Copyright @ 2012-13 University of Minnesota All Rights Reserved. What is a Fair & Profitable Rental Agreement? 20 Location across Minnesota David Bau Extension Educator Agricultural Business Management University of Minnesota Extension [email protected]
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Copyright @ 2012-13 University of Minnesota All Rights Reserved.
What is a Fair & Profitable Rental Agreement?
20 Location across Minnesota
David BauExtension Educator
Agricultural Business ManagementUniversity of Minnesota Extension
Minnesota Cropland and Pasture Rental RatesData provided by the Minnesota Agricultural Statistic Service September 2011 and 2010 and May 2009
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Farm Land Rental Rate Trends
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Average Rents Paid by
County '01 '02 '03 '04 '05 '06 '07
' 08 '09 ‘10 '11Est.'12
Est.'13
Average Cropland Rental Rates paid in Adult Farm Management FINBIN database. Calculated 2012 and 2013 based on FINBIN rents increased 10.2 percent from 2010 to 2011 multiplied by 2011 rates
to estimate 2012 and 15 percent from 2011 to determine 2013 rental rates
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Average Annual Change in Land Rental Rates
2007-2011 2010-2011
Northwest 7.3% 13.3%
West Central 8.6% 10.9%
Central 12.1% 15.2%
East Central n/a n/a
Southwest 11.9% 11.1%
South Central 10.8% 12.8%
Southeast 10.3% 13.7%
State 10.2% 13.1%
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Ag Lease 101
•Home Document Library FAQ For Educators About Ag Lease 101 Contact
Ag Lease 101 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. .
http://www.aglease101.org/
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Land Values
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County 2011 2010 2009 2008 20075 yr ave 2011 2010 2009 2008 2007
Prepared by David Bau, Jim Nesseth 2002-2003 and Erlin Weness 2001 The amounts listed below are the prices paid per acre for total farmland (not tillable acres) in each listed county. The data is from farm sales recorded from January 1st through June 30th of the respective years. The data includes only bare land sales. No land and building combination sales are included. The information is from actual arms length sales reported to county authorities and collected by personnel of the University of Minnesota Extension. Sales data was not weighted for acres, each sale on a per acre basis was averaged to get the average price paid per acre. In 2005 added counties Chippewa, Lac qui Parle, Redwood and Yellow
Medicine to study.
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Minnesota Farmland Sales 2011 and 2010 Average Farmland Sales from Minnesota Land Economics
Steve Taff, University of Minnesota http://www.landeconomics.umn.edu/
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Landlord Worksheet
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Landowner’s Cash Rent Worksheet Example Your Farm(A) Farm Size in Acres (tillable acres) 156___76______(B) Value per Acre $6,500 __ $7000___(C) Total Farm Value (A x B) $1,014,000 __$560,000_(D) Desired Return on Investment (C x 3.5%) $35,490 __$19,600__(E) Real Estate Taxes (A x $28.00) $4,480 ___$2,240__(F) Liability Insurance $200____$200___(G) Other Cash Costs (repairs, pump, Etc.) 0_____0_____(H) Total Desired Return (D+E+F+G) $40,170 __$22,040___DESIRED RENT PER ACRE (H/A) $257.50 __$282.50*__
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Tenant WorksheetOperator’s Cash Rent Worksheet
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OPERATOR’S CASH RENT WORKSHEET Prepared by: David Bau – Regional Extension Educator, Ag Business Management (August, 2012)
FARM FACTS GOVERNMENT PROGRAM
EXAMPLE YOUR FARM EXAMPLE YOUR FARM (A) Corn Acres 100 (D) Direct Payment 0 (B) Soybean Acres 100 (E) Expected Counter-cyclical Payment 0 (C) TILLABLE ACRES 200 (F) EXPECTED PAYMENT (mid D & E) 0 (A + B) (G) ADDITIONAL PAYMENTS 0
CROP BUDGET CORN SOYBEANS
EXAMPLE YOUR FARM EXAMPLE YOUR FARM INCOME (per acre) (H) Crop Yield 170 46 (I) Crop Price 5.50 11.50 (J) TOTAL INCOME (H x I) $935 $529
EXAMPLE YOUR FARM (O) TOTAL CROP RETURN - CORN (A x N) 27,200 - SOYBEANS (B x N) 17,400 (P) EXPECTED GOVERNMENT PAYMENT (F) 0 (Q) ADDITIONAL PAYMENTS (G) 0 (R) TOTAL RETURN (O + P + Q) $44,600 AVAILABLE FOR RENT PER ACRE (R / C) $223
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A Rental Rate That Works
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In a fair and profitable rental agreement the farmer makes a profit and the landlord receives a fair rental payment.
