2021 Iowa Farm Leases

Varley Law Office, PLC

Now is the time dictated by Iowa law to begin negotiating crop land leases for 2020 or at least notify your tenant/landlord, as the case may be, if you wish to change any of the terms in your current lease. (Remember that mutual consent is required if you want to make changes in the middle of a multi-year lease.)

If you wish to terminate a cropland or pasture lease ending March 1, 2020, and have not already done so, you must serve notice in the manner set out in Iowa Code §562.7 on or before September 1, 2020. This statute does not apply to custom farming arrangements, but by tradition, many farm operators have come to expect notice by September 1.

Basing cropland rent on the current CSR2 (updated “corn suitability rating” assessment) of the soil in question is the most accurate and fair way to arrive at a comparable rent [See Computing a Cropland Cash Rental Rate]. In addition, you can calculate a CSR2 for your farm. Below is a table of farmland values and cash rents in counties for which we prepare farmland leases:

The table above is based upon averages from sometimes limited survey results, but it does give a general idea of what the market for Iowa farmland looks like. The predicted annual rental is based on a 3.25% ROI.  Land prices have risen this year, driven by low interest rates and favorable commodity programs. To a lesser extent, rental rates followed land prices as they rose. Currently, there is a strong demand for land, but a limited supply. In addition, there has been an increase in the number of landowners engaging in custom farming. Ag commodity programs such as subsidized crop insurance and the market facilitation program have reduced risk, encouraging land owners to engage farm management companies such as Hertz Farm Management and Peoples Company, rather than opt for cash rentals, so they can take advantage of tax incentives available to operators. Things to keep an eye on include whether interest rates will remain low, the global response to the pandemic, and our trade policy with China.

Finally, with its growing popularity, it is important to know a little information regarding Hemp production in the State of Iowa. In May 2019, the Iowa Hemp Act was signed and this year the Iowa Department of Agriculture & Land Stewardship began issuing licenses to grow hemp. However, it is important that landowners know who they are leasing their land to if they plan on growing hemp on their land. If the hemp licensee grows hemp that fails the THC test, the entire crop will have to be destroyed. If the licensee fails to destroy the crop, the State of Iowa will come onto the land to do it. Moreover, if the operator cannot be found, the landowner will be assessed the costs of destroying the crop grown on their land.

Please contact our office if you have questions. Good luck with your negotiations!

Sincerely,                                  

VARLEY LAW OFFICE, PLC     

Warren A. Varley • Attorneys-at-Law • Karen K. Varley

201 NE Second Street

P. O. Box 235 

Stuart, Iowa 50250-0235

(515) 523-2456

FAX 866-297-7985

varleylaw@iabar.org

©2020

2014 Farm Leases: Cash Rent & Hybrid Agreements

--> Now is the time dictated by Iowa law to begin negotiating crop land leases for 2015 or at least notify your tenant/landlord, as the case may be, if you wish to change any of the terms in your current lease. (Remember that mutual consent is required if you want to make changes in the middle of a multi-year lease.)
--> If you wish to terminate a cropland or pasture lease ending March 1, 2015, and have not already done so, you must serve notice in the manner set out in Iowa Code §562.7 on or before September 1, 2014. This statute does not apply to custom farming arrangements, but by tradition, many farm operators have come to expect notice by September 1.
--> Basing cropland rent on the current CSR2 (“corn suitability rating” or in some regions “crop suitability rating”) of the soil in question is the most accurate and fair way to arrive at a comparable rent [See Computing a Cropland Cash Rental Rate: http://www.extension.iastate.edu/Publications/FM1801.pdf]. In concert with the slight decline in farm land values and the dramatic drop in grain prices, cash rental rates have remained steady or dropped during the current year. Below is a table of farmland values and cash rents from last year's ISU surveys in counties for which I prepare farm land leases:

--> The table above is based upon averages from sometimes limited survey results, but it does give a general idea of what the market for Iowa farm land looks like. The leases I have prepared so far this year continue to fall in the $2.50 to $3/CSR point range, with the higher quality land falling at the higher end of that range. There continues to be interest in deviating from the traditional cash rent model. By using a formula, tenants and landlords can avoid the often stressful exercise of negotiating a new rental rate every few years in order to keep up with changing economic circumstances. Flex lease formulas can also allow landlords to participate in windfalls during good years and tenants to reduce risk in bad, although current crop insurance revenue products go a long way in protecting farm operators from price and production risk. If you would like more information, I encourage you to contact your local ISU extension office.
--> Water quality issues and increased scrutiny of farm nutrient runoff is currently the prime topic of interest on the political front.
--> Please contact my office if you have questions. Good luck with your negotiations!

