University of Minnesota All Rights Reserved. What is a Fair & Profitable Rental Agreement ? 20 Location across Minnesota David Bau Extension Educator Agricultural Business Management University of Minnesota Extension

University of Minnesota All Rights Reserved. TODAY’S AGENDA: FINBIN DATA Increasing Input costs Minnesota Agricultural Statistic Information Farm Land Rental Rate Trends Land Values Landlord Worksheet Tenant Worksheet A Rental Rate That Works; Excel Spreadsheet Flexible Leases Rental Lease Examples What is a Fair Rental Agreement?

University of Minnesota All Rights Reserved. FINBIN DATA

University of Minnesota All Rights Reserved. CORN Budget Southern MN FINBIN Data Maximum Value Minimum Value Actual 2011 Average Project 2012 Project 2013 Forecast 2013 Yield per acre (bu.) Operators share of yield % Value per bu Total product return per acre Miscellaneous income per acre Gross return per acre ,

University of Minnesota All Rights Reserved. Direct Expenses Maximum Value Minimum Value Actual 2011 Average Project 2012 Project 2013 Forecast 2013 Seed $106.34$ Fertilizer $154.82$ Crop chemicals $27.78$ Crop insurance $24.63$ Drying fuel $5.61$ Fuel & oil $35.39$ Repairs $47.30$ Custom hire $10.69$ Hired labor $1.90$2.092 Land rent $174.35$ Machinery & bldg leases $2.22$2.302 Utilities $0.08$0.161 Marketing $3.48$3.644 Operating interest $10.34$ Miscellaneous $3.65$3.794 Total direct expenses per acre $608.40$ Return over direct exp per acre $361.03$

University of Minnesota All Rights Reserved. Overhead Expenses Maximum Value Minimum Value Actual 2011 Average Project 2012 Project 2013 Forecast 2013 Custom Hire $0.04$0.072 Hired labor $12.30$ Machinery & bldg leases $6.27$6.536 Farm insurance $7.66$7.958 Utilities $5.34$5.506 Dues & professional fees $3.59$3.784 Interest $8.17$8.378 Mach & bldg depreciation $49.96$ Miscellaneous $9.29$ Total overhead expenses per acre $102.55$ Total dir & ovhd expenses per acre $710.97$ Net return per acre $258.32$ Lbr & mgt charge per acre $52.64$ Net return over lbr & mgt $225.20$ Government payments $18.37$ Net return with gov’t payments $243.82$

University of Minnesota All Rights Reserved. Cost of Production Maximum Value Minimum Value Actual 2011 Average Project 2012 Project 2013 Forecast 2013 Total direct expense per bu. $3.72$1.53$ $3.74$ Total dir & ovhd exp per bu. $4.36$1.83$ $4.36$ With labor & management $4.68$1.83$ $ Total exp less govt & oth income $4.01$1.64$ $4.06$ Est. labor hours per acre

University of Minnesota All Rights Reserved. Increasing Input costs

University of Minnesota All Rights Reserved. Input costs for corn have been increasing at rate of 9% for corn since Input costs for soybeans have increased at a rate of 7% per year since Input Cost Trends

Copyright © University of Minnesota. All Rights Reserved. Land Rental Rates Ranged from $67.00 to $ per acre This is almost $200 range in 2011 What will it be in 2013 in your area? $300 -$400

Acceptable Price Worksheet: Southwest Research and Outreach website Excel spreadsheet to calculate your breakevens Ranges: $4.50 to $5.20 for corn $10.00 to $13.00 for soybeans

Corn Cash Rental Payment After $663 per acre expenses including $70 labor charge Copyright © University of Minnesota. All Rights Reserved. Price/Bu $ $ $ $ $ $ $ $ $ Yield Per Acre

University of Minnesota All Rights Reserved. Minnesota Agricultural Statistic Rental Information

University of Minnesota All Rights Reserved. County Cottonwood NA 3531 Jackson NA 28 Lincoln NA Lyon Murray Nobles NA Pipestone Redwood NA42NA43 Rock NA 43 SOUTHWEST NA Cropland Rental Rates Pasture Rental Rates Minnesota Cropland and Pasture Rental Rates Data provided by the Minnesota Agricultural Statistic Service September 2011 and 2010 and May 2009 NASS.USDA.GOV

