pasture rental arrangements aglease101.org a product of the north central farm management extension...

Pasture Rental Arrangements

AgLease101.orga product of the

North Central Farm Management Extension Committee

AgLease101.org© North Central Farm Management Extension Committee

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Why Seek Equitable Lease Arrangements

• Situations and locations vary

• Successful leases meet the needs of both parties


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Factors to considerwhen developing an equitable lease


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Stocking Rates

• Possible ways to delineate stocking rate– By the head – By animal units (both parties should agree on

what an animal unit is) – By pounds

• Important to agree on the number, size and type of animals and the duration of the grazing period


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Establish Land Owner andLivestock Owner Contributions

Land owner costs may include: • Interest on land value (valued for

agricultural purposes) • Taxes associated with the leased land• Development cost conservation,

drainage, improvements… • Facility and buildings, fences, barns,

wells (including the “DIRTI five”)


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Sample: Land Owner Cost


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Livestock Owners Net Returns

• Net Returns is usually estimated on a dollar per head ($/Head) basis

• State Budgets are usually available from local extension offices (these budgets are generalized and may need to be adjusted to fit the circumstances)

• Net Returns to grazing for terminal animals is equal to the value of the animal at the lease expiration minus the purchase cost/value and other operating expenses incurred during the lease period. Breeding animals and those used for other purposes require adjustments to this calculation


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Sample: Livestock Owner Net Return


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Lease Rates

• Using the information about cost of both the livestock and land owner, negotiations can proceed to determine and equitable agreement

• An equitable lease includes the type of payment. Either– Cash lease– Share lease


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Cash Lease

• In this example land owner desires $27.03/acre or $108.13/head (sheet 1)

• The livestock owner wishes to pay only $15.23/acre or $60.91/head (sheet 2)

• The process of negotiation between the two parties will hopefully result in a price with which both can be happy.


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Share of Gain

• Another method of establishing the price is to use share of contribution

• This requires honesty and credibility between both parties

• Lease rate is based on contribution percent (see the following slide worksheet 3, based on worksheets 1 and 2)


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Sample: Share of Gain


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Including Price andProduction Risk in the Lease

Characteristic of a variable lease agreement

• Both parties can bare some of the risk – Actual lease rate is dependent on the

outcome– Requires a good understanding and a high

degree of confidence and trust between parties


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Production Risk

• Base rate for expected gain is estimated on a per pound basis

• At the conclusion of the production period actual gain is used to adjust the base rate


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Sample: Production Risk Rate

• A 4 month lease for $25.00 per head per month or $100.00 a head has an expected outcome for the yearling calves to have gained 220 pounds

• These factors translate into $.45/pound gain per calf ($100.00 divided by 220 pounds)

• A higher rate of gain such as 300 pounds would result in the land owner receiving $135.00/head for the 4 months (the agreed upon $.45/pound gain


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Price Risk Adjustment

• Flexible rate formula method

• Uses a base rate derived from the Expected Price (long term 5 year average, Oct-Nov good-choice local steer price)

• Adjust based on an agreed upon price source (Current Price), such as average price for good-choice steer for the months of October and November at the local auction market.


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Sample: Price Risk Adjustment

• Expect Price is $80/cwt

• Current Price is $100/cwt

• Base rate is $100/head for the lease term

• Then the $100 is multiplied by quotient of the Current Price of $100 divide by the Expected Price of $80 or 1.25

• Making the adjusted lease rate $125/head


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Other Factors Affecting Lease Rates

• Productivity • Local conditions • Adjacent rates • Location • Water • Landlord services • Size and scope of the land leased


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Improved Pasture Leases

• Factors that are added with improved pastures

• Includes the added productive nature of the pasture and the added cost associated with its maintenance (irrigation, fertilizer…) and who bears the expense and the benefit


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Drafting Your Lease

• Written Lease is superior to verbal lease

• Written details can solve problems before they occur and clarify ambiguity

• Serve as a reminder to the actual terms of the lease

• Serves as a go-to document in the case where heirs or others become involved


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Things To Remember

• Not all states have the same laws when it comes to leased pasture and farm ground

• Termination dates and methods vary from state to state

• The information provided in this packet is for educational purposes; actual leases should be made with the appropriate legal advice from qualified advisors


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Lease Publications at AgLease101.org

• Fixed and Flexible Cash Rental Arrangements For Your Farm (NCFMEC-01)

• Crop Share Rental Arrangements For Your Farm (NCFMEC-02)

• Pasture Rental Arrangements For Your Farm (NCFMEC-03)

• Rental Agreements For Farm Buildings and Livestock Facilities (NCFMEC-04)

• Beef Cow Rental Arrangements For Your Farm (NCFMEC-06)


North Central Farm Management Extension Committee

AgLease 101 was developed with funding provided by the North Central Risk Management Education Center.

Providing leadership in the development of high quality research-based extension programs and publications that anticipate and meet the ever-changing business management educational needs of agricultural producers of the North Central States. Our programs and publications capitalize on the expertise of farm management faculty from throughout the region and country.

pasture rental arrangements aglease101.org a product of the north central farm management extension...

Documents

cash lease share lease

lease period

lease characteristic

lease expiration

parties lease rate

local extension offices

following slide worksheet

variable lease agreement