acres January to March April to June July to September October to December 100% 34% 47% 7% 6% 39% First payment Second payment First payment Second payment Third payment Four payments First payment Second payment Third payment Fourth payment 57% --- 4% % % 2% 98% 7% % 21% Table 5. Characteristics of Crop Share Leased Farmland in Iowa; Percent of Acres, 2012 Fixed Indefinite Length of lease 9% 91% 1 year 2 years 3 years > 3 years Number of years for a fixed lease 34% 22% 20% 24% 1 2 to 5 6 to to 20 > 20 Average Years tenant has rented 5% 12% 20% 28% 35% 15.5 Never Once or Twice Monthly Weekly Daily How often landlord visits farm during year 10% 28% 14% 11% 37% 15% --- 2% 12% % 46% 21% --- 1% 24% % 7% % 46% % % % 100% Crop Share Lease Characteristics Table 5 presents the general characteristics for the land using a crop share type of lease. The length of crop share leases tended to be more indefinite than cash rent leases and even where there was a fixed period it tended to be for a longer term. In 2012 the fixed term crop share leases that were for more than three years decreased significantly. But, at the same time, the percentage for two-year or three-year leases increased substantially. The crop share leased acres have been with the same tenant longer than for cash lease acres. Almost two-thirds (63 percent) of the crop share leased land has been with the same tenant more than 10 years, whereas less than half (43 percent) of the cash leased land has been with the same tenant that long. The distinguishing characteristic between cash and crop share leases is that some of the costs and/or the yield is divided between the landlord and the tenant. Table 6 presents the breakdown of the division of the crops and expenses for the crop share leased land in Iowa. Notice in Table 6 that for the most part the typical crop share is still the predominant form of crop share leased acres. The notable exceptions to the rule are for custom applications, lime, and drying. 57

58 Survey of Iowa Leasing Practices, 2012 Page 5 Table 6. Distribution of Crop Share Acres Based on the Portion of Yield Received or Percent of Costs Paid by the Owner, % 25 to 51 to Not Used/ 50% 100% 49% 99% Reported Yield* --- 7% 81% 6% --- 6% Seed 5% 5% 80% --- 6% 4% Fertilizer 3% 3% 82% --- 6% 6% Custom fertilizer application 17% 2% 56% --- 2% 23% Herbicides 5% 4% 77% --- 8% 6% Insecticides 5% 3% 76% --- 6% 9% Custom pesticide application 16% 4% 52% --- 2% 26% Liming 5% 3% 61% % 16% Drying 8% 2% 67% 4% 7% 12% Custom combine 23% % % * Yield is percent received, all others are costs paid by owner. Table 7. Distribution of Crop Share Acres Based on Hauling of the Landowner s Grain, 2012 From field to farm only 19% From field directly to elevator 42% From field to farm and later to elevator 30% Not at all 4% Other 5% Table 7 shows how grain hauling is divided on crop share leased acres. Notice that almost a fifth (19 percent) of the time the tenant hauls the landlord s share of the grain only from the field to the farm. In just 4 percent of the acres, the tenant does not haul the landlord s grain. Demographic Characteristics Tables 8-10 present some selected characteristics of leased Iowa farmland. The changing conditions with respect to Iowa land and land ownership are a source of concern for many citizens. Who will farm the land in the future and how will it be farmed are questions being asked. Table 8 presents the breakdown of Iowa farmland based on the gender of the landowner. In estimating these percentages, farmland owned by a husband and wife is assumed to be equally owned so this source of possible gender bias can be removed. Notice in Table 8 there are considerable differences in the percentage of acres by gender ba sed on the type of tenure. For all farmland, 53 percent is owned by males but for rented farmland the percentage is almost reversed, with females owning 52 percent of the rented land. The use of professional farm managers and enrollment in government conservation programs is significantly lower in land owned by females. Table 8. Distribution of Iowa Leased Farmland Based on Selected Land Characteristics and Gender of the Owner, 2012 Custom Farm Use a Farm Manager Government Acres Cash Rent Flex Lease Crop Share All Rented Male 43% 61% 54% 48% 44% 50% 48% Female 57% 39% 46% 52% 56% 50% 52% 58

59 Page 6 Survey of Iowa Leasing Practices, 2012 Table 9. Distribution of Leased Iowa Farmland Based on Selected Land Characteristics and Residence of Owner, 2012 Town with Town with On a Rural Town with City with 2,500 to 10,000 to Farm Area < 2,500 > 50,000 10,000 50,000 N/A Use a professional farm manager 11% 4% 8% 17% 13% 36% 10% Custom farmed 31% --- 3% % 39% 0% Enrolled in conservation programs 41% 12% 9% 14% 8% 8% 8% Cash rent 38% 8% 13% 14% 7% 18% 3% Crop share 44% 7% 9% 12% 10% 14% 5% Flex rent lease 43% 1% 17% 17% 8% 8% 5% All rented acres 39% 8% 12% 14% 7% 17% 3% Table 10. Distribution of Leased Iowa Farmland Based on Selected Land Characteristics and Age of Owner, 2012 < > 75 N/A Use of a professional farm manager 3% 3% 13% 6% 22% 33% 16% 4% Conservation acres % 4% 27% 32% 26% 7% Custom farmed % % 14% % --- Cash rent 1% 2% 2% 8% 20% 26% 41% 1% Crop share --- 1% 6% 6% 13% 31% 42% --- Flex lease % 19% 33% 38% 3% All rented acres 1% 2% 3% 7% 18% 27% 41% 1% Table 9 shows the percentage of leased farmland based on the residence of the owner. The type of tenure is correlated with where the owner resides. As would be expected, use of a professional farm manager, custom farming, and rented land in general shows a lower percentage of land owned by those living on a farm. The aging of Iowa s farmland owners has been a phenomenon for a number of years. The increasing age of owners continued in Table 10 presents the distribution of land based on the age and tenure of the owner. Table 10 shows a relatively higher percentage of leased farmland held by elderly owners relative to the average. The notable exception to this is the use of a professional farm manager. The landowners were asked their primary reason for owning the land. Most people have multiple reasons, but we asked the respondents to select the primary reason. Understanding people s motivation for owning land can help us as we prepare for the future, especially with respect to the amount of land that will be changing hands in the next several years. Table 11 shows the primary reason given for owning leased farmland based on the tenure of the owner. It is interesting to note that, for the most part, there isn t much difference in the tenure styles with respect to why they own the land. But, for leased farmland under a custom farm arrangement or a flexible cash rent, the predominant reason for ownership is current income. 59

60 Survey of Iowa Leasing Practices, 2012 Page 7 Table 11. Distribution of Leased Iowa Farmland Based on Primary Reason for Owning and Tenure, 2012 Current Long-term Family/ Income Investment Sentimental Other Custom farmed 85% 12% --- 3% Conservation acres 43% 22% 26% 9% Professionally farm managed 36% 36% 28% --- Cash rent 50% 24% 24% 1% Crop share 47% 25% 26% 1% Flex cash 67% 5% 23% 5% All rented acres 50% 24% 24% 1% Regional Variation Iowa is divided into nine crop reporting districts. These districts, shown in Figure 1, are used by the USDA to report various statistics and information. Table 12 presents the regional breakdown for leased farmland with respect to tenure characteristics. Notice there are regional variations for some of the characteristics. Most of the variations reflect the difference in the predominant type of agriculture in the region. Table 13 shows selected lease characteristics based on the same regions. There are variations among the regions. Regional differences can be attributed to many different factors. Tradition, Figure 1. predominant agriculture, soils, and a host of other factors lead to the unique nature of each of Iowa s regions. Conclusions Leasing farmland has been a part of the Iowa farming scene for a very long time. Over time the extent and nature of the practices have changed. Today we are in the midst of another change in Iowa agriculture. The biofuel boom has led to record high grain prices and these have led to record high land prices. Rents are tied to prices and land values so it only stands to reason that they are changing as well. This publication has outlined some of the characteristics of Iowa farmland tenure and leasing practices. It is always in the tenant and landlord s best interest to develop their own lease, but sometimes it is helpful to know what practices are being followed. Regardless, in the end the decision has to be made by the two parties. There had been a continual shift to cash rents, but from 2007 to 2012 this trend appears to have stopped. Only time will tell whether or not the change in the trend is permanent. The data shows that the people who use crop share leases have had the leases in place for a longer period of time and they have had 60

