1 / 20

Lunch & Learn

Lunch & Learn. Farmland Leasing Update December 10, 2003 Craig Dobbins. Leases Used for Indiana Cropland. Approximately 58.9% of Indiana farmland is leased Cash lease – 47.7% of leased acres Share lease – 20.0% of leased acres Cash/share – 24.4% of leased acres

brody
Download Presentation

Lunch & Learn

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Lunch & Learn Farmland Leasing Update December 10, 2003 Craig Dobbins

  2. Leases Used for Indiana Cropland • Approximately 58.9% of Indiana farmland is leased • Cash lease – 47.7% of leased acres • Share lease – 20.0% of leased acres • Cash/share – 24.4% of leased acres • Adjustable cash lease – 5.9% of leased acres

  3. What can I pay for cash rent? + Market Revenue + Government payments - Crop production costs - Machinery ownership - Labor and management = Residual for land

  4. Rent = $125

  5. Cash Rent 1975 - 2003

  6. Cash Rent 1975 - 2003 June Average Land Cash Rent - Reported (Nominal) & Adjusted for Inflation (Real)

  7. Survey • Conducted in June of each year • Survey professionals in the farm real estate market – land brokers, appraisers, farm managers, ag lenders, FSA, extension educators, farm operators • Ask people to report for top, average, and poor cropland • Long-term average or typical corn yields • Market value of bare cropland • Market value of land which is moving into non-agricultural uses • Bare cropland cash rent

  8. Property Tax Reassessment • Use value approach • Estimates of income to land 1995-98 • Net operating income ranged from $56 - $131 per acre • Cash rent ranged from $88 - $102 per acre • Capitalization rate • Varied from 9.10% to 9.92% • Based on average annual interest rate on agricultural real estate and production loans • Land Value = Income to land ÷ cap rate • Adjust for productivity based on corn yield • Adjust for other factors such as flooding • Process explained http://www.in.gov/dlgf/reassessment/approved_manuals/manualA/book1/bk1ch2d.PDF

  9. Property Tax Reassessment • Agricultural base rate of $1,050 per acre up from $495 per acre • Tax bills are larger 20%, 25%, ?????? • Will this cause cash rents to jump up? • Will tenants be willing to pay more? • What will the market support?

  10. Crop-Share Lease Principles • Remember the risk - return tradeoff • The more risky alternative needs to provide higher average return • For an equitable crop-share lease, parties share total returns in the same proportion as they contribute to production

  11. Land Owner Contribution $141.25

  12. Tennant Contribution

  13. Crop-Share Lease Principles • As new technologies are adopted, share arrangements need to be adjusted to reflect their impact on costs and returns • Variable expenses which are yield increasing should be shared in the same percentage as the crop share

  14. Cost Shares for 50-50 Share-Lease, Central Illinois Source: University of Illinois, 1998

  15. Lease Terms in 50-50 Share-Lease Source: University of Illinois, 1998

  16. Lease Terms in 50-50 Share-Lease Source: Iowa State University Extension, 1993

  17. Lease principles • Tenants and/or landowners should be compensated at the termination of the lease for the unexhausted portion of long-term investments

  18. References • Historical cash rent and land values from Purdue Land Value Survey – PAER Archive • http://www.agecon.purdue.edu/extension/pubs/paer/archive.asp • Estimated Indiana Crop Budgets - ID-166 • http://www.agecon.purdue.edu/extension/pubs/crop_guide_03.pdf • Indiana Cash Farm Lease EC-257 • http://www.ces.purdue.edu/extmedia/EC/EC-257.pdf

  19. References • Fixed and Flexible Cash Rental Arrangements for your Farm, NCR-75 • Cash Farm Lease with Flexible Provisions form, NCR-76* • Crop-share or Crop-share/Cash Farm Lease form, NCR-77* • Crop-share or Crop-share/Cash Rental Arrangements for your Farm, NCR-105 • Irrigation Crop-share or Crop-share/Cash Farm Lease form, NCR-106* • Irrigation Crop-share and Cash Rental Arrangements for your Farm, NCR-148 https://www.mwpshq.org/catalog.html

  20. References • Estimating cash rents • http://www.extension.iastate.edu/Publications/FM1801.pdf • http://www.farmdoc.uiuc.edu/manage/pdfs/lsf_cash_rents.pdf • Crop-share lease terms • http://www.extension.iastate.edu/agdm/wholefarm/pdf/c2-30.pdf • http://www.farmdoc.uiuc.edu/manage/pdfs/srlc_nei.pdf • http://www.farmdoc.uiuc.edu/manage/pdfs/srlc_sei.pdf • http://www.farmdoc.uiuc.edu/manage/pdfs/srlc_ci.pdf

More Related