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Flexible rent on the rise?

This could be the year flexible rent finally begins a comeback, area ag officials say. "There's more interest in it now," says Noah Hultgren, a Willmar, Minn., farmer and first vice president of his state Corn Growers Association. Most Upper Midw...

This could be the year flexible rent finally begins a comeback, area ag officials say.

"There's more interest in it now," says Noah Hultgren, a Willmar, Minn., farmer and first vice president of his state Corn Growers Association.

Most Upper Midwest farmland is rented for a fixed amount of money per acre. A landlord receives that price, what's known as cash rent, regardless of crop prices and yields.

Cash rents are simple and straightforward, especially when a farmer has multiple landlords.

But there are alternatives, including crop shares. As its name implies, the landlord receives a share of the crop, often one bushel in five. With crop shares, the landlord makes more money in good years and less money in poor years. For the farmer, crop shares reduce both risk and potential return. Once common, crop shares aren't used much today, in part because determining the landlord's share can be tricky.

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Flexible rent contains elements of both fixed rent and crop shares. Often, flexible rent includes a base rent or payment to the landlord, with the base payments supplemented by additional payments based on crop prices or yields or both. As is the case with crop shares, flexible rent allows farmers and landlords to share in financial success when times are good, while also reducing farmers' expenses and landlords' return in bad times.

Impartial experts, including extension service officials, have suggested for years that farmers and landlords consider flexible rent. The option hasn't been popular, however, in part because many farmers and landlords prefer the simplicity and certainty of cash rent.

But plunging grain prices and farm profitability is sparking more interest in the practice now, especially on the farmers' side.

"We'd prefer to have more flex rents on our farm," Hultgren says.

He notes that farmers and landlords can find it difficult to agree on how to incorporate yields and prices into flexible rents.

Kim Dillivan, South Dakota State University Extension Service crops business management field specialist, says interest in flexible rents has grown.

It's too early to predict how much of that interest will lead to flexible rent agreements, he says.

State extension services in North Dakota, South Dakota, Montana and Minnesota all have information on flexible rates.

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