61 Page 8 Survey of Iowa Leasing Practices, 2012 Table 12. Tenure of Leased Iowa Farmland by Region, 2012 Northwest Central east Central Central East South- South South- North North- West Central west Central east Custom farmed 6% % % 1% 3% Cash rent 78% 87% 86% 67% 73% 79% 63% 87% 76% Crop share 20% 13% 14% 33% 27% 21% 37% 13% 24% Govt. programs 2% 6% 6% 4% 3% 4% 8% 9% 4% Professional farm manager 12% 11% 6% 10% 12% 14% 18% 15% --- Percent of district farmland rented 61% 62% 54% 58% 58% 51% 52% 42% 43% Table 13. Selected Lease Characteristics of Leased Iowa Farmland by Region, 2012 Northwest Central east Central Central East South- South South- North North- West Central west Central east Written agreement 73% 69% 47% 57% 54% 60% 64% 52% 65% With relative 38% 32% 48% 42% 27% 19% 45% 26% 31% Owner lives on a farm 25% 25% 56% 37% 38% 45% 47% 38% 57% Length of tenure (yrs) the same tenant for a longer time. They are also older. This means it is possible that the crop share lease of today will be converted to a cash rent. More of the crop share leases are between relatives than the cash leases. The crop share is one way in which an older party can help a younger party by sharing risk. This is not only the production risk but also the costs of production risk as well. The survey has shown that the split is still the most common type of crop share lease. Iowa landowners continue to improve their management practices. The number of leased acres using a written lease has steadily increased. Although most leases continue for an indefinite period, it is important to have the initial understanding down in writing. Iowa agriculture has witnessed many changes over the past few decades. The next few decades will be no different. More than half of the land is owned by people older than 65 and more than 40 percent of the rented land is owned by people older than 75. Due to Iowa farmland owners age structure, we could see considerable change in ownership and tenure over the next several years. One thing that will remain constant is that good, sound leasing practices will help both the tenant and the landlord.... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or part of an individual s income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDA s TARGET Center at (voice and TDD). To file a complaint of discrimination, write to USDA, Director, Office of Civil Rights, 1400 Independence Avenue SW, Washington, DC , or call (voice) or (TDD). USDA is an equal opportunity provider and employer. Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Prepared by Michael Duffy, extension economist; William Edwards, retired extension economist; and Ann Johanns, extension program specialist store.extension.iastate.edu 61

62 Computing a Cropland Ag Decision Maker Cash Rental Rate File C2-20 Cash rent lease agreements are popular because the lease is simple, the rent is fixed, and the owner is relieved of making operating and marketing decisions. Likewise, the tenant has maximum freedom to plan and develop the cropping and livestock programs. The risk and returns from changing prices, yields, and costs are all borne by the tenant. Types of Cash Rent A farm may be rented for a fixed amount per acre for all acres in the farm (e.g., 160 acres in a quarter section) regardless of the number of acres of cropland, pasture, buildings, or waste. This is referred to as a whole farm rental rate. Or, the farm may be rented for a fixed amount per cropland acre (i.e., 145 acres cropland in a 160-acre farm) with a different rental rate for any pasture or buildings. Normally, whole farm rental rates are lower than cropland rental rates because the land that is not cropped is often of lower productivity or not used. Exceptions are building sites and grain storage facilities. Several methods for computing cropland rental rates are outlined below. A separate rental rate should be used for pasture, storage, and livestock facilities. All of the rental items can be included in the same lease agreement. Approaches for Determining Rental Rate Determining a fair rate is not easy. Cash rents are likely to be too low during periods of rising prices and high yields and too high during periods of declining prices and low yields. Rates often reflect the results of the past few years more than the upcoming year. Estimating a cash rental rate for cropland can be based on: what others are charging/paying average yields corn suitability rating (CSR2 index) share of gross crop value return on investment crop share equivalent tenant s residual What Others are Charging/Paying The most common method of establishing a cash rent is to set a rate similar to what other people in the area are charging. Iowa State University Extension and Outreach publication FM 1851/AgDM C2-10, Cash Rental Rates for Iowa, shows typical rental rates reported for high-, medium-, and low-quality cropland in each county in Iowa, as well as land in oats, hay, and pasture. This method assumes that what others are charging is fair and equitable. A landowner receiving less rent per acre than the neighbors feels that he or she is not receiving what is rightfully due. However, a landowner receiving more than a neighbor may feel that he or she is being unfair to the tenant. There are three potential pitfalls with this approach: Charging what others are charging may not be appropriate for a particular farm. Remember that most other tenants and landowners are in the same position you are. They are looking for someone to tell them what rental rate is fair and equitable. If you use this method, compare your rate to many other rates instead of just one. Rumors about cash rental rates may be quite different than the typical rates, especially in a rapidly changing market. Differences in the quality of land should be taken into account when comparing your rental rate to those of others. Landlords who are unfamiliar with farming often assume all land is of equal productivity. So, when using this method, be sure to compare your rate to rates for land of comparable quality, based on actual yields or productivity indices. Average Yields A cash rental rate can be based on a farm s average yields (e.g., 5-year or 10-year average). For example, assume the average rental rates in your county are $1.25 per bushel for corn and $4.40 per bushel for soybeans, based on the latest survey information. If your farm has an average corn yield of 160 bu. per acre, this results in a rental rate of $200 ($1.25 x 160 bu. = $200) per acre. An average soybean yield of 58 bushels per acre results in a rental rate of $255 ($4.40 x 58 bu. = $255) per acre. ISU Extension and Outreach publication FM 1851/ AgDM C2-10, Cash Rental Rates for Iowa, shows rental rates per bushel of corn and soybeans by county. Remember, use a long-term average yield (both good and bad years) and don t just pick out the good years. Corn Suitability Rating The Corn Suitability Rating System (both CSR and CSR2) are farmland productivity indexes developed for property tax assessment purposes. Values range from 0 to 100, with higher numbers indicating higher land productivity. Each soil type in Iowa has a CSR2 value. The ISU Soil and Land Use website explains CSR2 in greater FM 1801 Revised May

63 Page 2 detail ( By identifying the soil types and acres of each soil type in a tract of land, the weighted average CSR2 can be calculated for the tract. AgDM Information File C2-87, Computing the Corn Suitability Rating for Your Farm, shows how to use the Web Soil Survey website ( nrcs.usda.gov/) from the USDA Natural Resource and Conservation Service (NRCS) to find your farm s CSR2 value. Include only the land suitable for row crop production in the area of interest to find the CSR2 for row crop land. A cropland cash rental rate can be computed by multiplying the average CSR2 by a rental rate per CSR2 point. For example, assume a typical rental rate per CSR2 index point of $3 for your county. A tract of land with a CSR2 of 80 would have a rental rate of $240 ($3 80 CSR2 = $240) per acre. ISU Extension and Outreach publication FM 1851/ AgDM C2-10, Cash Rental Rates for Iowa, shows typical rental rates per CSR2 index point by county. Share of Gross Crop Revenue Cash rental rates tend to follow the gross revenue generated from the crop being produced. Table 1 shows average cash rents in Iowa as a percent of the gross crop value for the past 10 years. Gross crop value is the state average yield times the state average price from October through December. Gross crop revenue is also shown, which includes gross crop value plus all USDA commodity program payments and crop insurance indemnity payments. In recent years, these values have been nearly identical because only direct payments have been received from the USDA and crop insurance Computing a Cropland Cash Rental Rate payments have been small. In the earlier years, larger USDA payments were received. These percentages and estimated yields and prices for the coming year can be used to estimate a fair cash rental rate. Expected crop insurance payments are zero when average yields are assumed. Return on Investment Another method is to multiply the estimated current market value for cropland by an expected rate of return. Surveys show that cash rents for good cropland in Iowa in recent years have averaged about 3 to 4 percent of current land values. Land value $4,000 $6,000 Rate of return 3-4% 3-4% Rental rate $120-$160 $180-$240 Estimates of current land market values are available in ISU Extension and Outreach publications AgDM C2-70, Farmland Value Survey - Iowa State University, and AgDM C2-75, Farmland Value Survey - Realtor s Land Institute. However, this method is rather imprecise, especially during periods of rapidly changing land values. Crop Share Equivalent Another way of calculating cash rental rates is by comparing the rental rate to the return that would be received from a crop-share lease. With a cropshare lease, the owner s return is automatically adjusted by changes in yield, selling price, and input amounts and prices. However, to compute a cash rental rate using this method, estimates of yields, selling prices, and input Table 1. Average Iowa Cash Rent as a Percent of Gross Crop Value and Gross Crop Revenue ($/acre) Average Cash Rent as Cash Rent as Average Gross Average Gross Cash % of Gross % of Gross Crop Value Rent Paid Crop Revenue 1/ Crop Value Crop Revenue Year Iowa Corn Soybeans Corn Soybeans Corn Soybeans Corn Soybeans 2004 $ 131 $ 371 $ % 49% $ 433 $ % 43% 2005 $ 135 $ 311 $ % 45% $ 484 $ % 44% 2006 $ 137 $ 460 $ % 46% $ 570 $ % 41% 2007 $ 148 $ 595 $ % 30% $ 627 $ % 29% 2008 $ 176 $ 744 $ % 38% $ 776 $ % 36% 2009 $ 183 $ 672 $ % 38% $ 708 $ % 36% 2010 $ 184 $ 756 $ % 33% $ 850 $ % 32% 2011 $ 214 $ 984 $ % 36% $ 999 $ % 35% 2012 $ 252 $ 952 $ % 40% $ 1,107 $ % 37% 2013 $ 270 $ 731 $ % 48% $ 828 $ % 44% Average $ 183 $ 657 $ % 40% $ 738 $ % 38% 1/ Cash Rental Rates for Iowa, AgDM File C / Iowa average yield x Iowa average cash price in Oct.-Dec. 3/ Iowa average yield x Iowa average cash price in Oct.-Dec., plus USDA payments and crop insurance indemnity payments. 63