©2014

2013 Farm land leases; Cash Rent & Hybrid Leases

Now is the time dictated by Iowa law to begin negotiating crop land leases for 2014 or at least notify your tenant/landlord, as the case may be, if you wish to change any of the terms in your current lease. (Remember that mutual consent is required if you want to make changes in the middle of a multi-year lease.)

If you wish to terminate a cropland lease ending March 1, 2014, and have not already done so, you must serve notice in the manner set out in Iowa Code §562.7 on or before September 1, 2013. This statute does not apply to forage land leases (pasture and hay) or custom farming arrangements, but by tradition, many farm operators have come to expect notice by September 1.

Basing cropland rent on the CSR (“corn suitability rating” or in some regions “crop suitability rating”) of the soil in question is the most accurate and fair way to arrive at a comparable rent [See Computing a Cropland Cash Rental Rate: http://www.extension.iastate.edu/Publications/FM1801.pdf]. As Hertz Farm Management, Inc., has noted, cash rental rates have tended to lag behind the run up in farm land prices [http://www.hfmgt.com/newsletter/pdf/2013summer.pdf]. Below is a table of farmland values and cash rents from last year's ISU surveys in counties for which I prepare farm land leases:

Hybrid Leases

There is considerable interest in deviating from the traditional cash rent model. By using a formula, tenants and landlords can avoid the often stressful exercise of negotiating a new rental rate every few years in order to keep up with changing economic circumstances. Flex lease formulas can also allow landlords to participate in windfalls during good years and tenants to reduce risk in bad, although current crop insurance revenue products go a long way in protecting farm operators from price and production risk.

There is also considerable interest in addressing soil conservation issues; including terms regarding cover crops; and leased hunting.

Please contact my office if you have questions. Good luck with your negotiations!

©2013

Boundary Line Dam Easements

Here is a tidbit from my agronomy days applied to agricultural law: Soil is composed of four solid constituents: sand, silt, clay, and organic matter. The most productive soil is a loam, which contains roughly equal proportions of sand, silt, and clay (and as much as 4 or 5% organic matter). Most of western Iowa is blessed with clay loam and on the riverbottoms with silty clay loam thanks to wind-blown silt particles called loess (pronounced “luss”) left behind by the glaciers after the last ice age. Silt is, by far, the most easily eroded soil component. Hence the need for silt dams and fences to prevent bodies of water from filling up with silt. Structures that catch silt such as dams and terraces have to be cleaned out periodically to maintain their water holding capacity. For instance, when one builds terraces with state conservation cost-sharing money, one signs a maintenance agreement that ensures that the terrace’s design capacity will be maintained. By the same token, because of its erosive nature, silt makes a poor dam material. Earthen dams and terraces must be built of clay, which is a much smaller particle, but which has high particle adhesion.

It has been my experience as a farmer that nothing is harder on dams than cattle. In fact, if you build a dam with conservation cost-sharing assistance, you will be required to sign an agreement requiring you to fence cattle away from the dam and allow grazing of the dam only under limited circumstances. It is also for this reason that conservationist are encouraging farmers to fence cattle away from river banks.

My adversary suggested in his letter that a dam is higher or longer than the original easement signers contemplated. Because there is a fence across the dam, I think it is safe to say that the dam height has not changed at least since the fence was put in. In addition, the original dam height may have been too short. When I worked for the Soil Conservation Service we used to call home-made under-capacity dams (which seemed to be common in the 70’s) “doodle dams” because they would be washed out by the first heavy rain. Any structure designed to retain surface water should be designed with the capacity to hold the runoff from a Q-25 storm. The parties could have the Natural Resources Conservation Service (NRCS) evaluate the dam to see if it is sized appropriately for the watershed it serves. There may even be cost-share money available for the structure. But even without that, the clear purpose of the easement was to protect the clients’ pond from silt runoff and the current size of the dam no doubt reflects the wisdom of the years with respect to the sizing of the dam, regardless of the size speculated in the original easement agreement.

Land Auction Results

A farm land auction was held in Stuart, Iowa on June 30, 2008. Here is my analysis:

Parcel 1: 240 acres; crop acres 224.4; FSA corn yield 108; CRP acres 10.5;

ave CSR 60.66; $3,750/acre; $61.28/CSR pt

Parcel 2: 198 acres; crop acres 169.5; FSA corn yield 117; CRP acres 15.6;

ave CSR 56.08; $3,575/acre; $63.84/CSR pt

Parcel 3: 155 acres; crop acres 150.7; FSA corn yield 106; CRP acres 0.7;

ave CSR 62.61; $4,000/acre; $63.89/CSR pt.

Parcel 4: 130 acres; crop acres 115.9; FSA corn yield 108; CRP acres 9.7;

ave CSR 52.94; $2,950/acre; $55.72/CSR pt.

Other factors: Tile & terraces; Parcel 2 included 15,000+bu of grain bins and drying system; Parcel 4 bisected by creek