xt7wwp9t3806 https://exploreuk.uky.edu/dips/xt7wwp9t3806/data/mets.xml   Kentucky Agricultural Experiment Station.  journals kaes_circulars_004_543 English Lexington : The Service, 1913-1958. Contact the Special Collections Research Center for information regarding rights and use of this collection. Kentucky Agricultural Experiment Station Circular (Kentucky Agricultural Experiment Station) n. 543 text Circular (Kentucky Agricultural Experiment Station) n. 543  2014 true xt7wwp9t3806 section xt7wwp9t3806 Circular 543
  r \`\
  E      
E E E x
  GUIDES TO
  MORE PROFITABLE
E   SHARE—RENT FARMING

 C O N T E N T S n
Page
lntroduction ................................................................................ 3 J 4
Why Rent a Farm .................................. . ..................................... 3 A
The Amount of Renting in Kentucky ............................................ 7
Over-All Leasing Problems and How to Solve Them ...................... 8 _
The Effect of Tenure Uncertainty (Tenant lnsecurity) A I
on Profitable Farming .......................................................... l6 ,
Summary of Solutions to Over-All Leasing Problems .................... l9 ‘
Making an Agreement ................................................................ 20
Farm Rental Situations to Which the Guides Apply ...................... 28 A
Improving the Leasing Market .................................................... 29 I

 Guides to More Profitable Shore-Rent
Forming
By HARALD R. IENSEN and ALVIN C. EGBERT
Most tenants and landlords have been dissatisfied with their
‘ rental agreement at one time or another. Sometimes one or the
other feels dissatisfied with the initial agreement. In other in-
stances both parties feel entirely satisfied with the initial agree-
_ ment, but changes in farm prices and production techniques cause
· either tenant or landlord to view the initial agreement as no
4 longer fair or equitable. Problems can easily arise where farm
L production resources (labor, machinery, livestock, buildings, land,
etc.) are owned separately but controlled jointly. Finding solu-
I tions to rental problems is often difficult simply because informa-
tion on adequate rules or guides is lacking.
In this publication, share renting problems and possible solu-
tions are discussed to encourage both tenant and landlord to use
their production resources to obtain more profit from the farm.
However, the solutions presented are not a cure for all tenant-
A landlord problems. All such problems do not grow out of how
~ ownership of resources, how expenses, and how crop and livestock
. production are shared. Rental agreements, like other agreements,
involve more than one person. Where more than one person is
l l involved personality conflicts may arise. Solution of personality
‘ problems may be as important as solution of sharing problems if
rental agreements are to work well. Although personality confiicts
. - are recognized here as problems in rental agreements, the follow-
· ing discussion deals only with problems of sharing resources and
i products.
WHY RENT A FARM?
Many tenants and landlords have at some time asked them-
selves: Why do I rent? For some, the answer is clear, for others,
· _ g it only seems clear. For example, a widow may be certain she is
` renting out the farm because she is unable to operate it alone.
3

 4 .
This inability she may attribute entirely to her labor limitations.
Actually, she may also be without training in farm management _
and / or lack sufhcient cash and equipment for operating the farm
properly. Similarly, an absentee landlord may be certain that he Z A
bought the farm for an investment or for sentimental reasons.
However, his reasons for renting out the farm may not be entirely
clear when he considers the alternatives of renting out the farm, `
of hiring a manager and laborers, or of hiring labor and using his
own management. The tenant may be certain that he is renting .
because he has to make a living. Yet, when he considers that he ‘
could borrow to buy some land, or work as a farm hand or as a
wage earner in town then his position as a renter may not be
entirely clear to him. But whether a widow, or an absentee land- I
lord, or a tenant, one basic reason for renting is to get control of h ~
the services of labor, machinery, land and other resources. ?
Getting control of resource services
Many people view hiring of labor or machinery as something t
distinctly different from renting a farm. Let us examine this ,
notion. A man is hired to perform work. This work is a service
to the employer. In return for this service, the employer pays the i
laborer money. This money can be used to buy goods (food,
clothing, etc.) and other people’s services (doctors’, lawyers’, paint-
ers`, etc.), \Vhen a farmer contracts to have a pond dug he hires `
the services of both machinery (capital) and labor. The point here V
is that both things and people are hired to do a job. By and large, ‘
renting a farm is no different. The tenant hires the services of the . .
landlords land, buildings and perhaps some equipment for grow-
ing and housing crops and livestock, while the landlord hires the I
services of the tenant’s labor, equipment, and some management
to care and plan for crops and livestock. `
The only difference between renting a farm and hiring labor , T
is that labor is usually hired for some fixed sum of money whereas .
payments between the landlord and tenant are either fixed or
variable, in money or in kind (cash rent is usually Hxed and in
money while share rent is variable and in kind). In either case
productives services are being exchanged for something of value-
money, or crops or livestock. Thus, when labor or machinery is I _ ·
hired or a farm is rented one party is buying from another party

