Agricultural lease agreements play a vital role in Texas farming and ranching operations. With the high cost of land ownership, leasing provides farmers and ranchers flexibility and preferred ad valorem taxation, while allowing landowners to generate income from their property.
Whether you're a landowner looking to lease your farm or a tenant seeking to expand your operation, understanding the various payment structures is essential for creating fair and effective agreements.
What Is an Agriculture Lease Agreement?
An agricultural lease agreement is a legally binding contract between a landowner and a tenant that outlines the terms for using agricultural land for farming, ranching, or other agricultural purposes. These agreements specify payment structures, lease terms, responsibilities of each, permitted land uses, and other important conditions.
In Texas, agricultural leases can cover various types of land use, including row crop production, pasture for livestock grazing, hay production, hunting, and other recreational activities.
United States Farmland Leasing Statistics
Leasing farmland is common in the U.S. According to 2016 USDA data, about 39% of the 911 million acres of farmland in the lower 48 states is leased. Cropland is leased more often (50%) than pastureland (25%). These numbers have remained relatively constant over the past decade.
Most rented farmland (80%) belongs to non-farming owners like retired farmers, family members who inherited land, and investors. The other 20% is owned by active farmers who lease out some of their land while farming the rest themselves.
6 Types of Lease Agreements
Agricultural lease agreements in Texas typically fall into one of several payment structures. Each structure distributes risk and potential profit differently between the landowner and the tenant. Selecting the right type depends on several factors, including the parties' financial goals, risk tolerance, desired level of involvement, and the specific agricultural use.
1. Cash Rent Lease
Cash rent leases are the most common type in Texas agriculture because they're straightforward. The tenant pays the landowner a fixed amount, which can be calculated per acre, per animal, or as a flat fee for the entire property.
For example, a 100-acre cattle pasture might rent for $15 per acre, $8 per head, or $1,500 total per year. Payments are usually made annually, semi-annually, or quarterly as agreed in advance.
Benefits of cash leases include:
- Landowners receive guaranteed income regardless of production or market conditions
- Tenants maintain complete control over management decisions
- Simple administration with minimal record-keeping
- Clear separation of responsibilities
The main downside for landowners is missing out on profits during good years. For tenants, the challenge is making fixed payments even during poor production years or market downturns.
With cash leases, tenants typically receive all government program payments unless the agreement specifies otherwise.
2. Bushel Lease
With a bushel lease, the tenant delivers a set amount of crop to a specific elevator by a certain date, at no cost to the landowner. The amount is negotiated but typically equals about one-third of normal production. This arrangement helps protect against inflation and price changes while remaining easy to manage. Unlike crop share leases, the tenant usually keeps all government payments in this setup.
3. Net Share Lease
Net share leases have become popular alternatives to cash rent. The landowner gets a percentage of the crop without paying for inputs. Unlike bushel leases, the amount varies with yield — better crops mean higher rent. The landowner only pays for drying or storing their portion. This gives landowners a chance to benefit from good years while keeping their costs limited to post-harvest expenses.
4. Crop Share Lease
In crop share leases, landowners and tenants split both production costs and crop revenue by agreed percentages. This works for both crops and grazing operations. The splits vary by region and crop — for Texas cotton, it's often "thirds" with landowners getting 1/3 and tenants 2/3.
The agreement should clearly list which costs the landowner shares. Typically, this includes fertilizer, chemicals, and irrigation, but it differs by location and crop. The lease should specify all shared expenses and how receipts will be handled.
These leases let landowners benefit from good years but also risk lower payments in bad years. Tenants link payments to actual production and get help with some costs, though they'll need to keep more detailed records.
Government payments are usually split in the same ratio as the crop.
5. Flex/Hybrid Lease
Flex or hybrid leases blend features of cash and crop share leases. They set a base rent that adjusts up or down based on factors like yield or price.
For example, a flex lease might set dryland corn rent at $35 per acre, but if corn prices move above or below $5.00 per bushel, the rate changes by $0.30 for each $0.15 price shift.
The details matter in these leases. The agreement should clearly state which market determines prices, when those determinations happen, and exactly how to calculate the final payment.
These arrangements give landowners a guaranteed minimum payment plus potential upside. Tenants get some payment certainty while possibly paying less in tough years.
How government payments are handled depends on the specific lease wording.
6. Custom Blend Lease
Custom blend leases create unique arrangements tailored to specific needs. These flexible agreements can mix elements from different lease types or introduce completely new terms.
They might involve landowners providing certain inputs or services, tenants handling custom farming operations, or other creative ways to share risk, labor, equipment costs, or production expenses. These custom arrangements can be designed to motivate both parties toward specific production goals or profit targets.
Methods of Pasture and Hay Rental Rate Calculation
For pasture and hay leases specifically, several methods exist for determining appropriate rental rates. The best approach depends on the parties' objectives, the quality of the land, and local market conditions.
Current Market Rates
The simplest approach is to charge what others charge in your area. County extension offices, agriculture lenders, and real estate professionals track these rates. While easy to implement, this method doesn't account for your property's specific features, like water sources or fencing quality.
Return on Investment
This method sets rent at 1.5% to 2.0% of the land's market value. For example, pasture worth $5,500 per acre would rent for $82.50 to $110 per acre yearly. The challenge is determining accurate pastureland value since it's rarely sold separately from entire farms.
Forage Value
This approach estimates pasture production and applies a percentage of current hay prices, typically 25% for pasture and 35% for hay fields. With $135/ton hay prices and pasture yielding 1-1.5 tons per acre, rent would be $33.75 to $50.63 per acre ($135 × 25% × 1-1.5 tons).
Rent per Head per Month
This method charges based on animal numbers and grazing duration using animal unit months (AUMs). The rate is often 20% of hay prices. At $135/ton of hay, the rate would be $27 per AUM. Ten cow-calf pairs grazing for three months (30 AUMs) would cost $810 total.
Carrying Capacity
This approach multiplies the AUM rate by the pasture's carrying capacity. With a $27/AUM rate and pasture supporting 4 AUMs per acre, rent would be $108 per acre ($27 × 4).
Rent per Pound of Gain
This method charges based on livestock weight gain, ideal for stocker operations. Rates typically run 65-75 cents per pound gained. If cattle gain 245 pounds per head, at 72 cents per pound, rent would be $176.40 per head. Cattle must be weighed before and after the grazing period.