64 Computing a Cropland Cash Rental Rate costs must be made for the coming year, which is sometimes difficult to do. An example using this method is presented in Table 2. Use 5-year or 10-year average yields and current prices for harvest delivery. If prices are below the USDA county loan rate, use the loan rate instead to reflect potential loan deficiency payments. You may want to refer to ISU Extension and Outreach publication FM 1872a/AgDM A1-32, Commodity Programs for Crops. Then subtract the landowner s half of the seed, fertilizer, pesticides, and other shared expenses. Table 2. Crop Share Equivalent Income Corn Soybeans Yield (1/2) 80 bu. 24 bu. Price $5.00 $12.00 Total income to owner $400 $288 Expenses Seed (1/2) $50 $27 Fertilizer (1/2) Pesticides (1/2) Crop insurance (1/2) 13 8 Drying and storage (1/2) 30 0 Miscellaneous (1/2) 4 4 Interest (1/2) 7 4 Total expenses paid by owner $187 $91 Net return to owner $213 $197 In the example, the landowner will receive a net return of $213 and $197 from corn and soybeans, respectively. With a corn/soybean rotation, the average return will be ( ) / 2 = $205 per acre. To compute a rental rate for your situation, use the worksheet on the following page or enter your figures into Decision Tool C2-20, Cash Rental Rate Estimation. Tenant s Residual Another approach is to calculate how much income the tenant has available for rent payments after subtracting all the tenant s costs associated with producing the crop. As in Table 2, you first need to estimate yields, selling prices, and other crop income received. Then subtract the operating expenses. Next, subtract the tenant s cost of machinery and equipment ownership. This includes depreciation, a return on investment, insurance, and Page 3 machinery housing. Some people contend that these costs (fixed costs) are incurred by the tenant whether the land is rented or not and need not be subtracted when determining a rental rate. But in the long run, these costs are incurred on all acres farmed and must be paid. Finally, a charge for the tenant s labor and management is subtracted. The remaining amount is available for the payment of cash rent. Based on the example values in Table 3, $259 is available for rent payment from corn production and $279 from soybean production. With a corn/soybean rotation, the average amount available for rent payment is $269 per acre. Table 3. Tenant s Residual Income Corn Soybeans Yield 160 bu. 48 bu. Price $5.00 $12.00 Total income $800 $576 Operating costs Seed $100 $54 Fertilizer Pesticides Crop insurance Drying and storage 60 0 Miscellaneous 8 8 Fuel and repairs Interest 31 8 Total $425 $214 Machinery ownership $60 $41 Labor Management (estimate at 5% of other costs) Total costs $541 $297 Residual to tenant $259 $279 Remember, no allowance has been made for risk due to variations in crop prices and yields. With a cash rent lease, the tenant assumes all of the risk. So the tenant should be compensated for assuming this risk. Do this by either using conservative price and yield estimates or adjusting the rental rate downward. To estimate a rental rate for your own situation, use the worksheet on the following page or Decision Tool C2-20, Cash Rental Rate Estimation. and justice for all Iowa State University Extension programs are available to all without regard to race, color, age, religion, national origin, sexual orientation, gender identity, genetic information, sex, marital status, disability, or status as a U.S. veteran. Inquiries can be directed to the Director of Equal Opportunity and Compliance, 3280 Beardshear Hall, (515) Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Prepared by William Edwards, retired extension economist store.extension.iastate.edu 64

65 Page 4 Computing a Cropland Cash Rental Rate Cropland Cash Rent Worksheet Gross Income Corn per acre Soybeans per acre Expected yield, bu. per acre Expected selling price, $ per bu. Revenue from sales (bu. x price) Other crop income received Total gross income Production Costs Corn per acre Soybeans per acre (Production costs are needed for tenant s residual only. See FM 1712/AgDM File A1-20 for suggested costs.) Seed Fertilizer Lime Pesticides Crop insurance Interest and miscellaneous Custom hire Fuel, repairs Machinery ownership Drying Storage Hauling Labor Management (5% of total gross income) Total of all nonland costs A. Share of Gross Income Corn: Gross income x share % (25 to 30%) = $ /acre Soybeans: Gross income x share % (35 to 40%) = $ /acre B. Tenant s Residual Corn: Gross income minus nonland costs = $ /acre Soybeans: Gross income minus nonland costs = $ /acre C. Expected Yield Corn: Expected yield bu./acre x $ per bu. for rent = $ /acre Soybeans: Expected yield bu./acre x $ per bu. for rent = $ /acre D. Corn Suitability Rating Index CSR2 index: Average CSR2 x $ per point for rent = $ /acre E. Percent of Land Value Current market value of land $ /acre x % return expected = $ /acre 65

66 Flexible Farm Ag Decision Maker Lease Agreements File C2-21 Fluctuating markets and uncertain yields make it difficult to arrive at a fair cash rental rate in advance of each crop year. To address this problem, some owners and tenants use flexible lease agreements in which the rent is not determined until after the crop is harvested. The final rental rate is based on actual prices and/or yields attained each year. A recent survey showed that flexible leases accounted for nearly 12 percent of all cash leases in Iowa. Flexible leases have the following advantages: The actual rent paid adjusts automatically as yields or prices fluctuate. Risks are shared between the owner and the tenant, as are profit opportunities. Owners are paid in cash they do not have to be involved in decisions about crop inputs or grain marketing. Option A: Share of Gross Revenue The most common type of flexible lease calls for the owner to receive cash rent equal to a specified share of the gross revenue of the crop. The value of the crop is determined by multiplying the actual harvested yield by the market price available, usually at harvest time. Under this type of lease both price and yield risks are shared between tenant and owner, in the same proportion as the gross revenue. In this respect, it is similar to a crop share lease. Most of the flexible leases in Iowa specify that the rent will be equal to anywhere from 25 to 40 percent of the gross crop value or gross crop revenue. Table 1 below shows average cash rents in Iowa as a percent of the gross crop value and revenue for the past 10 years. Gross crop value is the state average yield times the state average price from October through December. Gross crop revenue includes gross crop value plus all USDA commodity program payments and crop insurance indemnity payments. In recent years, these values have been nearly identical because only direct payments of about $20 to $25 per acre have been received from the USDA and crop insurance payments have been small. Example 1 Corn Cash rent will be equal to 25 percent of the gross crop revenue. The actual yield of corn is 150 bushels per acre, and the actual price is $6 per bushel. The gross income is equal to (150 x $6) = $900. The cash rent is equal to (25% x $900), or $225 per acre. Table 1. Average Iowa Cash Rent as a Percent of Gross Crop Value and Gross Crop Revenue ($/acre) Average Cash Rent as Cash Rent as Average Gross Average Gross Cash % of Gross % of Gross Crop Value Rent Paid Crop Revenue 1/ Crop Value Crop Revenue Year Iowa Corn Soybeans Corn Soybeans Corn Soybeans Corn Soybeans 2004 $ 131 $ 371 $ % 49% $ 433 $ % 43% 2005 $ 135 $ 311 $ % 45% $ 484 $ % 44% 2006 $ 137 $ 460 $ % 46% $ 570 $ % 41% 2007 $ 148 $ 595 $ % 30% $ 627 $ % 29% 2008 $ 176 $ 744 $ % 38% $ 776 $ % 36% 2009 $ 183 $ 672 $ % 38% $ 708 $ % 36% 2010 $ 184 $ 756 $ % 33% $ 850 $ % 32% 2011 $ 214 $ 984 $ % 36% $ 999 $ % 35% 2012 $ 252 $ 952 $ % 40% $ 1,107 $ % 37% 2013 $ 270 $ 731 $ % 48% $ 828 $ % 44% Average $ 183 $ 657 $ % 40% $ 738 $ % 38% 1/ Cash Rental Rates for Iowa, AgDM File C / Iowa average yield x Iowa average cash price in Oct.-Dec. 3/ Iowa average yield x Iowa average cash price in Oct.-Dec., plus USDA payments and crop insurance indemnity payments. FM 1724 Revised May

67 Page 2 Option B. Base Rent plus Bonus Another type of flexible lease formula specifies a base or minimum rent, plus the owner receives a share of the gross revenue in excess of a certain base value. The base rent may be the amount that was being paid several years ago, before the recent increases in grain prices (see Table 1). The base value for gross revenue can be the amount that would be received under typical yield and price conditions corresponding to the base rent (see Table 1). It can also be equal to the tenant s cost of production per acre, including the base rent. This, in essence, becomes a profit-sharing plan. The bonus may vary from one-third to one-half of the amount over the base revenue. Both parties must agree on how to calculate gross revenue and whether a gross revenue below the base level will cause the actual rent to be less than the base rent value. If the base rent is also specified as the minimum rent, it should probably be set lower than a typical fixed cash rent for the same land; otherwise, the landowner does not share in any of the downside risk. Example 2 - Soybeans Base rent is $150 per acre. Tenant s cost of production is $260 per acre, excluding land. Base gross revenue is $410 per acre ($150 + $260). Bonus is 35% of the gross revenue in excess of $410 per acre. Actual yield is 52 bushels of soybeans per acre and actual price is $13 per bushel. Gross revenue is equal to (52 bu. x $13) = $676 per acre. Revenue in excess of the base = $676 - $410 = $266. Rent is equal to $150 plus 35% of $266, or $150 + $93 = $243. However, if the market price of soybeans is only $9 per bushel, the gross revenue would be only $468, the bonus would be ($468 - $410) x 35% = $20, and the rent would be $170 per acre. Sharing Risk Owners and tenants should carefully consider the type and degree of risk they want to assume. Taking on risk means greater losses when prices or yields are low, but can result in larger profits in better years. Owners who wish to receive a fixed income from their farm Flexible Farm Lease Agreements investments may have to accept a lower long-term rent than those who are willing to share risk. Tenants with substantial financial obligations should consider adopting other means of reducing risk as well, such as purchasing crop revenue insurance. Leases that base the rent on price only or yield only may actually increase the tenant s risk in some years. This is because prices may be high when yields are low, or prices may be low when yields are high. Thus, adjusting the rent based on only one factor does not always reflect the actual profits received in that year. Adjusting the rent for changes in both price and yield ensures that the actual rent will be closely tied to the tenant s income each year. Determining Yield It is important to agree ahead of time on the procedure for determining the factors that will be used to calculate the final rent. These factors should be based on information that is available to both parties. Actual yields can be determined by: weight tickets, if all the crop is sold or put into commercial storage combine yield monitors or weigh wagons storage bin capacity When crops stored on the farm are ultimately sold, any variation from the estimated yield can be used to adjust the rent paid for that crop. Estimated yields should be corrected to a standard moisture level, for example, 15 percent moisture for corn. Some flexible leases use the county average yield as estimated by USDA. This avoids the question of how to measure the actual production and removes the influence that above or below average management ability has on yields. However, county average yields are not generally announced until March each year. Determining Price The price used to calculate the final rent payment should represent the potential income that could be received from selling the crop. This can be the cash price at a local elevator or processor on a specified date, or an average of nearby prices on several dates. Prices on dates near or before the time the final rent is paid should be used even though the crop may actually be sold later. Only if the landowner is providing storage facilities should prices after harvest be used. Forward contract prices available before harvest can be included, too. Many farm producers begin pricing 67