 ‘ 5
services that he needs to add to his own resource services to have
- A a productive unit. This procedure is known as getting control of
resource services.
. There are three methods of getting control of resource services.
These are buying, hiring (renting or borrowing) and inheriting.
Many times farmers and businessmen Hnd it more practical to
hire the services of resources rather than to buy the resources them-
selves. In our society, the services of labor must always be hired;
laborers themselves cannot be bought. However, all other re-
' source services can be obtained by hiring (renting or borrowing)
or by buying the resources themselves. Farmers often Hnd it ad-
vantageous not only to hire or rent the services of resources not
. owned (such as using artificial insemination rather than owning
I a bull or renting land rather than owning any), but frequently
also find it advantageous to supplement the services of resources
already owned with hired or rented services (such as hiring addi-
tional machine services or renting additional land).
l Each tenant and landlord, when making a share rental agree-
ment hires (rents) productive services that he does not own to sup-
plement those he does own. Tenants hire the services of land and
buildings, of which many have none, and often hire the services
of additional capital in livestock and machinery to supplement
that which they own. In turn, landlords hire (rent) the services
— of labor and of additional capital in machinery, and perhaps in
V livestock to supplement that which they own. In many instances,
» farming could not take place at all if farmers had to buy and own
_ all of the resources needed for farming. Furthermore, if every
A farmer were to buy and own all the resources necessary for oper-
' ating his own farm, farm production would be less eflicient than
at present.
— The easiest and cheapest way to get control of resource services
t is of course to inherit resources. But many are not that fortunate.
A A second basic reason for renting is to make one’s own resources
l more productive.
Increasing resource efficiency
_ . Increase in resource efficiency can be achieved in two ways.
. ' First, when a given quantity of resources (capital including land,
V labor and management) is reorganized to produce a greater prod-

 uct, resources are used more efficiently. For example, suppose a
farmer is growing 50 acres of corn. Of these acres, he owns 35 V
and rents 15 for $15 per acre. He has money enough to apply
only a small amount of fertilizer which he distributes evenly over l
the 50 acres and gets a total yield of 1,500 bushels. He then de- i
cides against renting the 15 acres and uses the rent money to buy ~
more fertilizer to put on his own corn land. With the added fer- _
tilizer he now produces a total of 1,700 bushels of corn instead
of 1,500. He uses the same total quantity of resources as before, -
but by reorganizing them to include less land and more fertilizer
he produces more corn. —
Second, resources are also used more efficiently when the same S
amount of product is produced with fewer resources. To illus- ` . `
trate, suppose a farmer is carrying 30 beef cows and their calves
on a given acreage of pasture. From this herd, he produces about
8,500 pounds of beef annually. Since this size herd results in over-
grazing of pasture, he decides to sell five cows. With fewer animals V
but more feed per animal, he produces the same quantity of beef.
Hence, fewer resources are being used to produce the same quan- ·
tity of product. .
Increases in resource efficiency from renting, resemble the first
situation above. To illustrate, suppose a farmer owns a large
acreage but has insufficient capital, labor and management to
operate it efhciently; he could sell part of his land and with his ' S
added money and his other resources produce the same crop and
livestock output as before. Another farmer has a small acreage i
but has more labor, machinery and management ability than he ·` ·
can utilize fully. By combining their resources through a rental .
agreement more could be produced than when the two farmers S
operate their farms separately. Of course, hardly ever does rent- g
ing involve combining resources of two farms. Rather it involves i _
combining the landlord’s resources of land, buildings, other capi— -
tal items and management with the tenant’s resources of labor, ·
capital and management. However, in either case the effect is
much the same. More product is obtained by reorganization or
combination of a given quantity of resources. Hence, in many
instances renting helps to promote greater resource efficiency. _
1

 , , 7
· THE AMOUNT OF RENTING IN KENTUCKY
Many persons realize that by renting they can engage in farm-
ing and improve their incomes at the same time. The number of
tenant farmers in Kentucky at the time of the last U. S. Census
· (1950) supports this statement. Of a total of 218,476 farms, 49,112
or 22.5 percent were tenant—operated. Of course, the proportion
` of tenants varies considerably from one area to another within
the state as Table 1 and Fig. 1 show. Generally, the areas with
the more productive (higher value) land also have the most ten-
_ ants. This association may mean that beginning farmers in the
· more productive areas have insufficient capital to buy farms in
these areas and that income-wise they prefer to rent land in the
Table 'I.— Farm Tenancy in Kentucky by Economic Areas, 1950
Y
m <2> <8> <4> <8> <6> <7>
Full tenants
Full Part and part
tenants tenants tenants
GS 21 PEICBDE BS B PEYCEDE 85 8. p€l`C8!1t
All Full of all Part of all of all
Economic operators tenants operators tenants operators operators
Area ( number ) (number) (percent) (numbers) (percent ) (percent)
 
