There are a lot of things in this big ol’ world that go pretty well together — cheese and crackers, steak and potatoes, or even beer and football.

Farming and money, however, don’t always go hand-in-hand so easily for agriculturalists. And even though there are plenty of reasons farmers like to farm, the bottom-line is, well, the bottom-line.

That’s especially true if you’re looking through the eyes of an economist, according to Kansas State University Agricultural Economics Professor Kevin Dhuyvetter.

“I have to look at farming this way,” he told producers at the recent Agronomy Institute in Oswego, Kan.

And in order to make more money, producers have learned, in many cases, it takes more land so they rent or lease more ground.

“The objectives of a leasing arrangement need to include maximizing returns to the crop enterprise, sharing returns of the crop enterprise and providing the correct ‘signals’ for op-timal farming,” Dhuyvetter explained.

The key is not letting the terms interfere with what’s best for the farm.

According to Dhuyvetter, it is a fact that producers rely heavily on rented land.

“Almost everybody rents land and they rent the majority of their acres,” he said.

In turn, this makes the market for land very competitive and lease agreements reflect market conditions.

Not only do most Kansas producers rent land, they have rented from the same landowners for years. Dhuyvetter said a 2007 survey showed Kansas producers had rented land from the same landowners on average for almost 18 years.

This, according to him can be good or bad.

“Long-term rental relationships can be good from the standpoint that there is stability,” he explained. “The bad side of this is that it can be very hard to make changes.”

That leads to one of the biggest issues in lease arrangements:

How can lease agreements be changed to reflect the ever-increasing cost of inputs?

“In most cases the landowner will say he just wants it to be fair,” Dhuyvetter said. “A fair is an event held at the fairgrounds every year. You can’t define fair.”

Lease rates, he said, should be based on the market.

“While landowners and tenants ultimately determine terms of crop share and cash leases, we use the equitable concept to arrive at a starting point for negotiations—and to better understand the market,” he explained.

Principles in an equitable lease include profit maximization, economic profits, opportunity costs, risk across lease types and equal rates of return on annual investment.

When comparing equitable vs. traditional share rent the equitable concept means income is shared in the same proportion as the contribution of total inputs.

The traditional method means income and shared expenses (if any) are shared in the same proportions as what has been done in the past. Share rent based on tradition may, or may not be equitable.

“We like the equitable concept because it splits the expenses with the income which maximizes profit,” Dhuyvetter said. “However, traditional leases tend to be equitable in the long run.”

Although the list of things to include or not include in crop share leases can seem to be endless, Dhuyvetter feels a good crop share lease should follow five basic principles:

1. Yield increasing inputs should be shared.

Examples include: fertilizer, irrigation water, seed and herbicides.

“We share these because they have an affect on output,” Dhuyvetter said. “The amount of nitrogen used has an impact on the crop yield.”

2. Share arrangements should be re-evaluated as technology changes.

Technology changes could include reduced/no-till, new crops and/or rotations, center pivot irrigation, hybrid seed, biotechnology and precision agriculture.

“New technology is adopted because it increases profit in the operation,” he said.

According to Dhuyvetter, when the new technology becomes common practice the profit is reduced and the landlord’s contribution changes.

3. Total returns divided in the same proportion as resources contributed.

4. Compensation for unused long-term investments at termination.

5. Good landlord/tenant communications.

Machinery contributions is another area where good communication is the key to come to an agreement.

“Machinery contribution should be based on average costs,” he explained.

There are two methods for estimating the machinery contribution:

1. Machinery investment approach—annual contribution is based on depreciation, interest, repairs, fuel and oil and labor.

2. Custom rates approach — annual contribution is based on reported custom rates and the typical operations.

In the end, a lease or rental agreement is a form of communication between two parties. The better that communication is the better the lease agreement.

“Because so many of the terms of a lease are based on negotiation between the landowner and the tenant, good communications are critical,” he explained.

Dhuyvetter told producers that a lease is a legal contract in Kansas. As such, it is suggested that terms of the lease agreed upon by both parties be put in writing. This becomes more important as the complexity of leases increases—or, as the volatility of crop and input prices increase.

In order to find out whether or not a good crop share lease exists both parties can answer a few questions.

1. Are yield increasing inputs shared?

2. Does it have flexibility to deal with change?

3. Does it promote optimal management?

4. Is income shared in the same percentage as contributions?

5. Will it be reviewed periodically?

6. Do all parties agree that the lease is fair?

More information on lease agreements is available at county Extension offices or at www.agmanager.info—click on “Farm Man-agement,” and go to “Land and Leasing.”