68 Flexible Farm Lease Agreements their crop in the spring or summer months. In that case, using the price offered for harvest delivery on one day per month from March through December, for example, may best reflect the overall value of the crop. Another alternative to using a local price is to use a futures contract price minus a normal basis value for the location of the farm. Other options include using the posted county prices calculated by FSA each day or the monthly average cash prices reported by the National Agricultural Statistics Service (NASS) Iowa branch. Example 3 - Determining Price Local elevator prices on: April 1 (October delivery) $5.06 June 1 (October delivery) 4.72 October 1 (cash) 4.48 November 1 (cash) 4.62 December 1 (cash) 4.87 Average $4.75 Government Payments The Farm Service Agency (FSA) no longer specifies that, under a lease arrangement in which yield risk is shared between the tenant and the landowner, any USDA payments for which the farm may qualify must be shared in the same proportion as the risk. All payments are now paid to the tenant. In such cases, any such payments can be included in the gross revenue estimates used to determine the amount of rent due. Crop Insurance Payments Nearly 90 percent of Iowa s corn and soybean acres are insured with multiple peril crop insurance. In years of low production and/or low prices, insurance indemnity payments can add significantly to a producer s revenue. Including crop insurance payments in the gross revenue used to calculate the flexible rent allows the landowner Page 3 to share indirectly in the benefits of this risk management tool. Of course, the landowner should share the cost, as well, meaning that crop insurance premiums should be deducted from the gross revenue used to calculate the rent, even in years when no indemnity payments are received. Other Issues Some tenants and landlords may want to avoid the possibility of a very high or very low rent in a given year by setting a maximum and/or minimum rent. This keeps the actual rent paid each year within a desirable range. Many leases ask for a portion of the rent to be paid in advance, possibly by March 1. Under a flexible lease, the advance payment may be for a fixed amount while the final payment depends on actual prices and yields. The flexible lease formula to be followed should be tested by using several different price and yield possibilities so as to illustrate the range of potential cash rents. Regardless of what type of agreement is adopted, it should be described in writing (with an example) and made a part of the written lease contract. The following page can be used as a lease supplement to specify flexible lease terms. Other Resources Iowa State University Extension and Outreach publication FM 1538/AgDM C2-12 contains a standard farm lease form. ISU Extension and Outreach publication FM 1801/AgDM C2-20 contains information on how to determine a fair cash rent. An interactive spreadsheet to analyze flexible farm lease agreements is available on the Ag Decision Maker website at c2-21flexiblerentanalysis.xlsx. and justice for all Iowa State University Extension programs are available to all without regard to race, color, age, religion, national origin, sexual orientation, gender identity, genetic information, sex, marital status, disability, or status as a U.S. veteran. Inquiries can be directed to the Director of Equal Opportunity and Compliance, 3280 Beardshear Hall, (515) Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Prepared by William Edwards, retired extension economist Ann Johanns, extension program specialist store.extension.iastate.edu 68

69 Page 4 Flexible Cash Rent Agreement Flexible Farm Lease Agreements The amount of cash rent to be paid by the operator to the owner for the portion of the real estate designated as cropland shall be determined as follows (fill in the blanks where needed): Corn Soybeans Area of cropland acres Option A. Percent of gross revenue to share % % Option B. Base rent per acre (if applicable) $ $ per acre Base gross revenue (if applicable) $ $ per acre Percent of gross revenue to share in excess of base % % Minimum rent per acre (if applicable) $ $ per acre Maximum rent per acre (if applicable) $ $ per acre Yield: The actual yield used to calculate the rent shall be determined as follows: (check) farm yield, determined by: yield monitor bin measurements delivery receipt other county average yield as reported by NASS other methods (describe): Price: The actual price used to calculate the rent shall be determined as follows: Source of price information to use Dates of prices to use USDA Payments: The value of any payments received as the result of participation in programs of the United States Department of Agriculture for the crop year for which the variable cash rent applies shall be divided as follows: a) Owner % Tenant % b) Owner % Tenant % c) Owner % Tenant % Payment Dates: The cash rent as determined by the above procedure shall be paid as follows: Date Amount (fixed $ amount or flexible rent as calculated) Examples or Actual Rent to Pay (fill in numbers to show how the rent will be calculated) Option A. Percent of gross income Option B. Base rent plus bonus Corn Soybeans Corn Soybeans Yield bu. bu. Yield bu. bu. x Price $ $ x Price $ $ = Gross crop value $ $ = Gross crop value $ $ + Other payments + Other payments (USDA, insurance) $ $ (USDA, insurance) $ $ = Gross revenue $ $ = Gross revenue $ $ x % shared % % - Base revenue $ $ = Total rent per acre $ $ = Gross rev. shared $ $ x % shared % % = Bonus $ $ + Base rent $ $ = Total rent per acre $ $ 69

70 File A2-11a July Cash Corn and Soybean Prices Table 1. Cash corn prices, $/bushel (received by Iowa farmers) The annual averages are a simple average of the monthly coefficients and are not weighted according to the amount of grain Iowa farmers sold each month. Year Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Avg * Avg ** Cal Yr Mktg Yr * Average based on calendar year (Jan. 1 - Dec. 31) ** Average based on marketing year (Sept. 1 - Aug. 31) 1/ Preliminary, marketing year average calculated through mid-june 2014 Figure 1. Average corn prices by marketing year Corn Prices $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Corn Year Source: USDA National Ag Statistics Service, Iowa Field Office 70 Ann Johanns extension program specialist aholste@iastate.edu

71 Page 2 File A2-11a Table 2. Cash soybean prices, $/bushel (received by Iowa farmers) The annual averages are a simple average of the monthly coefficients and are not weighted according to the amount of grain Iowa farmers sold each month. Year Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Avg * Avg ** Cal Yr Mktg Yr * Average based on calendar year (Jan. 1 - Dec. 31) ** Average based on marketing year (Sept. 1 - Aug. 31) 1/ Preliminary, marketing year average calculated through mid-june 2014 Figure 2. Average soybean prices by marketing year Soybean Prices $16.00 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Soybeans Source: USDA National Ag Statistics Service, Iowa Field Office Year... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 71

72 File A1-14 March Iowa Corn and Soybean County Yields Below are county average yields for corn and soybeans. Ten-year average yields along with yields for the high and low yield years are shown in Tables 1 and 2. This information is helpful in developing corn and soybean budgets, cash-flow projections, or other types of analysis for farmers where the actual production history is not available. Table 1. Corn yields by county and district, (bu./acre). 10-year average Highest Lowest Northwest yield yield Year yield Year Buena Vista Cherokee Clay Dickinson Emmet Lyon O'Brien Osceola Palo Alto Plymouth Pocahontas Sioux Area average year average Highest Lowest Northeast yield yield Year yield Year Allamakee Black Hawk Bremer Buchanan Chickasaw Clayton Delaware Dubuque Fayette Howard Winneshiek Area average North central West central Butler Cerro Gordo Floyd Franklin Hancock Humboldt Kossuth Mitchell Winnebago Worth Wright Area average Source: USDA, National Agricultural Statistics Services, Iowa Office 72 Audubon Calhoun Carroll Crawford Greene Guthrie Harrison Ida Monona Sac Shelby Woodbury Area average Ann Johanns extension program specialist , aholste@iastate.edu original author Darnell Smith

73 Page 2 File A1-14 Table 1. Corn yields by county and district, (bu./acre), cont. 10-year average Highest Lowest Central yield yield Year yield Year Boone Dallas Grundy Hamilton Hardin Jasper Marshall Polk Poweshiek Story Tama Webster Area average year average Highest Lowest South yield yield Year yield Year central Appanoose Clarke Decatur Lucas Madison Marion Monroe Ringgold Union Warren Wayne Area average East central Benton Cedar Clinton Iowa Jackson Johnson Jones Linn Muscatine Scott Area average Southwest Adair Adams Cass Fremont Mills Montgomery Page Pottawattamie Taylor Southeast Davis Des Moines Henry Jefferson Keokuk Lee Louisa Mahaska Van Buren Wapello Washington Area average State average Area average

