By Chris Zoller and Barry Ward et.al
Thousands of Ohio crop acres are rented from landowners by farmers. While the most common is likely a cash agreement, the flexible lease may be worthy of consideration for some farmers. This article will provide a broad overview of the flexible lease option, including advantages, disadvantages, and strucutre.
The information provided here is only a summary from the Fixed and Flexible Cash Rental Arrangements for Your Farm published by the North Central Extension Farm Management Committee. Anyone interested in learning more about flexible leasing arrangements is encouraged to read more about this topic at this site: https://aglease101.org/wp-content/uploads/2020/10/NCFMEC-01.pdf.
What is a Flexible Lease?
Because of uncertainties with prices, yields, and input costs, some farmers and landowners are apprehensive about entering into a fixed long-term cash rental arrangement. From the perspective of the farmer, the concerns include poor yields, commodity price declines, or sharp increases to input prices might impact cash flow if there is a long-term fixed arrangement. In times like we are experiencing now, landowners want to capitalize on high commodity prices or high yields.
Therefore, the operator and landowner may turn to the use of a flexible cash rent of one kind or another. The idea of a flexible cash rent usually pertains only to the rent charged for cropland.
Advantage of Flexible Leases
- Flexible cash rent enables the landowner to share in the additional income that results from unexpected increases in the prices of crops considered in the rent-adjustment clause. If the cash rent also is flexed for changes in yields, the landowner will benefit from above-normal yields regardless of the cause.
- For the operator, risk is reduced. Cash-rent expense is lower if crop prices or yields are less than normal.
- Calculating flexible cash rent requires more communication from both parties.
Disadvantages of Flexible Leases