Should I Agree to a Custom Farming Agreement?
Getting the most from your land may not mean farming it yourself. Instead, you might benefit from hiring someone else to work the land on your behalf.
Though you have to pay an operator for their services, you can profit from the entire crop as long as you’re confident in your ability to store and market it.
If you’re interested in hiring a farm operator, talk with Groves Law about creating a custom farming agreement. You should always put your plans into writing. It’ll help you avoid disputes and, hopefully, create a fruitful long-term relationship.
What Is Custom Farming?
Custom farming is where a landowner hires an operator to produce a crop on their land for a specific price. Typically, you pay the operator a certain rate per acre of land in one or multiple installments.
You decide what happens on your land and pay for all the production costs, including seed, fertilizer, chemicals, fuel, and insurance. You retain control, receive all the grain produced on your land, and are responsible for storing and marketing it. Usually, the operator delivers the grain to your owned or rented storage facility or a predetermined grain elevator.
In some cases, a custom farming agreement is for a specific service and not the entire production. You may lack the capital to invest in a particular piece of equipment, so it may be economical to rely on hiring out that particular task.
How Custom Farming Differs From Farm Lease Agreements
Custom farming allows you to control what happens on your land without doing the physical work. You pay the operator to do the physical labor but own the entire crop.
Under a farm lease, the tenant determines what happens with the land and owns all or most of the crop. You receive payment for the use of your land.
The Pros and Cons of Custom Farms for Landowners
There are many advantages to custom farming agreements. You can earn income from your land without coming up with the capital necessary to invest in farm machinery and equipment. Lack of capital consistently holds back farmers in the U.S. from taking full advantage of their land.
Custom operators often have new, high-tech equipment, and it’s theirs to maintain. They also tend to have years of farming experience you can rely on.
You might have a full-time job and not have the time or inclination to farm the land yourself. Some owners rely on leases. But if you use a farmland lease, you have to negotiate rates and worry about collecting payments. Not every owner wants the risk associated with being a landlord.
Also, while USDA program payments may go to the operator under some farmland lease agreements, you typically receive all the USDA payments under a custom farm agreement.
There are disadvantages, though. Timing is important in farming, and some owners find operators don’t perform tasks within the appropriate time. You might feel the operator doesn’t perform specific tasks on time or rushes other tasks.
It’s also costly. You are responsible for all the costs, yet your profit depends on the yield and selling price. You take on all the market risk, but you benefit the most from the arrangement in a good year.
The Pros and Cons for Farm Operators
Famers who have the proper machinery and equipment may be able to cultivate more land than they own. They’ve already made the capital investment into machinery and equipment, which they should use to the fullest extent possible. By taking on custom farming contracts, they’re usually only dealing with additional fuel, lubricant, and repair costs.
Working under a custom farm agreement provides them with a fixed income without worrying about yield or the market. However, rates for custom farming aren’t particularly high. It may not feel worth it depending on the effort required for the crop.
Customizing Your Agreement
Traditional custom farming agreements rely on fixed cash payments. That isn’t essential, though. You and an operator can form a different arrangement, one in which the operator receives a portion of the crop and USDA payments. Another option is for the operator to receive a bonus depending on the final profit.
The benefit of this arrangement is that the operator has a more sincere interest in the crop and yield. Their income could be affected if they don’t handle production well. You’d have a slightly lower cash output, and if the yield or price isn’t particularly good, you would have paid the operator less.
This isn’t an easy arrangement. You and an operator would have to come to a fair division agreement. However, an experienced agriculture lawyer can help negotiate a fair agreement using standard formulas and ratios for the industry in your region.
What Should Go into Your Custom Farming Agreement
Custom farming arrangements often come from casual circumstances. You may connect with an operator in your community or through friends or neighbors. But you should set out any custom farming agreement in writing to protect both parties’ interests.
The contract should include several provisions including:
- The nature of the relationship—the operator is an independent contractor
- Description of the acreage the operator will work
- Description of work expectations
- Procurement of seed, fertilizer, chemicals, and other inputs
- Timing of planting and harvesting
- Pay rate per acre or operation performed
- Drying charges
- Incentive payments
- Payment dates
- Any cost-sharing
- Insurance coverage
- Production restrictions
- Any machinery, equipment, buildings, or structures the operator may use
- Consequences of delays
- Consequences of weather or other events
- Final delivery location
The agreement should make it clear what your expectations are for the operator. This avoids any confusion or disputes. It also allows you to retain control over how your land is farmed—the operator shouldn’t make significant operations decisions unless you explicitly gave them this right.
Have Questions About Custom Farming?
If you have questions about custom farming or want to negotiate a contract, reach out to Groves Law. Kara Groves can help you negotiate a custom farming agreement that considers your individual needs and protects your interests.
At Groves Law, we’re ready to help you get the most from your land.
Call or contact us today to learn more about what we can do for you.
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