74 File A1-14 Page 3 Table 2. Soybean yields, by county and district, (bu./acre). 10-year average Highest Lowest Northwest yield yield Year yield Year Buena Vista Cherokee Clay Dickinson Emmet Lyon O Brien Osceola Palo Alto Plymouth Pocahontas Sioux Area average North central Butler Cerro Gordo Floyd Franklin Hancock Humboldt Kossuth Mitchell Winnebago Worth Wright Area average Northeast Allamakee Black Hawk Bremer Buchanan Chickasaw Clayton Delaware Dubuque Fayette Howard Winneshiek Area average year average Highest Lowest West central yield yield Year yield Year Audubon Calhoun Carroll Crawford Greene Guthrie Harrison Ida Monona Sac Shelby Woodbury Area average Central Boone Dallas Grundy Hamilton Hardin Jasper Marshall Polk Poweshiek Story Tama Webster Area average East central Benton Cedar Clinton Iowa Jackson Johnson Jones Linn Muscatine Scott Area average

75 Page 4 File A1-14 Table 2. Soybean yields, by county and district, (bu./acre), cont. 10-year average Highest Lowest Southwest yield yield Year yield Year Adair Adams Cass Fremont Mills Montgomery Page Pottawattamie Taylor Area average year average Highest Lowest Southeast yield yield Year yield Year Davis Des Moines Henry Jefferson Keokuk Lee Louisa Mahaska Van Buren Wapello Washington Area average South central Appanoose Clarke Decatur Lucas Madison Marion Monroe Ringgold Union Warren Wayne State average Area average and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 75

76 Estimated Costs of Crop Ag Decision Maker Production in Iowa File A1-20 The estimated costs of corn, corn silage, soybeans, alfalfa, and pasture maintenance in this report are based on data from several sources. They include the annual Iowa Farm Business Association record summaries, production and costs data from the Departments of Economics, Agricultural and Biosystems Engineering, and Agronomy at Iowa State University, and a survey of selected agricultural cooperatives and other input suppliers around the state. These cost estimates are representative of average costs for farms in Iowa. Very large or small farms may have lower or higher fixed costs per acre. Due to differences in soil potentials, quantity of inputs used, and other factors, production costs will vary from farm to farm. Price shifts for inputs can change production costs in both the short and long run. The data reflect average cost of purchased inputs and a return to land and labor resources, but do not provide a margin for profit or a return to management. They reflect production costs only, and do not include costs of storage. Labor has been treated as a fixed cost because most labor on Iowa farms is supplied by the operator, family, or permanent hired labor. However, when deciding among alternative crops, labor should be considered a variable cost. The wage rate used here is $13.00 per hour. The hours assumed per crop are presented in the budgets. The hours per crop acre include not only the field work but also time for maintenance, travel, and other activities related to crop production. The land charge is based on rent equivalent. Owned land may require a greater or lesser cash outlay. In the short run, cash income must be sufficient to pay cash costs, including seed, fertilizer, chemicals, insurance, cash rent, and hired labor, as well as machinery fuel and repairs and interest on operating capital. In the long run, income should be sufficient to pay all costs of production for resources to be used in their most profitable alternative. Corn yields reflect rotation effects. Fertilizer rates have been adjusted to reflect current data on removal and application rates. Crop insurance costs reflect the mix of multiple peril, revenue, and hail insurance, as well as noninsured acres. Machinery costs reflect both new and used equipment. The machine operations assumed are based on the 2000 Crop Production Practices Survey conducted by the Iowa Agricultural Statistics Service. Further information on this survey can be obtained by contacting the author. The Estimated Machinery Costs table can be used to budget other tillage and harvesting systems. Estimates represent typical costs and are only intended to be guidelines. Actual costs will vary considerably and can be entered in the column for Your Estimates. Electronic spreadsheets for developing crop production budgets are available on the Ag Decision Maker website, iastate.edu/agdm. Budgets for alfalfa hay establishment with an oat companion crop and by direct seeding are included in this publication. Annual production costs for established alfalfa or alfalfa-grass hay as well as a budget for maintaining grass pastures are included as well. Additional pasture establishment budgets are published in Iowa State University Extension publication AG-96, Estimated Costs of Pasture and Hay Production or AgDM File A1-15. Two low-till budgets, one for corn and one for soybeans, are included. The major differences between the low-till and conventional budgets are the preharvest machinery, labor, herbicide, and seeding costs. The soybean budgets are for herbicide tolerant varieties. A strip-till budget is also included. FM 1712 Revised January

77 Page 2 Estimated Costs of Crop Production in Iowa Corn following Corn bu. per acre bu. per acre bu. per acre Your Fixed Variable Fixed Variable Fixed Variable Estimate Preharvest Machinery 1/ $25.00 $24.60 $25.00 $24.60 $25.00 $24.60 $ Seed, Chemical, etc. Units Units Units $3.78 per 1000 k. 25,000 $ ,000 $ ,000 $ $ $0.44 per lb $0.43 per lb $0.41 per lb Lime (yearly cost) Herbicide Insecticide Crop insurance Miscellaneous Interest on preharvest variable costs (8 5.0%) Total $ $ $ $ Harvest Machinery Combine $20.80 $11.30 $20.80 $11.30 $20.80 $11.30 $ Grain cart Haul Dry (LP $1.75/gal.) Handle (auger) Total $43.69 $54.29 $45.95 $59.75 $48.21 $65.21 $ Labor 2.85 $13.00 $37.05 $37.05 $37.05 $ Land Cash rent equivalent $ $ $ $ Total fixed, variable Per acre $ $ $ $ $ $ Yield: Per bushel $2.41 $2.69 $2.39 $2.57 $2.37 $2.47 bu./acre Total cost per acre $ $ $ $ Total cost per bushel $5.10 $4.97 $4.84 $ 1/ Chisel plow, tandem disk, apply N, field cultivate, plant, and spray. See the Estimated Machinery Costs table. 77

78 Estimated Costs of Crop Production in Iowa Page 3 Corn following Soybeans bu. per acre bu. per acre bu. per acre Your Fixed Variable Fixed Variable Fixed Variable Estimate Preharvest Machinery 1/ $21.00 $19.80 $21.00 $19.80 $21.00 $19.80 $ Seed, Chemical, etc. Units Units Units $3.78 per 1000 k. 25,000 $ ,000 $ ,000 $ $ $0.44 per lb. 131 $ $ $57.64 $0.43 per lb. 60 $ $ $32.25 $0.41 per lb. 48 $ $ $24.60 Lime (yearly cost) Herbicide Crop insurance Miscellaneous Interest on preharvest variable costs (8 5.0%) Total $ $ $ $ Harvest Machinery Combine $20.80 $11.30 $20.80 $11.30 $20.80 $11.30 $ Grain cart Haul Dry (LP $1.75/gal.) Handle (auger) Total $45.38 $58.38 $47.64 $63.84 $49.90 $69.30 $ Labor 2.6 $13.00 $33.80 $33.80 $33.80 $ Land Cash rent equivalent $ $ $ $ Total fixed, variable Per acre $ $ $ $ $ $ Yield: Per bushel $2.15 $2.18 $2.16 $2.12 $2.16 $2.08 bu./acre Total cost per acre $ $ $ $ Total cost per bushel $4.33 $4.29 $4.24 $ 1/ Apply N, tandem disk, field cultivate, plant, and spray. See the Estimated Machinery Costs table. 78

79 Page 4 Estimated Costs of Crop Production in Iowa Corn Silage following Corn tons per acre tons per acre tons per acre Your Fixed Variable Fixed Variable Fixed Variable Estimate Preharvest Machinery 1/ $25.00 $24.60 $25.00 $24.60 $25.00 $24.60 $ Seed, Chemical, etc. Units Units Units $3.78 per 1000 k. 28,750 $ ,500 $ ,250 $ $ $0.44 per lb. 150 $ $ $66.00 $0.43 per lb. 74 $ $ $39.13 $0.41 per lb. 168 $ $ $85.28 Lime (yearly cost) Herbicide Insecticide Crop insurance Miscellaneous Interest on preharvest variable costs (8 5.0%) Total $ $ $ $ Harvest Machinery Silage harvester $32.60 $22.10 $32.60 $22.10 $32.60 $22.10 $ Haul Store silage (unloader) Total $70.82 $56.33 $76.28 $61.22 $79.92 $64.48 $ Labor 5.0 $13.00 $65.00 $65.00 $65.00 $ Land Cash rent equivalent $ $ $ $ Total fixed, variable Per acre $ $ $ $ $ $ Yield: Per ton $19.28 $21.56 $18.89 $20.74 $19.15 $20.62 bu./acre Total cost per acre $ $ $1, $ Total cost per ton $40.84 $39.63 $39.77 $ 1/ Chisel plow, tandem disk, apply N, field cultivate, plant, and spray. See the Estimated Machinery Costs table. 79

80 Estimated Costs of Crop Production in Iowa Page 5 Herbicide Tolerant Soybeans following Corn bu. per acre bu. per acre bu. per acre Your Fixed Variable Fixed Variable Fixed Variable Estimate Preharvest Machinery 1/ $22.10 $21.10 $22.10 $21.10 $22.10 $21.10 $ Seed, Chemical, etc. Units Units Units $51.00 per 140 k. 140 $ $ $51.00 $ $0.43 per lb. 36 $ $ $18.92 $0.41 per lb. 68 $ $ $34.03 Lime (yearly cost) Herbicide 2/ Crop insurance Miscellaneous Interest on preharvest variable costs (8 5.0%) Total $ $ $ $ Harvest Machinery Combine $16.60 $8.70 $16.60 $8.70 $16.60 $8.70 $ Grain cart Haul Handle (auger) Total $25.94 $14.94 $26.25 $15.25 $26.57 $15.57 $ Labor 2.25 $13.00 $29.25 $29.25 $29.25 $ Land Cash rent equivalent $ $ $ $ Total fixed, variable Per acre $ $ $ $ $ $ Yield: Per bushel $7.14 $4.10 $7.29 $3.84 $7.38 $3.64 bu./acre Total cost per acre $ $ $ $ Total cost per bushel $11.24 $11.13 $11.02 $ 1/ Chisel plow, tandem disk, field cultivate, plant, and two sprays. See the Estimated Machinery Costs table. 2/ Estimates do not include any insecticide or fungicide costs. 80

