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Landlords Want to Cash in On Record Wheat Prices

Posted by Seth Truscott | August 7, 2007

When wheat prices were low, Herb Hinman, Washington State University extension farm business economist, heard from tenant farmers in eastern Washington who were having trouble making ends meet under the terms of their lease agreements.

Herb Hinman,farm business economist, talks to student
Herb Hinman, farm business economist, talks to student

“I got a lot of calls from farmers who said they couldn’t afford to farm under their current lease arrangements,” Hinman said. The extension economist conducts workshops on dryland crop leases.

Now that tenants are reaping the rewards of $6 per bushel wheat, he is hearing a different tune from landlords. “Many want to change the rental arrangements to get a larger share.

”If you’ve got a fair and equitable crop lease at low prices,” Hinman said, “that same crop share lease is fair at high prices. Everyone is making more money.”

About half of the wheat land in eastern Washington is farmed under some sort of lease arrangement, according to the economist. While crop share leases, in which landlords receive a predetermined share of the crop at harvest, predominate, cash leases are becoming more popular.

How do you determine if a crop share is equitable?

“Basically, we compare the dollar value of the contribution the landowner puts in with the dollar value of the contributions made by the tenant in terms of inputs, labor, machinery and management,” Hinman said. “Once we work it through, if we figure that the cash value of what goes into the production of the crop is 30 percent supplied by the landowner and 70 percent supplied by the tenant, the crop shares should be 30-70.”

Some crop-share arrangements are purposely not equitable.

“That’s often on purpose when fathers are trying to turn their farms over to their son or daughter,” Hinman said. “The younger generation will get a very good lease arrangement, but their parents realize what’s going on.”

Cash leases are figured differently.

“We calculate about how much cash a tenant can afford to pay under assumed prices and yields,” Hinman said. “We also calculate how much cash a landlord needs to get to cover all of his expenses as well as expected returns on the value of his land. Hopefully, from these calculations a fair cash rental agreement can be worked out.”

“The big problem with cash rents is that in an area like this there is so much flexibility in yields and prices from year to year. A fixed cash rent can be very harmful to the tenant in a year of low prices and yield or it can be harmful to the landowner which right now are not cashing in on high prices.”

Read more in Extension Bulletin 1981E, “Analyzing Dryland Crop Leases,” available free online.