Agricultural Economics Department

 

Date of this Version

January 2000

Comments

Published by Nebraska Cooperative Extension EC 00-829 (Revised January 2000).

Abstract

• Reasons For Flexible Cash Leases
• Advantages of Flexible Cash Leasing
• Disadvantages of Flexible Cash Leasing
• Incorporating Flexibility in a Cash Lease Arrangement
• Flexing Mechanisms
• Table I. Example of Cash Rent Flexed on Revenue
• Modifying Calculated Rents
• Separate Flex Mechanism for Price and Yield
• Table II. A Historical Distribution of Yields and Proposed Flexing Rules
• Table III. Evaluating Rental Alternatives using Historical Yield and Prices
• Setting Prices and Yields
• Summary

Agreeing on a cash rent can be a challenging task. Typically there is considerable uncertainty about what prices and yields will be in the upcoming year, and anticipating revenues is further complicated with the uncertainty of farm program payments, particularly in low income years when Congress may appropriate unexpected assistance. Attempting to determine a cash rent to apply for more than one year adds to the challenge. Also, adjustments to rent are required over time to remain current with changes in farm program provisions, production costs, productivity and product price levels.

The expected costs and revenues used to establish a cash rent will not likely be absolutely accurate, but it is possible to select a cash rent that is reasonably fair over several years, albeit high some years and low in others. Cash rental rates in Nebraska are frequently left unchanged with rates adjusted once every five years on average. This approach provides stable income for the landlord, which may be the primary objective in those agreements.