If a larger number of pricing periods is desired, choose one day of the month to collect the harvest delivery bids. If both parties prefer to reflect a longer period of monthly averages, consider January through October. To avoid having to record this price every month, you might want to have the local grain merchandiser simply print out this average price at the conclusion of harvest. Also request that they sign and date this information so that both the tenant and landowner are comfortable with the source of this data.
You need to establish gross revenue parameters and base crop cost estimate triggers, for both corn and soybeans
How to determine the flexible lease triggers for both corn and soybean crops needs to be established in your rental agreement. If crop production costs appear to be too high or too low annually, then changes could be made to: base rent, maximum rent, and the flexible cash lease triggers that more accurately reflect cost of production. For 2014, consider not triggering the flex payment until the gross crop revenue exceeds the base crop cost estimate trigger for each crop.
ISU Extension publication FM-1712, "Estimated Costs of Crop Production" could be used to set an estimate for cost of production. This publication is printed annually and will be released next in early 2014. Those non-land costs in 2013, for conventional tillage and a medium yield, are $501 per acre for corn following soybeans in rotation, and $272 per acre for soybeans following corn.
Let's assume that the base rent used to determine the crop cost estimate will be the Iowa average cash rental rate of $270 per acre. Thus, for corn the base crop cost estimate (non-land plus land costs) is $771 for corn and $542 for soybeans.