Table of Contents:
- 2012 Custom Farming Agreements
- <strong>Key Issues With Custom Farming Agreements</strong>
An alternative to leasing farmland is a custom farming agreement (CFA). In a typical CFA, the custom operator agrees to perform all the machine operations on the owner’s land in exchange for a set fee or rate. The landowner pays for all seed, fertilizer, chemicals, crop insurance and other input costs; receives the all grain produced and all eligible farm program payments on the land; and is responsible to store and market the grain.
Following are the average custom farming rates for 2012, based on the Iowa Farm Custom Rate Survey (includes tillage, planting and harvesting costs):
- Corn – $119.80/acre (range = $80-160)
- Soybeans – $105.70/acre (Range = $60-150)
- Small Grain – $88.05/acre (Range = $75-100)
One obvious advantage to the custom operator is that a CFA provides some extra farm income, with little or no additional operating capital or farm machinery investment. Fuel, lubrication and repairs are usually the only added costs. In addition, custom farming offers a fixed return per acre to the custom operator, and although there is some possibility of higher repair bills, this is minor compared with the price and yield risks typically faced by a farm operator in a normal cash rental contract. Of course, in a good year, profits from a CFA will be lower than under most cash rental leases; however, in this era of much higher land rental rates there is much more risk to the farm operator with a cash lease as compared to a custom agreement with a landowner.
Landowners also find several advantages to a CFA. Landowners with small acreages can make most of the crop production and grain marketing decisions without the investment into a full-line of farm machinery. The landowner does not have to negotiate land rental rates or worry about collecting lease payments, since the owner receives all of the crop. The landowner does have to pay the farm operator an agreed upon per-acre fee for the custom farming services by specified dates. The landowner is considered to be the material participant for income tax purposes, and the landowner is typically entitled to all government farm program payments.