Lease Rules Could Affect USDA Program Payments

Sharing price risk by using a flexible cropland rental agreement means sharing the USDA check too.

Published on: Feb 27, 2007

Certain cropland leasing practices, including some new types of leases, can put cash rent farmers at a risk of losing USDA farm program payments unless certain forms are filed. That warning comes from the Iowa Corn Growers Association.

"We don't want any farmer to lose out on farm program payments just because he missed filing a piece of paper or checking the right box," says Jim Meyer, a farmer from Odebolt and chairman of ICGA's corn production committee.

What Meyer and other ICGA leaders are most concerned about is the increased use of flexible or hybrid leases this year. These are the types of lease or cropland rental agreements where the amount of rent is determined by a base cash amount plus the yield and/or the price of the grain planted.

Ask your FSA office to review the lease

USDA's Farm Service Agency may consider such agreements in the same category with crop share leases and require the landlord to share in program payments. As a result, the landlord must file the same program eligibility forms as any other participating producer in addition to providing a Social Security number or federal tax ID number. Also, the names, addresses and phone numbers for all owners of the land or all members of an entity that owns the land.

Farmers who have flexible or hybrid leases should ask their FSA office to review such leases. "If a cash rent form is on file but the new lease includes any yield or price variable, the paperwork must be revised," warns Meyer.

He says ICGA doesn't have a problem with the leases themselves. "We just want to make sure farmers get the paperwork right," he adds.

USDA rules affect variable cash leases

With higher cash rents due to the recent run-up in grain prices, more farmers are switching to some type of variable cash rent or flexible lease arrangement with their landlords for cropland, says William Edwards, an ISU Extension economist.

USDA rules specify that under a lease arrangement in which yield or financial risk is shared between the tenant and the landowner, any direct payments and counter-cyclical payments for which the farm may qualify must also be shared in the same proportion. This is similar to the sharing of payments under a crop-share type of lease.

"Therefore, these payments should not be included in the gross income estimates used to determine the amount of rent due," says Edwards. "Also, tenants and landlords who agree on a flexible cash lease should provide a copy to their county FSA office and get approval for the proposed sharing of the direct and counter-cyclical payments."

More details on the flexible cash rent lease issue are available on the Internet by going to www.farmdoc.uiuc.edu/legal and scrolling down to an article by Dr. Donald L Uchtmann titled "Is Your Lease Compatible with Your Division of USDA Farm Program Payments Between Landlord and Tenant?"