September 16, 2019

Incorporating Conservation Practices and Improvements into Cropland Leases?

I often get asked how a tenant or landowner can encourage conservation practices on a rented farm. Conservation practices and improvements will typically not be made unless it is agreed upon in advance how these costs will be shared and the impact of these practices and improvements on production risk. It is also important that the tenant is assured that he or she will be compensated for unexhausted or remaining value of improvements if the lease is terminated. This article will provide cropping practice examples and discuss how investments can be shared.

One of the ways to maintain conservation practices and improvements on leased land is to include a list of cropping practices in a written lease supplement. When considering items that should be included in the lease supplement it is important to consider two items. First, conservation practices and improvements should be agreed to in advance. Second, if an operator or tenant is incurring additional costs or risk, he or she should be compensated during the lease or for some long-term improvements at the end of the leasing period for this fact.

Cropping practice examples that may be included in a lease supplement include, but are not limited to, cover crops, waterways, ground cover, fall tillage and fertilization, crop rotations, and farm ponds. Compensation mechanisms (i.e., rent adjustments) for the items above should be included in the lease. Compensation for permanent practices such as maintaining terraces, windbreaks, or diversion ditches; pasture improvement; and buffer zones typically involves using capital budgeting techniques, such as the use of depreciation and remaining value. Specifically, with permanent practices it is important to keep track of contributions by the landlord and operator, and annual depreciation of each practice, as well as discuss the method used to recover the remaining value of each practice.

It is important to reiterate the importance of economic considerations when creating a lease supplement pertaining to conservation practices and improvements. Crop leases need to provide a business framework that encourages efficient use of capital, labor, and management, and that encourages the use of new technology, in addition to maintaining soil health. In the long-run, net returns should be shared in an equitable manner. Rent adjustments need to be made in situations where the operator or tenant incurs costs related to conservation practices and improvements.

As a final note, good communication between operators and landlords is essential. Landowners should discuss potential practices with the operator, instead of simply insisting that certain practices be utilized. Most operators are interested in renting ground for a long period of time, so they are also interested in long-run productivity and the soil health of each tract of land that they farm.

TEAM LINKS:

PART OF A SERIES:

RELATED RESOURCES

Comparing Net Returns for Alternative Leasing Agreements

September 2, 2022

Obtaining control of land through leasing has a long history in the United States.  Leases on agricultural land are strongly influenced by local custom and tradition.  However, in most areas, landowners and operators can choose from several types of lease arrangements.  With crop share arrangements, crop production and often government payments and crop insurance indemnity payments are shared between the landowner and operator.  These arrangements also involve the sharing of at least a portion of crop expenses.  Fixed cash rent arrangements, as the name implies, provide landowners with a fixed payment per year.  Flexible cash lease arrangements provide a base cash rent plus a bonus which typically represents a share of gross revenue in excess of a certain base value.  Each leasing arrangement has advantages and disadvantages.

READ MORE

Indiana Farmland Values & Cash Rental Rates: 2022 Update Webinar

August 24, 2022

Recorded August 24 | Purdue ag economists break down the Purdue Farmland Values and Cash Rents Survey results and the USDA Land Values report.

READ MORE

Indiana Farmland Prices Grow at Record Pace in 2022

August 10, 2022

It is safe to say that the last year was unlike any other in recent memory. The COVID-19 pandemic caused significant disruption to our lives and the global economy. Surprisingly, many of the current economic forces put upward pressure on farmland prices.

READ MORE

UPCOMING EVENTS

Farming Together: Cultivating Relationships and Having the Cash to Bring in the Next Generation

Where do you begin if you’re looking to transfer your farm to the next generation? Before starting with a legal entity, it’s important to come together and establish common goals and a direction for where you picture your operation moving in the future. Our Farming Together workshop will help you begin discussions to lead you to a successful transition.

Read More

Commodity Classic 2023

The Purdue University Center for Commercial Agriculture will present a Learning Center Session on Thursday, March 9 entitled Financial and Risk Management Strategies for 2023, at Commodity Classic in Orlando, Florida.

Read More

Monthly Corn & Soybean Outlook Update

Webinar each month following USDA’s release of the updated World Agricultural Supply and Demand Estimates (WASDE). Catch the next monthly update on February 9 for the corn and soybean outlook following release of USDA’s February Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports. Registration is free.

Read More

2023 Crop Cost and Return Guide

January 13, 2023

The Purdue Crop Cost and Return Guide offers farmers a resource to project financials for the coming cropping year. These are the January 2023 crop budget estimations for 2023.

READ MORE

December Corn & Soybean Outlook Update

December 19, 2022

Recorded December 19 | Purdue ag economists discuss a longer-term view of the changing cost structure facing corn and soybean prices, key factors likely to impact corn and soybean prices in 2023 and discussed how to use scenario’s when analyzing price risk and making marketing decisions.

READ MORE

Comparing Net Returns for Alternative Leasing Agreements

September 2, 2022

Obtaining control of land through leasing has a long history in the United States.  Leases on agricultural land are strongly influenced by local custom and tradition.  However, in most areas, landowners and operators can choose from several types of lease arrangements.  With crop share arrangements, crop production and often government payments and crop insurance indemnity payments are shared between the landowner and operator.  These arrangements also involve the sharing of at least a portion of crop expenses.  Fixed cash rent arrangements, as the name implies, provide landowners with a fixed payment per year.  Flexible cash lease arrangements provide a base cash rent plus a bonus which typically represents a share of gross revenue in excess of a certain base value.  Each leasing arrangement has advantages and disadvantages.

READ MORE