What are share rents?

Just got ask this question on Twitter, and since responding briefly is not one of my strengths I thought I’d do a quick blog post as an answer..

Share rents are simply where the land owner and the farmer “share” in some portion of the crop with the landowner’s share of the crop serving as his payment for farming the ground.  The most standard types of share rents in our area is the 50/50 rental agreement and the 1/3-2/3’s rental agreement.  With 50/50 the landowner and farmer each get half of the harvested crop, and each pay half of the direct expenses for raising that crop (seed, chemicals, fertilizers).  There is a lot of minor variations on this,  in some cases the landowner may pay the farmer to harvest the landowner’s share of the crop, things like soil testing, scouting, and custom application fees and whether they are split seem to vary a lot.  With a 1/3-2/3’s agreement, the landowner receives 1/3 of the crop and pays no expenses.  There are so many other share rent options, 60-40’s, 70-30’s, and endless tweeks on each variation, but the basic model of having a landowner “share” in the success of failure of the crop on their land is the common theme.

Share rents as a rule have been in decline, one of the driving factors for this is that landowners are no longer as interested in being responsible for marketing their portion of the crop.  Cash rents continue to replace share rents in many cases.  Cash rents carry significantly more risk for the farmer as he makes an up-front cash payment regardless of what kind of crop he raises.  There has been a lot of interest in variable cash rents recently as a way to combine the best of both worlds.  Give the landowner a base rate for rent, and have that adjust upwards based on the yields and/or price that the land produces.

Just a short post here, but was a good place to provide a reasonably detailed answer to a question I was asked on Twitter this morning.

 

 

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