Sharing Financial Risk through Flexible Farm Lease Agreements

A simulation model representing a north central U.S. corn and soybean farm was used to estimate the degree of financial risk borne by the tenant and the landlord under 10 different types of flexible cash leases. Probability distributions for yields, prices, and production costs were incorporated. Measures of risk included standard deviation of profits, probability of loss, and 10th percentile value at risk. A profit sharing lease that included rent adjustments for all three variables shifted the most risk from the tenant to the landowner, and reduced the tenant’s probability of incurring an economic loss from 51 percent to 37 percent.

Issue Date:
Jun 11 2013
Publication Type:
Journal Article
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Published in:
Journal of the ASFMRA (American Society of Farm Managers and Rural Appraisers), 2013
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 Record created 2017-04-01, last modified 2018-01-22

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