University of Minnesota All Rights Reserved. Cropland Rental Rates Pasture Rental Rates Irrigated County NORTHWEST NA NA NORTH CENTRAL NA NA NA NORTHEASTNA NA NA WEST CENTRAL NA CENTRAL NA EAST CENTRAL NA NA SOUTHWEST NA NA SOUTH CENTRAL NA NA SOUTHEAST NA NA 207 MINNESOTA NA Minnesota Cropland and Pasture Rental Rates Data provided by the Minnesota Agricultural Statistic Service September 2011 and 2010 and May 2009

University of Minnesota All Rights Reserved. Farm Land Rental Rate Trends

University of Minnesota All Rights Reserved. Average Rents Paid by County'01'02'03'04'05'06'07 ' 08 '09‘10'11 Est. '12 Est. '13 Average Cropland Rental Rates paid in Adult Farm Management FINBIN database. Calculated 2012 and 2013 based on FINBIN rents increased 10.2 percent from 2010 to 2011 multiplied by 2011 rates to estimate 2012 and 15 percent from 2011 to determine 2013 rental rates Southwest Cottonwood Jackson Lincoln Lyon Martin Murray Nobles Pipestone Redwood Watonwan

University of Minnesota All Rights Reserved. Average AvgMedian 10 th Pctile 90 th Pctile NASS Est. South Central Cottonwood ____ Jackson ____ Lincoln n/a 141____ Lyon ____ Murray ____ Nobles ____ Pipestonen/a 140____ Redwood ____ Rockn/a 182____ Martin ____ Watonwan ____

University of Minnesota All Rights Reserved. Average Annual Change in Land Rental Rates Northwest 7.3%13.3% West Central 8.6%10.9% Central 12.1%15.2% East Central n/a Southwest 11.9%11.1% South Central 10.8%12.8% Southeast 10.3%13.7% State 10.2%13.1%

University of Minnesota All Rights Reserved. Ag Lease 101 Home Document Library FAQ For Educators About Ag Lease 101 ContactHomeDocument LibraryFAQFor EducatorsAbout Ag Lease 101Contact Ag Lease 101 helps both land owners and land operators learn about alternative lease arrangements and includes sample written lease agreements for several alternatives. Ag Lease 101 was created by and is maintained by the North Central Farm Management Extension Committee..

University of Minnesota All Rights Reserved. Land Values

University of Minnesota All Rights Reserved. County yr ave yr ave Cottonwood Jackson Lincoln Lyon Martin Murray Nobles Pipestone Redwood Rock Watonwan Southwest Minnesota Corn and Soybeans County Yields Yields from Minnesota Agricultural Statistic Service Annual Bulletins: 2011, 2010, 2009.

University of Minnesota All Rights Reserved. COUNTY CHIPPEWA NA $2481$2582$2615$3776$3,932$3,605$3,892$6,024 COTTONWOOD $1467$1625$1854$2439$2853$3005$4423$2,798$3,699$5,424$7,807 JACKSON $1930$1790$2111$2671$2969$3332$4425$3,999$4,100$6,453$5,981 LAC QUI PARLE $1032$1220$1461$1742$1933$2217$2474$3,138$3,326$4,052$4,174 LINCOLN $1029$1223$1172$1509$1624$2401$2343$2,917$2,830$3,464$4,253 LYON $1144$1676$1878$2012$2303$2207$3912$2,908$3,373$5,057$6,284 MARTIN $1930$2091$2476$2871$3092$3478$3783$4,446$4,634$4,509$8,359 MURRAY $1501$1672$2039$2183$2286$2500$3523$3,700$3,919$3,859$5,678 NOBLES $1762$1928$2238$2411$2882$3393$4126$3,939$5,037$4,850$6,109 PIPESTONE $1168$1334$1851$1880$2127$2409$3386$3,680$3,511$4,433$5,615 REDWOOD NA $2705$2743$2880$3759$4,158$4,259$5,445$7,479 ROCK $2066$1926$2139$2369$2992$3912$5052$5,221$4,783 No Sales $7,839 WATONWAN $1858$1842$2193$2337$3112$3103$3642$4,000$4,107$4,983$6,349 YELLOW MED. NA $2055$2537$2429$3203$3,425$3,595$4,515$5,481 AVERAGE $1535$1666$1947$2262$2574 $2849$3702 $3,733$3,913$4,687 $6,245 SW MINNESOTA COUNTY FARM LAND PRICES Prepared by David Bau, Jim Nesseth and Erlin Weness 2001 The amounts listed below are the prices paid per acre for total farmland (not tillable acres) in each listed county. The data is from farm sales recorded from January 1 st through June 30 th of the respective years. The data includes only bare land sales. No land and building combination sales are included. The information is from actual arms length sales reported to county authorities and collected by personnel of the University of Minnesota Extension. Sales data was not weighted for acres, each sale on a per acre basis was averaged to get the average price paid per acre. In 2005 added counties Chippewa, Lac qui Parle, Redwood and Yellow Medicine to study.

