An Alternative to Leasing: Custom Farming
Landowners have many decisions to make when it comes to their land, the most important of which is deciding who will farm it. Do they farm it themselves, or should they offer it for lease? The options vary depending upon the situation of individual landowners. Lease agreements may be the best option for some landowners, who might not have close ties to their farms, or who are geographically distant from their land. However, if one of these options doesn’t seem like the right fit, are there any alternatives? For many landowners, custom farming is the answer. In cases where a landowner might desire to remain in control of all the farming decisions himself, but might not have the time or physical resources available, custom farming offers a practical alternative.
In a custom farming arrangement, the landowner pays a set fee to a farm operator to perform all the labor in crop production. The farm operator provides the machinery needed to farm the land and assumes only the costs associated with machinery repair and maintenance. All the other decisions are made by the landowner, who also pays for all input costs, including chemicals, seed, fertilizer, and crop insurance. The landowner also receives all the income from sales and all eligible farm program payments.
There are obvious advantages to custom farming for both the landowner and the farm operator. For the farm operator, there are significantly less price and yield risks than in a leasing situation, and little to no additional operating capital is needed. Custom farming provides extra income at a set rate. Landowners benefit from not having to invest in expensive machinery, or in its maintenance and upkeep. Many landowners favor not having to negotiate rental rates or collect lease payments.
If a custom farming agreement sounds like a good fit for you and your land, it’s important to have a written agreement in place that provides specific details of what is expected of each party. Knowing ahead of time the amount of acres and type of soil that will be farmed, the farming practices—including tillage, watering, and fertilizer practices—that will be used, and the tentative planting and harvesting schedule, is key to a good business relationship. It’s a good idea to outline a payment schedule as well. Clear, open communication will prevent any potential misunderstandings.
Determining the appropriate custom farming rate can be the most complicated part of the custom farming agreement. Reports that list the average rate for your area and crop are available from various sources.
Another option for landowners includes custom leases, where the tenant gets a share of crop, anywhere from 15% to 25%. This gives the tenant a vested interest in the crop. The tenant is responsible for the cost of all mechanical operations on the farm. Custom leases allow both tenants and landowners to share in the good years.
Many landowners turn to professional land managers to help them with these considerations. Land management companies are able to match up landowners with those who are seeking to do custom farm work. They are also able to draft the agreement and help to determine an appropriate and mutually beneficial rate for the work supplied.
As a landowner, it’s important to know all the options available to you. Custom farming provides yet another way for you to manage your investment. Do you have questions about custom farming? Let UFARM supply the answers! We’re here to help.
Source: Edwards, William. “Custom Farming: An Alternative to Leasing.” Iowa State University Extension and Outreach. Iowa State University. Sep. 2009. Web. 13 Mar. 2014.macld they lease it to anoth