81 Page 6 Estimated Costs of Crop Production in Iowa Strip Tillage Corn and Soybeans Corn Following Soybeans Herbicide Tolerant Soybeans Following Corn bu. per acre bu. per acre Your Your Fixed Variable Estimate Fixed Variable Estimate Preharvest Machinery 1/ $12.00 $11.30 $ $9.40 $8.90 $ Seed, Chemical, etc. Units Units $3.78 per 1000 k. 30,000 $ $ $51.00 per 140 k $ $0.44 per lb. 131 $57.64 $0.43 per lb. 68 $ $0.41 per lb. 54 $ Lime (yearly cost) Herbicide 2/ Crop insurance Miscellaneous Interest on preharvest variable costs (8 5.0%) Total $ $ $ $ Harvest Machinery Combine $20.80 $11.30 $ $16.60 $8.70 $ Grain cart Haul Dry (LP $1.75/gal.) Handle (auger) Total $47.64 $63.84 $ $26.25 $15.25 $ Labor 2.3 $13.00 $29.90 $ 1.75 $13.00 $22.75 $ Land Cash rent equivalent $ $ $ $ Total fixed, variable Per acre $ $ Yield: $ $ Yield: Per bushel $2.09 $2.15 bu./acre $6.91 $4.16 bu./acre Total cost per acre $ $ $ $ Total cost per bushel $4.25 $ $11.07 $ 1/ Strip till, plant, and spray for corn. No-till drill, two sprays for soybeans. See the Estimated Machinery Costs table. 2/ Estimates do not include any insecticide or fungicide costs. 81

82 Estimated Costs of Crop Production in Iowa Page 7 Non-Herbicide Tolerant Soybeans following Corn Soybeans Following Corn Drilled Soybeans Following Corn bu. per acre bu. per acre Your Your Fixed Variable Estimate Fixed Variable Estimate Preharvest Machinery 1/ $22.40 $21.50 $ $13.80 $13.00 $ Seed, Chemical, etc. Units Units $45.90 per 140 k. 130 $ $49.20 $ $0.43 per lb. 40 $ $0.41 per lb. 75 $ Lime (yearly cost) Herbicide 2/ Crop insurance Miscellaneous Interest on preharvest variable costs (8 5.0%) Total $ $ $ $ Harvest Machinery Combine $16.60 $8.70 $ $16.60 $8.70 $ Grain cart Haul Handle (auger) Total $26.25 $15.25 $ $26.25 $15.25 $ Labor 2.45 $13.00 $31.85 $ 1.75 $13.00 $22.75 $ Land Cash rent equivalent $ $ $ $ Total fixed, variable Per acre $ $ Yield: $ $ Yield: Per bushel $7.35 $4.03 bu./acre $7.00 $4.06 bu./acre Total cost per acre $ $ $ $ Total cost per bushel $11.38 $ $11.06 $ 1/ Chisel plow, tandem disk, field cultivate, plant, cultivate, and spray. Tandem disk, field cultivate, drill, and spray for drilled soybeans. See the Estimated Machinery Costs table. 2/ Estimates do not include any insecticide or fungicide costs. 82

83 Page 8 Estimated Costs of Crop Production in Iowa Low-till Corn and Soybeans Corn Following Soybeans Herbicide Tolerant Drilled Soybeans Following Corn bu. per acre bu. per acre Your Your Fixed Variable Estimate Fixed Variable Estimate Preharvest Machinery 1/ $17.00 $16.60 $ $13.40 $12.10 $ Seed, Chemical, etc. Units Units $3.78 per 1000 k. 30,000 $ $ $51.00 per 140 k $58.30 $ $0.44 per lb $0.43 per lb $0.41 per lb Lime (yearly cost) Herbicide 2/ Crop insurance Miscellaneous Interest on preharvest variable costs (8 5.0%) Total $ $ $ $ Harvest Machinery Combine $20.80 $11.30 $ $16.60 $8.70 $ Grain cart Haul Dry (LP $1.75/gal.) Handle (auger) Total $47.64 $63.84 $ $26.25 $15.25 $ Labor 2.3 $13.00 $29.90 $ 1.75 $13.00 $22.75 $ Land Cash rent equivalent $ $ $ $ Total fixed, variable Per acre $ $ Yield: $ $ Yield: Per bushel $2.12 $2.18 bu./acre $6.99 $4.23 bu./acre Total cost per acre $ $ $ $ Total cost per bushel $4.30 $ $11.22 $ 1/ Apply N, cultivate, plant, and spray for corn. Disk, drill, and spray for soybeans. See the Estimated Machinery Costs table. 2/ Estimates do not include any insecticide or fungicide costs. 83

84 Estimated Costs of Crop Production in Iowa Page 9 Oats and Hay Production - Seeding Year Costs Alfalfa-Grass Seeded Alfalfa Seeded with Oat Companion Crop 1/ with Herbicide 2/ Establishment Costs Your Fixed Variable Fixed Variable Estimate Preharvest Machinery Spray herbicide $2.40 $2.20 $ Tandem disk (2 times) $8.00 $ Spread fertilizer Harrow Seed (drill) Total preharvest machinery $16.70 $14.40 $19.10 $16.60 $ Seed 3/ Oats 2 bu $ Alfalfa 8 lb lb Bromegrass 6 lb Orchardgrass 3 lb Total seed cost $84.80 $69.00 $ Herbicide Lime (total cost for hay lifetime) $ hr. $ hr. $13.00 $ Total establishment costs $29.70 $ $32.10 $ $ Annual Costs Fixed Variable Fixed Variable One-Third of Est. Costs $9.90 $46.73 $10.70 $47.47 $ (for establishment year) Fertilizer Nitrogen 60 lb. $26.40 $ Phosphorus 45 lb lb. $15.05 Potash 130 lb lb Total fertilizer $99.05 $66.30 $ Insurance, oats $5.00 $ $ hr. $ hr. $39.00 $ Land Cash rent equivalent $ $ $ Harvest Machinery Oats: combine and haul grain $15.80 $8.70 $ rake, bale, and haul straw $16.18 $12.87 $ Alfalfa: mower-conditioner, rake, bale, and haul hay $23.23 $18.97 $47.43 $39.68 $ Total harvest cost $55.21 $40.54 $47.43 $39.68 $ Total fixed and variable costs $ $ $ $ $ Total cost per acre $ $ $ 1/ Assumes 80 bushels oat yield, one ton straw yield, and one ton per acre alfalfa yield from one cutting. 2/ Assumes two and a half tons per acre from two alfalfa cuttings with herbicide-assisted seeding. 3/ Omit oats from August seedings. Higher priced seed varieties or different seed mixtures could vary these costs by 1.2 to 2.0 times. 84

85 Page 10 Estimated Costs of Crop Production in Iowa Annual Production Costs for Established Alfalfa or Alfalfa- Grass Hay Hay Production Level 4 tons per acre 1/ 6 tons per acre Your Fixed Variable Fixed Variable Estimate One-third of establishment costs Machinery, seed, lime, labor and herbicide 2/ $9.90 $46.73 $10.70 $47.47 $ Annual fertilizer 3/ lbs/ton removed plus spreading and insurance $2.00 $ $4.00 $ $ Harvesting Costs: Large Round Bales 4/ Mower-conditioner, rake, baling, and hauling $71.62 $60.38 $96.78 $82.82 $ Labor costs: 1.33 $13.00 per hour $52.00 $69.33 $ Land Cash rent equivalent $ $ $ Total fixed and variable cost using large round bales $ $ $ $ $ Fixed and variable cost per ton $67.13 $54.32 $57.97 $48.40 $ Total cost per acre $ $ $ Total cost per ton $ $ $ Harvesting Costs: Small Square Bales 4/ Mower-conditioner, rake, baling, haul, and stack $67.42 $57.08 $91.28 $78.62 $ Labor costs: 2 hr./cutting $78.00 $ $13.00 per hour Land Cash rent equivalent $ $ $ Total fixed and variable cost using small square bales $ $ $ $ $ Fixed and variable cost per ton $72.58 $53.49 $62.83 $47.70 $ Total cost per acre $ $ $ Total cost per ton $ $ $ 1/ For harvest as silage, use machine cost estimates from the Estimated Machinery Costs table. 2/ Assumes alfalfa-grass seeded with oat companion crop. If alfalfa seeded with preplant herbicide, then use other costs (see previous page). 3/ For 6-ton yield goal, a split application of fertilizer is assumed. 4/ Harvest cost estimates assume 3 cuttings for 4 tons and 4 cuttings for 6 tons. 85

