The rapid rise in corn and soybean commodity prices in the past two years, and the resulting projected increase in gross crop income per acre for the 2008 crop year, has caused many landlords to consider sharp increases in cash rental rates on rented farm land for 2008. Many producers are concerned that the favorable crop prices may not last long term, and that the gross income per acre in future years may not be high enough to justify the higher cash rental rates being implemented for the 2008 crop year. In addition, crop input costs for seed, fertilizer, chemicals and fuel are also considerably higher for 2008. As an alternative to the higher cash rental rates for 2008 and 2009, some producers and landlords are considering a flexible cash rental leaseagreement, which allows the final cash rental rate to vary as crop yields and market prices vary.In 2007, the USDA and the Farm Service Agency (FSA) issued a rules interpretation that will likely cause many flexible cash lease agreements to be regarded the same as a share rental agreement, rather than be considered a cash rental agreement.If FSA views a flexible cash lease agreement as a share lease, the landlord would be entitled to a portion of DCP direct and counter-cyclical payments (CCP), which is similar to a share rental agreement. The landlord would have to meet all FSA requirements to qualify for DCP payments. In a typical cash rental lease, all DCP direct payments and CCPs go directly to the producer, and not to the landlord. USDA defines the difference between a cash lease rental agreement, and a share lease rental agreement between a landlord and producer as follows: Cash Lease – Provides a land rental payment for a guaranteed sum, certain cash payment or a fixed quantity (bu. or lbs.) of a crop. There is no production or price risk to the landlord.
Example: $150/acre cash rent or 20 bu. soybeans/acre of land rented
Share Lease – This type of lease consists of one or a combination of the following:
· Rent payment based on the percentage quantity produced (yield).
· Rent payment based on crop proceeds (producer price or gross revenue).
· Guaranteed cash rent rate plus a bonus, based on actual producer yield and/or producer price. (This is very typical on many existing flexible cash leases.)
Before a producer enters into a flexible cash lease agreement, it is probably a good idea to discuss this agreement with the local county FSA director to see what effects this agreement would have on potential DCP payments, and, if necessary, what the requirements would be for the landlord to qualify for a portion of the DCP payments. It is better to check these things out in advance, rather than have them show up later in an FSA payment audit, and with severe penalties.
Utilizing flexible cash lease agreements with landlords may still be a good management strategy for farm operators to consider as an alternative to extremely high straight cash rental rates. However, both the farm operator and the landlord must be aware that the FSA will likely view some types of flexible cash leases as a share rental agreement, meaning that the landlord will be eligible for a portion of all potential DCP payments on a given farm, provided that the landlord meets all FSA DCP payment eligibility requirements. Successful flexible cash lease agreements have always involved good cooperation and communication between the farm operator and the landlord, and this will be extremely important when dealing with the FSA requirements for flexible cash leases.
LCWM Hosts State FFA Foundation
Congratulations to the Lake Crystal Wellcome Memorial (LCWM) High School agriculture program and FFA chapter on hosting the State FFA Alumni Foundation meeting on Feb. 20, 2008. This is the first time that the Minnesota FFA Foundation has ever met at a high school. Sheryl Meshke of rural Lake Crystal is the current president of the Minnesota FFA Alumni Foundation Board of Trustees. The meeting was held in conjunction with the National FFA Week celebration, Feb. 16-23. The state FFA Foundation event on Feb. 20 in Lake Crystal honored Ron Montgomery, owner of Ron’s Meat Market in Lake Crystal, who was a former state FFA Star Agri-Business award winner, when he was a member of the local FFA chapter.
The LCWM agriculture department, under the leadership of current instructor Mike Thofson, moved into their new agriculture education facilities at the new LCWM secondary school in January 2007. The LCWM agriculture program has revamped its ag science curriculum to include special emphasis on food science, biotechnology and renewable energy, and recently received a $7,000 state ag education grant to purchase new lab equipment to assist with new science and technology curriculum. 2008 marks the 90th year of agriculture education in the Lake Crystal public schools, the 70th anniversary of the initiation of the FFA program in the school district at Lake Crystal and the 60th anniversary of FFA in the former Wellcome Memorial School District. Statewide, there are 175 FFA chapters and 8,600 FFA members in Minnesota.
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at [email protected].