University of Minnesota All Rights Reserved. Cottonwood Jackson Lincoln Lyon Martin Murray Nobles Pipestone Redwood Rock Watonwan County Average 2010 Per-Acre Price Number of Sales 2011 Average 2011 Per-Acre Price Minimum 2011 Per-Acre Price Maximum 2011 Per-Acre Price Minnesota Farmland Sales 2011 and 2010 Average Farmland Sales from Minnesota Land Economics Steve Taff, University of Minnesota

University of Minnesota All Rights Reserved. Landlord Worksheet

University of Minnesota All Rights Reserved. Landowner’s Cash Rent Worksheet ExampleYour Farm (A) Farm Size in Acres (tillable acres) 156___76______ (B) Value per Acre $6,500__ $7000___ (C) Total Farm Value (A x B) $1,014,000__$560,000_ (D) Desired Return on Investment (C x 3.5%) $35,490__$19,600__ (E) Real Estate Taxes (A x $28.00) $4,480___$2,240__ (F) Liability Insurance $200____$200___ (G) Other Cash Costs (repairs, pump, Etc.) 0_____0_____ (H) Total Desired Return (D+E+F+G) $40,170 __$22,040___ DESIRED RENT PER ACRE (H/A) $ __$282.50*__

University of Minnesota All Rights Reserved. Tenant Worksheet Operator’s Cash Rent Worksheet

University of Minnesota All Rights Reserved.

A Rental Rate That Works

University of Minnesota All Rights Reserved. In a fair and profitable rental agreement the farmer makes a profit and the landlord receives a fair rental payment.

University of Minnesota All Rights Reserved.

Flexible Leases

University of Minnesota All Rights Reserved. Table 1. Average Southern Minnesota Cash Rent as a Percentage of Gross Revenue Average Cash Rent Paid Per Acre Average Gross Revenue, Dollars per Acre Average Cash Rent as % of Gross Revenue Corn Price Soybean Price Year Southern Minnesota CornSoybeansCornSoybeans $330.47$ %34%$2.74$ $329.89$ %32%$2.46$ $321.49$ %35%$2.37$ $287.29$ %38%$1.77$ $269.76$ %42%$1.73$ $267.31$ %41%$1.75$ $228.38$ %47%$1.75$ $344.09$ %39%$2.18$ $358.05$ %42%$2.23$ $351.40$ %46%$2.00$ $375.47$ %37%$2.03$ $511.27$ %36%$2.90$ $611.21$ %27%$3.68$ $681.06$ %34%$3.89$ $716.55$ %33%$3.74$ $884.41$ %30%$4.68$ $929.62$ %34%$5.66$11.40 Average28.11%36.72%

University of Minnesota All Rights Reserved. Flexible Rents based on gross revenue: This is a rental agreement where rental payments are based on gross revenue of the farmland. It can include a base payment in the crop year and a final payment after the actual yield and price are determined. Base rents plus a bonus: This is a rental agreement where a base rent is paid and then a bonus may or may not be paid determined if yields exceed a base goal. Then these additional bushels would be shared between landlord and tenant. The bonus can also be determined by yield and price together or price alone as well. Flexible rent based on yield only : This is a rental agreement where the landlord receives a set base number of bushels with additional bushels if yields are higher than was determined for the base payment. This can also be done with a cash payment based on yield and then price at an elevator. Flexible rent based on price only: This is a rental agreement where the rental payment is based on crop prices. Often it is an average price of the previous twelve months or a quarterly price which is multiplied times the bushels agreed to. Rental payments can be made at the quarterly price setting times or half and half or after harvest. Profit sharing flexible rent agreements: This is a rental agreement where the landlord and the tenant share the profit from the farmland. This agreement is similar to a crop share lease where they share crop yields 50% to landlord and 50% to the tenant and some of the expenses are paid by each party.