86 Estimated Costs of Crop Production in Iowa Page 11 Maintaining Grass Pastures - Annual Cost per Acre Improved Improved Grass 2/ Grass-Legume 3/ Your Fixed Variable Fixed Variable Estimate Machinery Costs Spreading fertilizer $2.00 $1.80 $2.00 $1.80 $ Spraying herbicide Clipping weeds Total machinery cost $10.60 $8.50 $8.20 $6.30 $ Fertilizer and Herbicide 1/ $0.44 per lb. 80 lb. $35.20 $ $0.43 per lb. 30 lb lb. $12.90 $0.41 per lb. 40 lb Herbicide 5.50 Total fertilizer and herbicide $53.60 $29.30 $ Labor Growing practices.5 $13.00 $6.50 $6.50 $ Fence maintenance 1 $ Total labor $19.50 $19.50 $ Land Cash rent equivalent $73.00 $85.00 $ Total annual cost $ $62.10 $ $35.60 $ Total annual cost per acre $ $ $ 1/ These are average rates and may vary with soil test and the level of management on a particular field. Different herbicide alternatives could vary this cost. 2/ Improved grass pastures assume a dominance of cool season grasses such as smooth bromegrass, orchardgrass, tall fescue or reed canarygrass. 3/ Improved grass-legume pasture assumed one-third of the forage is made up of red clover, birdsfoot trefoil, or alfalfa. 86

87 Page 12 Estimated Costs of Crop Production in Iowa Estimated Machinery Costs The following cost estimates are for on-farm use, excluding labor. Depreciation is based on current replacement cost; interest is based on average market rates. Fixed costs will be greater for newer machinery. If annual machine use is greater than that assumed, fixed costs per acre will be lower, and vice versa. Hauling costs are based on a round trip of one mile. Remember these are estimates and they should not take the place of accurate recordkeeping. Diesel fuel is estimated to cost $3.15 per gallon, delivered to the farm in bulk. Fixed Cost per Acre Variable Cost Hours of Use (depreciation, interest, per Acre Operation Assumed per Year insurance, housing) (fuel, oil, repairs) Subsoiling (V-ripper) 120 $6.40 $8.60 Moldboard plow Chisel plow Chop stalks Tandem disk Offset disk Peg tooth harrow Sprayer/disk Field cultivator Disk/Field cultivator Strip tiller Bulk fertilizer spreader NH3 applicator Chisel plow, NH3 applic Grain drill Broadcast seeder Planter No-till planter No-till drill Rotary hoe Cultivator Sprayer Combine corn Combine soybeans Combine small grain Haul grain (on farm) /bu /bu. Grain cart Store grain (auger) /bu /bu. Silage harvester Haul silage /ton 1.50 /ton Store silage (unloader) 0.44 /ton 0.13 /ton Rotary mower Mower-conditioner Rake Small square baler /cutting 6.50 /cutting Round baler Large square baler Windrower Forage chopper Haul small square bales /ton 3.77 /ton Haul large round bales /ton 3.47 /ton 87

88 Estimated Costs of Crop Production in Iowa Page 13 Estimated Crop Production Costs in Iowa, / / Corn following Corn Machinery $94.55 $ $ $ $ $ $ $ $ $ Seed, Chemicals, etc Labor Land Total Cost Per Acre Assumed Yield 135 bu 140 bu 145 bu 145 bu 145 bu 165 bu 165 bu 165 bu 165 bu 165 bu Total Cost Per Bushel $3.31 $3.40 $3.53 $4.17 $5.10 $3.89 $4.50 $4.94 $5.03 $4.97 Corn following Soybeans Machinery $93.37 $97.39 $ $ $ $ $ $ $ $ Seed, Chemicals, etc Labor Land Total Cost Per Acre Assumed Yield 150 bu 155 bu 160 bu 160 bu 160 bu 180 bu 180 bu 180 bu 180 bu 180 bu Total Cost Per Bushel $2.76 $2.83 $2.96 $3.48 $4.32 $3.40 $3.87 $4.23 $4.31 $4.29 Soybeans following Corn 3/ Machinery $40.53 $45.90 $46.76 $48.50 $55.80 $57.70 $72.70 $80.70 $80.70 $84.70 Seed, Chemicals, etc Labor Land Total Cost Per Acre Assumed Yield 45 bu 45 bu 50 bu 50 bu 50 bu 50 bu 50 bu 50 bu 50 bu 50 bu Total Cost Per Bushel $6.67 $7.19 $6.73 $7.79 $9.81 $8.67 $9.45 $10.92 $10.95 $11.13 Alfalfa Hay, annual production, 6 ton per acre, large round bales One-Third of Est. Costs $34.45 $36.83 $37.27 $46.23 $38.97 $54.28 $52.75 $52.48 $54.25 $58.17 Annual Fertilizer Harvest Machinery Labor Land Total Cost Per Acre Assumed Yield 6 ton 6 ton 6 ton 6 ton 6 ton 6 ton 6 ton 6 ton 6 ton 6 ton Total Cost Per Ton $62.19 $66.38 $64.97 $75.42 $ $83.86 $99.67 $ $ $ / Starting 2006 corn drying and fertilizer practices were adjusted to reflect recent practices. 2/ Starting 2010 corn yields adjusted. 3/ Soybean estimates are for herbicide tolerant varieties.... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Prepared by Michael Duffy, extension economist , mduffy@iastate.edu store.extension.iastate.edu/ 88

89 File A1-21 February Historical Costs of Crop Production Table 1. Estimated costs of crop production in Iowa, soybeans ($ per acre). 1 Year Machinery for Growing and Harvesting Seed, Chemicals, Fertilizer, etc. Labor Land Total Expected Yield - bu/acre Cost per Bushel 1968 $ $ $ 7.40 $ $ $ Summarized from FM 1712 and earlier editions of Cost of Crop Production in Iowa. 2. Change in machinery mix used to estimate costs. 3. Change in machinery prices and fertilizer mix to estimate costs. 4. Beginning in 2005, soybean estimates are for herbicide-tolerant varieties. 89 Mike Duffy, extension economist mduffy@iastate.edu

90 Page 2 File A1-21 Table 2. Estimated costs of crop production in Iowa, corn ($ per acre). 1, 2 Year Machinery for Growing and Harvesting Seed, Chemicals, Fertilizer, etc. Labor Land Total Expected Yield - bu/acre Cost per Bushel 1968 $ $ $ 9.72 $ $ $ Summarized from FM 1712 and earlier editions of Cost of Crop Production in Iowa. 2. Costs for represent continuous corn. Costs from 1980 to the present use the percent of continuous corn lagged by one year to calculate the weighted average corn production costs. 3. Change in machinery mix used to estimate costs. 4. Change in machinery prices and fertilizer mix to estimate costs... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 90

91 91

92 Iowa Cash Rent Farm Lease (Short Form) for 20 Owner (s): Operator (s): 1. Legal Description: 2. Term of Lease: Beginning March 1 st, 20, and ending the last day of February, 20. Continuing thereafter from year to year, unless terminated by either party according to Iowa Law on or before September 1 st effective the following March 1 st. 3. There are contract acres available according to county FSA records (FSA form 578). The following housing, buildings and storage structures located on the Real Estate may be used by the Operator for the following purposes: Structure Purpose In the event of damage or destruction of buildings or structures listed above the Owner will have the option to replace them or provide their functional equivalent operator for the purpose described above within a reasonable period of time, or make adjustments to the terms of this lease in lieu of replacement. 4. Cash Rent: Operator agrees to pay the Owner cash rent for the use of part or all of the Real Estate as follows: Description Amount Cropland $ $ Cropland $ $ Established hay land $ $ Pasture $ $ Buildings and storage structures, housing $ Total annual rent $ The cash rent shall be due and payable as follows: Due Date Amount $ Due Date Amount $ Due Date Amount $ 5. USDA Commodity Program Payments: Payments shall be paid to the Operator unless otherwise agreed on with the Farm Service Agency. 6. Recreational Use: Use of the real estate is not allowed for hunting or other recreational purposes without consent of the Owner. 92 FM 1874 Revised August 2011

93 7. Division of Expense: All crop production expenses are the responsibility of the Operator. Cost of lime and application will be treated as follows: 8. Expenses: No expense shall be incurred by the Operator for or on account of the Owner without first obtaining written permission from the Owner. The Operator agrees to take no actions that might cause a mechanic s or other lien to be imposed upon the Real Estate and agrees to indemnify the Owner if actions are taken by the Operator that result in such a lien being imposed. 9. Repair and Maintenance: Buildings and Fences for minor repairs: Owner will furnish all materials and Operator will provide the labor at no charge. New Fence: Owner to furnish all materials and one-half of the cost of labor. Operator to provide one-half of the labor and all of the equipment to construct fence. Owner will pay 100% of the cost to clear fence row when necessary. 10. Operator s Duties: Operator agrees to operate the farm in an efficient and steward-like manner, control weeds and brush in the fields, fence rows, road ditches, provide proper maintenance to control erosion and maintain waterways and tiles, and building lots and all other areas of the farm where access is possible. Operator agrees, on termination of the lease, to yield prompt possession of the farm to the Owner. 11. Owner s Duties: Owner agrees to warrant and defend the Operator s possessions against all persons as long as this lease remains in effect. The Owner will promptly pay taxes and carry insurance on his/her interest in the property. 12. Compensation: Operator shall have the right to take away from the farm any movable buildings and fixtures which he/she has replaced upon the farm at his/her own expense. Such moving must be done within 60 days after termination of the lease. The Operator must leave the premises from which such improvements are removed in as good condition as they were before said removal or compensate the Owner for damages. Each party shall present to the other all such claims for compensation in writing at the termination of the lease. The Operator shall receive compensation from the Owner for the undepreciated value for the following items upon termination of the lease provided that the value and date of completion are documented. Item a. Item b. Item c. Item d. 13. Transfer of Interest: The Operator agrees not to lease or sublet any part of the Real Estate nor assign this lease to any other person, nor sublease any or all of the property described herein without prior written permission of the Owner. This lease shall be binding upon the heirs, assignees, or successors in interest of both parties. If the Owner should sell or otherwise transfer title to the Real Estate, the Owner will do so subject to the provisions of this lease. 14. Changes in Lease Terms: The conduct, representation, or statement of either party, by act or omission shall not be construed as a material alteration of this lease until such provision is reduced to writing and executed by both parties as an addendum to this lease. 15. Right of Entry: The Owner reserves the right to enter the premise at any time for any reason. Upon notice of the lease termination, the Operator agrees to permit the Owner or the Owner s lessee or agent to enter the premise to do customary tillage and operations on any land from which the current crops have been removed. 16. Violation of Terms: If the Operator fails to keep any agreement contained in this lease, the lease shall then terminate and the Owner or legal representative shall have the right to take immediate possession of the premises. 93

