Custom Farming: An Alternative to Leasing

Iowa State University Extension and Outreach - Ag Decision Maker Series

Type: PDF
Knowledge level: Introductory

Farm Table says:

Farm owner that doesn't want to invest in machinery or want the capacity to farm more hectares without buying or leasing? Consider a custom farming option.

Custom farming can provide an alternative to leasing. This model is often attractive to farmer owners who don’t want to invest in machinery or if they are fully employed off-farm/retired.

In this situation, the operator agrees to perform all machinery operations on the land for a set fee/rate. The owner of the land pays for all inputs including seed and chemicals and retains all the crop and commodity revenue.

This option has a different risk profile to leasing. In a good year, profits from custom farming will be smaller than under a conventional lease, but this is a common trade-off for reducing risk. However, it is an attractive option for an operator as little additional operating capital is needed and a fixed return is available.

It is advised to prepare a written contract, setting the payment rate, understanding insurance coverage.

2009 - United States - Iowa State University Extension and Outreach - Ag Decision Maker Series
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