Examining Share Lease Agreements for Corn Operations in the Texas High Plains

DeDe Jones and Michelle Jones

Table 1. Estimated Costs and Returns per Ground Acre
2013 Irrigated Corn for Grain - Herbicide-tolerant, Insect-resistant

Results and Conclusions A 20% lease agreement appears to give an unfair advantage to the landlord, which is due primarily from high regional production costs that are not shared under this scenario. The optimal 33% lease agreement (Scenario 5) involves sharing five production expenses, which is more than traditionally accepted in the Texas High Plains region. The 25% lease agreement appears to achieve maximum equitability between three and four production expenses shared (Scenarios 8 and 9). Preliminary projections for 2014 corn based on lower marketing prices show that Scenarios 5, 8, and 9 continue to achieve the most equal return on investment between the tenant and landlord. However, it seems that sharing a greater number expenses becomes even more important in the face of tighter profit margins. Renegotiation of existing leases may be necessary.
Figure 1. Average 2013 Return on Investment for a 20%80% and a 33%-67% Share Lease Agreement

Introduction The Texas High Plains region (AgriLife Extension District 1) produces a sizeable amount of Texas corn. Crop share lease agreements are a typical practice in this area. A crop share lease is characterized by the landowner and operator each sharing in the cost of growing the crop. In return, crop receipts are shared by both parties based on predetermined percentages. Most share leases are based upon what is customary for the area. Crop share agreements for corn in the Texas High Plains typically involve a 33%, a 25%, or a 20% lease. The expenses shared differ greatly, and are based on negotiations between landlord and tenant. This study determines the profit maximizing share agreement for both landlords and tenants producing irrigated corn in the Texas High Plains.

Item Income corn grain Total Income Direct Expenses Seed corn seed Fertilizer fert (N) - ANH3 fert (P) liquid fert (N) liquid Field Operations herb+appl fertilizer application miticide & appl custom harvest & haul crop consultant Scouting Crop Insurance Operator Labor & Hand Labor Irrigation Labor Diesel Fuel Tractors Gasoline Pickup Irrigation Fuel Repair & Maintenance Implements Tractors Irrigation-Above Ground Irrigation-Below Ground Pickup Interest-operating capital Total Direct Expenses Returns Above Direct Expenses Fixed Expenses Implements Tractors Irrigation-Above Ground Irrigation-Below Ground Pickup Management Whole Farm Insurance Land Property Tax Total Fixed Expenses Total Specified Expenses Returns Above Total Specified Expenses

Quantity 225.0

Unit bu.

Price $6.50

Amount $1,462.50 $1,462.50

0.38 126.0 60.0 78.0 1.0 1.0 1.0 225.0 1.0 1.0 1.0 0.84 1.41 2.19 2.01 22.00 1.00 1.00 22.00 1.00 1.00 4.75%

bags lbs lbs lbs acre acre acre bu. acre acre acre hour hours gallons gallons acin acre acre acre acre acre

$265.000 $0.500 $0.910 $0.680 $32.12 $10.00 $20.60 $0.40 $7.00 $0.00 $26.70 $10.70 $10.70 $3.95 $3.52 $4.40 $5.61 $4.80 $4.04 $0.16 $0.00

$100.70 $63.00 $54.60 $53.04 $32.12 $10.00 $20.60 $90.00 $7.00 $0.00 $26.70 $9.01 $15.07 $8.64 $7.08 $96.80 $5.61 $4.80 $88.88 $0.16 $0.00 $14.34 $708.13 $754.37

1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

acre acre acre acre acre acre acre acre acre

$8.61 $6.75 $35.56 $0.24 $0.00 $0.00 $0.00 $140.00 $0.00

$8.61 $6.75 $35.56 $0.24 $0.00 $0.00 $0.00 $140.00 $0.00 $191.16 $899.29 $563.21

Landlord ROI Tenant ROI

Data and Methods

2013 Irrigated Corn budgets for Texas A&M AgriLife Extension District 1 were entered into an Excel Spreadsheet. A sample 2013 budget for irrigated corn can be seen in Table 1. Different lease agreements were simulated, assuming a 33%, a 25%, and a 20% lease with and without various expenses shared. Simulated scenarios are shown in Table 2. The optimal lease was determined when the percentage of unshared expenses was equal to the percentage of total expenses, and when both parties received a similar return on investment.
Figure 2. Average 2013 Return of Investment for a 25%-75% Share Lease Agreement
Table 2. Simulated Lease Agreement Scenarios with Various Expenses Shared
Scenario 1 Scenario 2 Scenario 3 Landlord Share % 20% 33% 33% Input Costs Shared No expenses shared Fertilizer Chemicals/Application Irrigation Fertilizer Chemicals/Application Irrigation Seed Fertilizer Chemicals/Application Irrigation Harvest Fertilizer Chemicals/Application Irrigation Seed Harvest 33% 33% Scenario 4 Scenario 5

Landlord ROI Tenant ROI

Scenario 6

Scenario 7

Scenario 8 Landlord Share %

Scenario 9

Scenario 10

25%

25%

25% Input Costs Shared

25%

25%

Fertilizer Chemicals/Application

Fertilizer Chemicals/Application Irrigation

Fertilizer Chemicals/Application Irrigation Seed

Fertilizer Chemicals/Application Irrigation Harvest

Fertilizer Chemicals/Application Irrigation Seed Harvest