Extra CREDIT: Comparing Lease Arrangements Due Monday, December 11, 2017

A prospective farm tenant is considering four alternative leasing arrangements:

a. Fixed cash rent - tenant receives all gross income and pays all expenses, including $140 per acre cash rent.

b. Flexible cash rent - same as above, except cash rent will be equal to one-third of the actual gross income.

c. 50-50 Crop share rent - tenant receives half the gross income, pays half the input, storage, and drying costs, and provides all the labor and machinery.

d. Custom farming - tenant (custom operator) provides all machinery and labor, receives $100 per acre. Owner pays all other costs.

1. For each alternative calculate the tenant's gross income, total costs and expected profit for an average gross income per acre, and for when gross income falls 20% below average.

50-50

Fixed Flexible Share Custom

Expected Income Cash Rent Cash Rent Rent Farming

Total gross income per acre $450 $450 $450 $450

Tenant's gross income _____

Tenant's costs:

Seed, fertilizer, pesticides 120 120 60 0

Machinery 50 50 50 50

Labor 25 25 25 25

Drying, storage 10 10 5 0

Rent __ __ __ __ _______

Total of tenant's costs ___ __ ____ __ __

Profit to tenant __ _ __ _______

Risk Analysis, with 20% less gross

Tenants gross income __ __ __ _

Cash rent __ __

Total of tenants costs __ __ __ _______

Profit to tenent __ __ _ _______

2. Which alternative offers the highest profit to the tenant, normally?

The lowest?

Which alternative offers the most risk to the tenant?

The least risk?