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Flexible Leases
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Table 1. Average Southern Minnesota Cash Rent as a Percentage of Gross Revenue
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Flexible Rents based on gross revenue:This is a rental agreement where rental payments are based on gross revenue of the farmland. It can include a base payment in the crop year and a final payment after the actual yield and price are determined.
Base rents plus a bonus:This is a rental agreement where a base rent is paid and then a bonus may or may not be paid determined if yields exceed a base goal. Then these additional bushels would be shared between landlord and tenant. The bonus can also be determined by yield and price together or price alone as well.
Flexible rent based on yield only:
This is a rental agreement where the landlord receives a set base number of bushels with additional bushels if yields are higher than was determined for the base payment. This can also be done with a cash payment based on yield and then price at an elevator.
Flexible rent based on price only:This is a rental agreement where the rental payment is based on crop prices. Often it is an average price of the previous twelve months or a quarterly price which is multiplied times the bushels agreed to. Rental payments can be made at the quarterly price setting times or half and half or after harvest.
Profit sharing flexible rent agreements:This is a rental agreement where the landlord and the tenant share the profit from the farmland. This agreement is similar to a 50-50 crop share lease where they share crop yields 50% to landlord and 50% to the tenant and some of the expenses are paid by each party.
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Other Expenses $ 41 $________ $ 35 $ ________Total Expenses per Acre $ 663 $________ $ 363 $ ________
Net Return to Land or the $ 327 $________ $ 237 $ ________
Amount Available to Rent Ave:$282
2013 Crop Budgets for Southwest Minnesota Prepared by David Bau, Regional Extension Educator, Ag Business Management August 2012
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What is a Fair Rental Agreement?
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$90
$120
$150
$180
$210
$240
$270
$300
$330
$360
$390
$420
$450
$480$510
What is a fair rental rate?
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In a fair and profitable rental agreement the farmer makes a profit and the landlord receives a fair rental payment.
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Initially: Base Rent with a flexible component, farmer makes a profit and the landlord receives a fair rental payment.
Then: Devise an agreement where share extra based on yield, price, gross, net.
You decide what works for both parties
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What is a Fair & Profitable Rental Agreement?
Please give us you feedback on today’s Extension program. Your comments will help us evaluate this program and improve future programming. Thank you.
Poor Fair Neutral Good Excellent
1. Please rate today’s program
2. Please respond to the following statements:
After today’s workshop … Strongly Disagree Disagree Neutral Agree Strongly
Agree
a. I better understand corn and soybean input costs for 2013 and places to find county information.
b. I better understand how to calculate breakeven prices for 2013.
c. I better understand farm land rental rates and where to find information.
d. I better understand farm land values and where to find county information.
e. I better understand how to use a flexible farm rental agreement.
f. I better understand how to negotiate a fair and profitable farm land rental agreement.
Tell us about yourself. 3. My age falls in the following group: __Under 20 __21 – 30 __31 – 40 __41 – 50 __51 – 60 __61 – 70 __71 +
4. County in which I live:
___________ My Zip Code:
___________ Total Acres Rented/Farmed _____________
5. Gender: ___ Female ___ Male
6. Occupation:
___ Farmer/Operator
___ Landowner
___ Ag Professional
___ Other
7. What monetary value would you place on the information obtained at this meeting? ___ None ___ $0 - 50 ___ $51 - 100 ___ $101 - 500 ___ $501 - 1,000 ___ $1000 +
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• Over 1200 people attend workshops • Roughly 1/3 farmer and 2/3 landlords• Rated workshop 4.22 on 1-5 scale.• Farmers averaged 793 acres• Landlords 177 acres Group Total 387,226 acres• This accounts for over 2.5% of corn and beans
planted in Minnesota in 2011.• Attendees stated average value of workshop
$139 for total of $158,738
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Questions??
David BauRegional Extension Educator
Agricultural Business ManagementUniversity of Minnesota Extension