The use of a flexible cash farm lease will likely be fairer to both the landowner and tenant. However, the challenge is coming up with a base rent amount, maximum cash rent and a way to determine a flexible payment that both parties can understand and deem as being fair.
How to determine yield and prices when using a flexible cash rent lease
The lease agreement needs to establish how the farm's actual yield (dry weight for corn adjusted to 15% moisture) is determined. It might require grain bin measurements, scale tickets, settlement sheets, yield monitor data, grain cart scales or other verifiable methods.
You can simplify the yield information to be the same as the Actual Production History, or APH, provided annually for crop insurance purposes. A copy of the farm's actual proven yield for APH purposes can be provided to the landlord on or before December 1 in order to calculate the farm's potential flexible lease payment.
Averaging a series of harvest delivery bids at a local co-op or elevator is worth consideration for establishing the crop price on a flex lease. Such a price overcomes the potential low harvest price bias, and yet reflects the cash price for say an October delivery period. This is a price the tenant could have received during the year if they decided to forward contract a portion of their crop on that farm for fall delivery.
Average price for payment could be a harvest cash price bid, set by the local elevator
The average cash price for a flex lease payment could be the harvest bid set by a local elevator, perhaps four times during the year: mid-January, mid-April, mid-July or mid-October. Specific days of the month should be established. If you specify the 15th of the month, include in the lease that if the 15th falls on a weekend, then use the trading day closest to the 15th.