Risk vs. Reward

Most farms in most communities have several operating alternatives.  The fall along the line of the old risk vs. rewards slide.  You have cash rent, bushel leases, net share leases, crop share, blended custom, custom farming and direct operations.

Cash Rent

There is typically no risk in production or price when it comes to cash rent.  There is usually an agreed on fixed amount based on a few things.  Your farm production potential, the price outlook for commodities, government payments, competition for land in your area and any improvements needed.  An example of improvements would be houses, buildings, grain storage, irrigation equipment or tiling.  Some people do half payment at the beginning of the year and then the rest at the end of the harvest.  I highly suggest you receive payments in advance for the full amount.

Bushel Leases

In this case you would share the risk and reward of the price.  It would entail a fixed number of bushels of a crop delivered to a specified location by a certain date.  This kind of deal is gaining popularity due to higher commodity prices.  It's very attractive to some large operators.

Net Share Leases

Here you would share partial risk and reward of production and price.  This is very popular with large farm operators.  The reason is that there is no inputs to keep track of and divide.  Many landowners like this as well.  They have no inputs to pay at all.

Crop Share

In this you would share both the risk and reward of production and price.  There are some common modifications to this.  It can reduce input expenses of the landowner.  Inputs would be seed, chemicals, harvest and trucking and irrigation and fuel.  You can adjust percent of crop to the owner.  For example, you can change a 1/3 share to a 2/5 share or a 2/5 share to a 1/2 share.  You could also add supplemental cash rent which would often be due in the fall.

Blended Custom

This is an enhanced sharing of production and price risk.  Landowner pays all crop input costs and receives 80% to 90% of the crop.  Operator provides the labor, machinery and fuel.  The operator receives 10% to 20% of crop and government payments.  The operator is motivated to produce well.  Owner is rewarded for additional investment in crop inputs.

Custom Farming

Here the owner would assume all risk of both production and price.  Landowner pays all input costs.  Landowner hires all operations completed.  Landowner receives all crop revenue and government payments.

Direct Operations

In this one owner assumes all risk of both production and prices.  The owner would pay all input costs, employs labor and owns equipment and may own livestock.  The owner would receive all crop and livestock revenue and government payments.  The owner may also do recreational leasing.  Remember, profits would vary by operation.