University of Minnesota All Rights Reserved. Calendar Year CornSoybeans 2011$6.62$ $3.84$ $3.40$ $4.92$ $3.38$ $2.15$ $1.68$ $2.32$ $2.10$6.07 Average$2.38$6.27 Worthington Yearly Average Cash Prices

2013 Corn Using 67% of Net Income before Rent & Labor Copyright © University of Minnesota. All Rights Reserved. Cash Price $ 5.00$190$206$223$240$257$290 $ 5.50$247$265$283$302$320$357 $ 6.00$304$324$344$364$384$424 $ 6.50$360$382$404$426$448$491 $ 7.00$417$441$464$488$511$558 Assumes corn input costs of $567 per acre

University of Minnesota All Rights Reserved. Cash Price $ 10.50$102$123$144$165$186$207 $ 11.50$129$152$175$198$221$244 $ 12.50$155$181$206$231$256$281 $ 13.50$182$209$237$264$291$318 $ 14.50$209$238$267$296$326$ Soybean Using 67% of Net Income before Rent & Labor Assumes soybean input costs of $268 per acre

University of Minnesota All Rights Reserved. 40,17042,17544,18046,18548,19050,200 $146$165$184$203$221$249 $188$208$229$250$271$301 $229$252$275$297$320$353 $271$296$320$345$369$405 $313$340$366$392$418$ Corn and Soybean Average Using 67% of Net Income before Rent & Labor Soybean and Corn Yields

University of Minnesota All Rights Reserved. Rental Lease Examples

University of Minnesota All Rights Reserved. CornSoybeans EstimateYour FarmEstimateYour Farm Yield Bushel/Acre180________ 48________ Price $/Bushel$ 5.50$________$ 12.50$ ________ Gross $/Acre$ 990$________$ 600$ ________ USDA Transition Payment$ 0$________$ 0$ ________ Total Counter-cyclical Payment$ 0$________$ 0$ ________ Total Income Per Acre$ 990$________$ 600$ ________ Seed$ 110$________$ 55$ ________ Fertilizer$ 180$________$ 25$ ________ Herbicide/Insecticide$ 28$________$ 30$ ________ Crop Insurance$ 25$________$ 25$ ________ Drying Fuel$ 25$________ Fuel/Oil$ 37$________$ 24$ ________ Machinery Repairs$ 49$________$ 32$ ________ Machine Leases/Machine hire$ 10$________$ 8$ ________ Interest on Operating$ 12$________$ 8$ ________ Overhead Expenses Operator Labor$ 70$________$ 70$ ________ Hired Labor$ 25$________$ 17$ ________ Depreciation on Machinery$ 51$________$ 34$ ________ Other Expenses$ 41$________$ 35$ ________ Total Expenses per Acre$ 663$________$ 363$ ________ Net Return to Land or the $ 327$________$ 237$ ________ Amount Available to Rent Ave:$ Crop Budgets for Southwest Minnesota Prepared by David Bau, Regional Extension Educator, Ag Business Management August 2012

University of Minnesota All Rights Reserved. What is a Fair Rental Agreement?

University of Minnesota All Rights Reserved. $90 $120 $150 $180 $210 $240 $270 $300 $330 $360 $390 $420 $450 $480 $510 What is a fair rental rate?

University of Minnesota All Rights Reserved. In a fair and profitable rental agreement the farmer makes a profit and the landlord receives a fair rental payment.

University of Minnesota All Rights Reserved. Initially: Base Rent with a flexible component, farmer makes a profit and the landlord receives a fair rental payment. Then: Devise an agreement where share extra based on yield, price, gross, net. You decide what works for both parties

University of Minnesota All Rights Reserved.

Over 1200 people attend workshops Roughly 1/3 farmer and 2/3 landlords Rated workshop 4.22 on 1-5 scale. Farmers averaged 793 acres Landlords 177 acres Group Total 387,226 acres This accounts for over 2.5% of corn and beans planted in Minnesota in Attendees stated average value of workshop $139 for total of $158,738

University of Minnesota All Rights Reserved. Questions?? David Bau Regional Extension Educator Agricultural Business Management University of Minnesota Extension