The other aspect is risk management: if you have a problem with your millions of dollars, it could turn out to be a multi-million dollar problem. For this reason, make sure that your lease has been verified by a lawyer familiar with the agricultural contracts. This is a rental agreement in which the rent is based on the prices of the harvest. Often, it is an average price of the last 12 months or a quarter of a price that sometimes multiplies the agreed bushel. Rents can be paid at quarterly pricing periods or half and half or after harvest. At least, rental agreements include five things: MSU Extension offers a country rent calculator designed to help producers compare the impact of land rents with their farm`s net farm income. By inserting estimated revenues and expenses, a producer can determine whether the base rent payable is reasonable or whether the base tenancy agreement should be discussed or even renegotiated. This tool is available on the MSU Extension Farm Management website. But should you use it? Definitely not without first reading through the model with a critical eye and thinking about how each line applies to your property.
Regardless of the source of your land lease, you should have a written agreement that will be reviewed and verified by an expert. Most models of agricultural agreements focus on short durations, defined as one to three years, although this is not always the case. Short-term leases are a good way to have a “trial phase” where you can determine whether the relationship is good or not. Some flex agreements offer a fixed price per bushel, multiplied by the average yield of maize for this field. (Example of maize: 1 times the average yield, i.e. 150 bushels per hectare, produces a cash rent of 150 $US per hectare.) This relieves the landowner of the risk of marketing and production and links the rental price to the production capacity of each field, which is good for the tenant. The share of the crop is considered a flexible land use contract, in which the landowner and tenant distribute the income of the crops on the farm in a predetermined ratio or percentage. A joint equity agreement would be 25% for the landowner and 75% for the tenant of the harvested grain crop if the landowner did not contribute to the production costs.