1. Cropland and Livestock Leasing in Montana
George Haynes, Ph.D.
MSU – Bozeman Agricultural Policy Specialist

2. Presentation Contents
Cropland Leases
Crop share lease principles
Cash lease principles
Example
Livestock Leases
Livestock lease considerations
Summary

3. “Rules of Thumb” Crop-share lease Livestock lease
1/3 – landlord /3 – tenant
Livestock lease
40% – cow owner % - caretaker

4. Test of a good lease . . . Is it written? (Montana handshake)
Is the crop shared in the same % as resource contributions?
Does it encourage proper amounts of yield increasing expenses?
Does the tenant have potential for profits?
Does it promote conservation?
Does it plan for needed improvements?
Are lease duration and conditions understood?
O'Brien, D.M. Kansas State Research and Extension

5. Cropland Leases

6. Crop Share Lease Principles
Variable expenses that are yield increasing should be shared in the same proportion as the crop share.
Goal – maximize net returns for the operation
All crops are shared alike.
O'Brien, D.M. Kansas State Research and Extension

7. Crop Share Lease Principles
Both parties should share in total returns in the same proportion as they contribute resources.
Landowners:
Land
Crop inputs
Management (perhaps)
Tenants
Labor
Machinery
Management
O'Brien, D.M. Kansas State Research and Extension

8. Crop Share Lease Principles
When new technologies or crops are adopted, leases often need adjustment.
More intensive crop rotations
More reliance on herbicides and less on tillage
New GMO seed/herbicide
O'Brien, D.M. Kansas State Research and Extension

9. Crop Share Lease Principles
Tenants should be compensated at lease termination for the unexhausted portion of long-term investments.
Fences, buildings, irrigation, etc.
Current (ongoing) communication is essential between the landlord and tenant
O'Brien, D.M. Kansas State Research and Extension

10. Crop Share Advantages Risk & rewards are shared
Management may be shared
Less operating capital “tied up” for tenant
Tax management timing opportunities with crop sales and input purchases
Landowners may prove material participation (versus cash rental)
Social security implications
O'Brien, D.M. Kansas State Research and Extension

11. Crop Share Disadvantages
Variable landowner income
More records
Landowner may participate in marketing and management
Need to keep reviewing lease arrangements for equity
O'Brien, D.M. Kansas State Research and Extension

12. Cash Rent Advantages Landowners Tenants Fewer farm decisions
No price or yield risk
No crop marketing decisions
No material participation
Tenants
More control of decisions
More income for best farmers
Benefit of windfall profits
O'Brien, D.M. Kansas State Research and Extension

13. Cash Rent Disadvantages
More difficult to renegotiate
Landowners
No “good year” windfall profits
Few income tax management opportunities
Risk of tenants “mining” land
Harder to establish Social Security base
Tenants
Have all yield and price risk
Higher expenses / higher lending needs
O'Brien, D.M. Kansas State Research and Extension

14. Example
See Handout
Methods and Procedures of Estimating Rent for Crop Share and Flexible Cash Leases

15. Crop Share Lease

16. Livestock Leases: Cows on shares

17. Livestock Leases If You Are Going to Run Cows on Shares
RUN THE NUMBERS!!!
DO NOT COUNT ON TRADITION

18. Livestock Leases . . . Based on cost contributions approach
Both parties should share in total returns in the same proportion as they contribute resources.
Cow owners (in our example)
Livestock ownership
Other inputs
Tenants
Feed
Livestock care and handling
Facilities and equipment
Ownership

19. Livestock Lease Considerations
Length of Lease
Long Enough To Provide Continuity in The Livestock Herd (Operation)
How Are Replacements Provided
How and When Are Cows Culled and Sold
How and When Are Calves Sold
Death Loss Percentage Allowed
Incentives for Lower Death Loss and Higher Calving Percentage
Provisions for Drought and Disasters

20. Depreciation in Livestock Lease
If replacement are raised and the tenant (person running the cows) pays for development costs.
Do NOT include depreciation for the cow herd in the lease calculations.
Individual cows are “wearing out” but the asset (cow herd) is not depreciating
Tenant is paying the costs of developing replacements
Revenue shared is …?????

21. Example
See handout
Cost of production estimates for commercial cow- calf enterprise

22. Livestock Shares

23. How good were our “Rules of Thumb”
Crop-share lease
1/3 – landlord /3 – tenant
Livestock lease
40% – cow owner % - caretaker
Volatility in crop/livestock markets makes procrastination in lease reviews very costly

24. Leasing ?