Typically, the added flex rent payment to the landlord would be 35-40% of the added gross revenue per acre above the established cost of production for a given crop, up to the established maximum rental rate. Just as with crop yields and prices, determining the established cost of production for a crop for the year can be a challenge. Some possibilities would be to use cash flow statements for the year prepared by a farm management advisor, ag lender or the producer themselves. Again many universities and farm management associations have average cost of production data available. There also probably needs to be allowances in a flexible lease to allow for added costs or expenses due to weather or emergencies, such as the added corn drying costs in 2009.

FSA Farm Programs and Flexible Leases
Most flexible cash leases for land rental contracts are now considered cash leases by FSA for farm program payment determination during the 2009-2012 crop years, according to revised regulations in the current farm bill. The revised regulations state that any rental contract with a guarantee plus a bonus will be considered a cash lease, regardless of how that bonus is set-up or structured. Previously, FSA considered any flexible cash lease that was based on actual farm yields, prices or revenues to be a share rent lease, which meant that eligible landlords had to receive a portion of all farm program payments, provided that they met FSA eligibility criteria. Farm operators and landlords should contact their county FSA office for further clarifications and details on FSA requirements for flexible cash leases.

Flexible Lease Resources
It is very important to have a written land rental lease between the landlord and farm operator for flexible cash rental leases that specifies all details for both base and final yield, price and revenue determination, as well as for specifics on cost of production details, if that method is used for flexible leases. Iowa State University has some very good resources available on flexible cash leases and written cash rental lease contracts on their Ag Decision Maker Web site.

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 kent.thiesse@minnstarbank.com.