|AgDM Newsletter August, 2008|
2009 flexible cash farm leases gain traction
While Flexible or Bonus Cash Leases make up a small percentage of Cash Rent Lease Arrangements to-date, the interest in these types of leases is increasing rapidly. That’s because the additional payment above an established base rent is getting triggered from revenue (yield times price). That additional flexible rent payment can be determined by the specific farm revenue or by the county average revenue. If the revenue reflects the yield and/or price from that farm, then the Farm Service Agency (FSA) office will likely determine that this is a share lease and the tenant should share a portion of the government farm program payments with the landlord. To avoid additional FSA and specific farm record keeping, many tenants and landlords may choose the posted county price to determine the county average revenue for that crop year in order to finalize the size of that “flex payment.” In such a case, that payment won’t be made until at least March following harvest, when the final county yields are determined by the USDA National Ag Statistics Service.
Interest in flexible cash leases is likely to increase in 2009. The reason is that once tenants and landowners understand that beginning in 2009 revenue triggers at both the state and farm levels are a major portion of the new Average Crop Revenue Election (ACRE) payment, they will see that leases could be structured in a similar fashion. These revenue concepts will be incorporated by both tenants and landlords to write multi-year leases that benefit both parties through the 2012 crop year, the last year of the ACRE program.
In addition, farms that enroll in ACRE in 2009 will likely need to prove their actual farm yields by FSA farm number beginning with the 2004 crop year. That’s because ACRE requires the use of both state and farm yields using a 5-year Olympic average for planted acreage. For some farms, the easiest year to prove yields will be 2008 when scale tickets, settlement sheets, grain bin measurements, and yield monitor data can be segregated by FSA farm number during and immediately following harvest. However, the FSA regulations pertinent to ACRE and farm yields have yet to be written and likely will not be completed prior to the 2008 harvest.More information is available in Ag Decision Maker File C2-21, Flexible Farm Lease Agreements and the associated Decision Tool on analyzing a flexible lease agreement.