94 17. Other Provisions: 18. Arbitration: Any disputes between the Owner and Operator not covered by the terms of this lease may be submitted by either party for arbitration at a reasonable fee by three disinterested persons, one of whom shall be selected by the Owner, one by the Operator, and the third by the previously named two. If and when disputes are submitted, a majority decision of the arbitrators shall be binding upon the parties to the lease. In Witness whereof, we agree to the terms and conditions of this lease and we affix our signatures this day of,20. Operator Spouse For (business entity) Address Telephone Owner Spouse By (owner s representative) Address Telephone Optional Notarization On this day of ; A.D., 20 before me the undersigned, a Notary public for the county of, State of Iowa, personally appeared to me known to be identical persons named in who executed the foregoing instrument and acknowledged that they executed the same as their voluntary act and deed. Notary Public The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call

95 Notice of Termination of Farm Tenancy To: Date: You and each of you are hereby notified that the farm tenancy of the following real estate situation in County,, to-wit: will terminate and expire on the first day of March, 20, and such tenancy will not continue after said date. This notice is given to you in accordance with the provision of Chapter 562 of the Code of Iowa, as amended. You will therefore take notice and govern yourselves accordingly. By Acceptance of Service The undersigned hereby accept and acknowledge due, timely and legal service of the foregoing notice and acknowledge receipt of copy thereof on the date hereof at,. Date this day of, 20 95

96 Glossary Conservation Utilization or protection of natural resources to prevent loss or depletion. Corn Suitability Rating (CSR) An index that rates Iowa soil types based on productivity for row-crop production first published in Values range from 100 to 5 (high to low productivity) points per acre. Valuation assumes adequate management, natural weather, artificial drainage where needed, no frequent flooding, no land leveling or terracing. Corn Suitability Rating 2 (CSR2) An updated, transparent index for CSR data released in 2013 that rates Iowa soil types based on productivity for row-crop production and provides for new soil series and classifications. Crop Inputs Items which contribute to crop production including but not limited to seed, fertilizer, herbicide, lime, machinery, labor, crop insurance, interest, and rent. Crop Insurance Coverage purchased by a party at risk to cover crop loss for yield and/or price that may occur during the growing season. Department of Natural Resources (DNR) State agency that helps protect and manage Iowa s land resources. Easement Right held by a property owner to make use of land of another owner for a limited purpose (special use or enjoyment). Farm Service Agency (FSA) Federal government organization that administers farm programs and provides for distribution of payments. Hay Ground Area covered with grass or other forage suitable for mowing and converting into hay that is typically fed to livestock. Lease A contract whereby the owner, or other rightful possessor, of real property conveys the right to use and occupy the property in exchange for rent. Farmland leases can be categorized by type of land or structure of payment or contract. Cash Lease Lease includes a rental payment to the owner by the tenant that is a fixed value. 96

97 Cash Lease plus Bonus Lease that includes a rental payment to the owner that is a fixed value plus additional value based on gross revenue or yield values as stated in the lease contract. Flexible Cash Lease Lease that includes a payment above a base rental amount that is determined after harvest and based upon actual yields obtained and/or crop prices (potential or received) obtained and often subtracting the operators cost of production to determine the net revenue. Crop Share Owner and operator are both responsible for crop production and receive a predetermined percent of yield or revenue based on contributions made. Custom Farming Owner hires out crop production operations to others and receives all gross revenue. Natural Resources Conservation Services (NRCS) Federal government organization that provides conservation planning and assistance designed to benefit the soil, water, air, plants, and animals. Pasture Area covered with grass or other forage suitable for grazing of livestock. Provision Statements included in lease contract that outline responsibilities or additional terms of lease for all parties involved. Provisions may relate to land use, repair and improvements, records, or right to entry. Land use Desired management practices or use of land stated by landlord or agreed upon between parties. Repair and improvements Statement included in lease referencing who will make necessary improvements, how will they be made, and who will pay for improvements to structures (buildings or fences) on property rented. Records and Accounts Statement indicating what records will be shared between the landlord/s and tenant/s relating to the acres rented. Right to entry Statement to provide landlord with right of entry; tenant may treat any person who sets foot on the property as a trespasser. Rental rate Value of payment per acre or by farm stated in the lease. Risk Management Agency (RMA) Federal government organization that administers crop insurance through private carriers and the use of crop insurance agents that works with the parties at risk. 97

98 Signature Both parties must sign the written lease agreement to enact lease contract. Stover Remains of crops left in a field after crop is harvested (ex. stalks or leaves). Term Period of time a farm lease is in effect. Termination Occurs with expiration of lease, surrender and acceptance, eviction, or breach of conditions. Termination Notice Written notification of termination of lease prior to end of the lease contract by either party to avoid automatic renewal of the current lease. Tile Drainage A method for removing excess water from the soil subsurface. Tillable Ground The area suitable for row crop production and reported annually by the tenant at acreage certification to the FSA on Form 578. Yield Quantity of output produced from a crop annually and often verified for crop insurance purposes as the actual yield used to determine a farm s actual production history (APH). Web Soil Survey Web Soil Survey provides soil data and information produced by the National Cooperative Soil Survey. It is operated by the USDA Natural Resources Conservation Service (NRCS) and provides access to the largest natural resource information system in the world. 98

99 For Iowa State University state specialists, contact... Chad Hart Craig Chase ISU Extension economist grain marketing and outlook 468E Heady Hall Iowa State University Ames, IA Phone: (515) Fax: (515) ISU Extension specialist regional foods 312 Westbrook Ln Ames, IA Phone: (319) Keri Jacobs Ann Johanns ISU Extension economist cooperatives 469 Heady Hall Iowa State University Ames, IA Phone: (515) Fax: (515) ISU Extension specialist ag decision maker 315 Main Street Osage, IA Phone: (641) Fax: (641) Lee Schulz Dave Baker ISU Extension economist livestock 478D Heady Hall Iowa State University Ames, IA Phone: (515) Fax: (515) ISU Extension specialist beginning farmer center Douglas Ave, Ste. B Urbandale, IA Phone: (515) Toll free: (877) Fax: (515) baker@iastate.edu For timely farm and agribusiness management strategies and information... Important Iowa State University Extension and Outreach Websites Ag Decision Maker: Farm Economics: Current Issues: Agricultural Management E-School: Farm Financial Planning Program: Beginning Farmer Center: Iowa Farm Outlook: Publications: store.extension.iastate.edu contact your ISU Extension and Outreach farm and agribusiness management specialists.... and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC or call Issued in furtherance of Cooperative Extension work, Acts of May 8 and July 30, 1914, in cooperation with the U.S. Department of Agriculture. Cathann A. Kress, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. 99 FM 1848 Revised May 2014

100 Bringing farm management and marketing information to you Iowa State University Extension and Outreach program specialists There is an Iowa State University Extension and Outreach farm and agribusiness management field specialist near you Melissa O Rourke 400 Central Ave NW, Ste 700 Orange City, IA Phone: (712) Fax: (712) morourke@iastate.edu Legal issues, employment, estate planning, value-added agriculture, dairy 2. Shane Ellis 1205 W US Hwy 30 Ste G Carroll, IA Phone: (515) Fax: (712) shanee@iastate.edu Crop and livestock economics, crop and livestock environmental management 3. Tim Eggers 311 E Washington St. Clarinda, IA Phone: (712) Fax: (712) teggers@iastate.edu Leasing, strategic planning, marketing With offices located at the addresses below, the specialists serve general farm management needs within their designated area and serve the entire state in their fields of specialization. 6. Kristen Schulte Kelvin Leibold 524 Lawler St. Iowa Falls, IA Phone: (641) Fax: (641) kleibold@iastate.edu Global ag, estate planning, machinery, leasing, beginning farmer programs, crop and livestock economics 5. Steve Johnson 1625 Adventureland Dr. Ste. A Altoona, IA Phone: (515) Fax: (515) sdjohns@iastate.edu Grain marketing, government farm programs, crop insurance, leasing and other risk management strategies st Ave W Cresco, IA Phone: (563) Fax: (563) kschulte@iastate.edu Dairy marketing and economics, livestock economics, financial analysis 7. Ryan Drollette 3109 Old Hwy 218 S Iowa City, IA Phone: (319) Fax: (319) drollett@iastate.edu Dairy marketing and economics, livestock marketing, livestock economics 8. Charles Brown 212 N I St. Oskaloosa, IA Phone: (641) Fax: (641) crbrown@iastate.edu Crop economics, government farm programs, financial analysis, business planning