By ANN HINCH
Assistant Editor

JEFFERSONVILLE, Ind. — From family members, Dr. Bruce Erickson has heard of perhaps a simpler time, when his parents leased farmland on a 50/50 basis – the owner, an older lady named Edith, paid half his parents’ production costs and shared equally with them in the resulting crop.

“Simpler” in this case refers to the straightforward nature of a half-half split in a business partnership, which he said was the most common kind of arrangement for renting farmers decades ago.

“Back in those days, these were more one-to-one relationships,” said Erickson, director of Cropping Systems Management for Purdue University ag economics – and a landowner who just recently had to help sell his family farm in Iowa (his parents finally bought 120 acres in 1956).

Things are more complicated now in the sense of types of leases and the fact farmers may be dealing with multiple landowners, although certain modern arrangements may benefit either party more than the old standard 50/50. One key thing Erickson told those attending last week’s 10th Purdue Women in Agriculture conference in Jeffersonville is that a tenant and landowner should have good communication and understanding.

Land leases and cash rents have been in the news lately, he said, because of volatility in commodity prices. This may make it more difficult for landowners and renting growers to hammer out a fair cash rent for both, which led to Erickson’s other key point: It’s the responsibility of each party to know the basic economics of crop production.

This means landowners should educate themselves about input costs, historical yield for their land and cash and futures prices. One helpful tool in Indiana is the annual Purdue Crop Cost & Return Guide, an extension report that estimates input expenses and income returns based on three broad types of soil, type of crop and itemized costs such as fertilizer, equipment, labor, fuel – and cash rent.

The most recent report was published online and may be found at www.agecon.purdue.edu/extension/pubs/id166_2011_Nov_01_2010.pdf
Erickson encouraged landowners to find out the production potential of their farmland, which means not only seeking outside advice but also asking tenant farmers about their past yields and soil condition on the land. This is information growers don’t always like sharing – hence the need for good communication to be established first. When he took over helping run the farm for his elderly mother years ago, Erickson said he had to renegotiate the lease with the farmer she’d been working with for some time. He admitted that first year was awkward, but necessary, and said he thought both sides ended up satisfied with the new terms.

But crop income isn’t the only financial component of interest to a landowner; Erickson said he or she should also be aware of financial pressures on a grower. For example, fertilizer is one of those costs that varies widely according to demand and the market. Farmers know how much more they had to pay in 2008-09 than before or since, but an inexperienced landowner may not know, nor the reasons for those price fluctuations.

In Indiana, Erickson said producers, on average, own half their farmland and rent the other half. Cash rent and crop-sharing are typical types of leases; as a subset of this, there are flexible cash rent agreements.

The terms of these allow for deviations from the norm, such as an exceptional yield or significant losses, to affect the final rent paid to the landowner.
Purdue has an extensive offering of resources for landowners and growers to determine the best agreements for them. For links and more information for Indiana, visit www.agecon.purdue.edu/extension/pubs/farmland_values_resources.asp

Renters and landowners in other states should check with their local extension office for university or other resources specific to their state.