1 ................. 15,134 2,038 18.8 2,136 14.1 27.6
2 ................. 8,267 1,632 19.7 1,842 16.8 86.0
· 1 84 ............... 21,163 1,931 9.1 2,155 10.2 19.3
. 3b ............... 18,894 2,237 16.7 1,560 11.6 28.3
4 ................. 18,092 4,488 24.5 1,954 6.7 31.2
. 8 ................. 29,245 4,143 14.2 3,370 11.5 25.7
6, A 8 8 .... 43,986 11,994 27.8 4,226 9.6 86.9
.- , 7 ................. 11,916 8,982 33.0 1,802 10.9 48.9
8, 8 c ........ 28,746 1,966 6.8 1,778 6.2 13.0
_ 9 ................. 28,294 821 1.1 286 .8 1.9
Source: U. S. Census, 1950.
1   9%*  
. » %$!s y •,,
   ]%# `··
 
· &ElI! 4Ihl
Q ,. 4 -  f   *4*

 8 .
more productive areas rather than to buy small farms in less pro- .
ductive areas. The table further shows that many owner—operators
rent additional land. Apparently, they find it economically ad- _
vantageous to supplement their own with rented land.
As indicated, renting provides opportunity for combining re-
sources to attain higher incomes. However, to realize this oppor-
tunity certain basic problems must be worked out. · .
OVER-ALL LEASING PROBLEMS AND HOW "
TO SOLVE THEM
Renting creates problems peculiarly its own. People who have
had first—hand experience in renting can appreciate problems such ‘
as selecting a tenant or a landlord and working out arrangements
for sharing investments, products and expenses. We now examine
these basic problems and offer guides for solving them.
Selecting ¤ landlord und ¤ tenant A
To make their farming operations succeed, tenants and land-
lords need to select each other with care. Each must consider a
number of things before he decides, "This is the farm for me" or
"I want this man to operate my farm."
The landlord normally contributes land, buildings, some man- V
agement skill and working capital—cash for operating expenses,
and quite frequently breeding and feeding livestock. The tenant i
usually contributes labor, some or all of the management skill ‘
and working capital—machinery, cash for operating expenses, and . .
breeding and feeding livestock.
To attain highest profits from the whole farm operation and A
hence for themselves individually the tenant and landlord must
carefully inventory the contributions each can and will make. The x °
important consideration is whether the contributions together .
make the most productive combination. Getting the most pro- .
ductive combination means that the tenant needs to select a land-
lord who can and will contribute resources which he himself
doesn’t have or has in insufficient amounts. lt means that the l
landlord needs to select a tenant whose contributions will supple-
` ment his own resources in the same way. For instance, a tenant l _ ·
who can furnish enough livestock only to make part use of the
available feed, buildings, management skill, labor and other re- _

 9
sources needs to select a landlord who can and will contribute
the livestock necessary to efliciently use these resources. The land-
lord, likewise, who can furnish either little or no labor needs to
select a tenant who has the labor, machinery and other resources
to make eflicient use of his land, buildings and other resources.
V As tenant and landlord view each 0thers’ resource contribu-
tions to see how they dovetail together, they need also to evaluate
" the quality of these contributions. For example, a landlord may
have enough land to make efficient use of a tenant’s labor, ma-
chinery and other resources. But if the soil is inherently poor,
_ the tenant’s labor, machinery and other resource contributions
cannot be expected to be very productive. In other words, a ten-
ant with high quality labor, machinery and other resources would
be unwise to match or combine these with soil or other resource
contributions which are basically poor. Similarly, a landlord may
T have a highly productive farm but be in no position to furnish
T any management skill. He would fail to realize the production
and income that he should, if he selects a tenant with low man-
agement skill or who has low quality machinery and equipment.
Thus, to get the highest income-producing combination of re-
sources, the resource contributions of the one must be in proper
V balance with those of the other. To attain this balance, tenants
- and landlords need to select each other on the basis of how well
. their resource contributions Ht together in terms of kind, amount
and quality. Together they should have the quantity and quality
V A of resources which approach as nearly as possible that used by the
‘ ideal farm business. More specihcally, together they should have
that quantity of resources which makes it possible for them to
. extend their uses to where the last unit of any one resource just
pays for itself or to the point where their use is consistent with
i , financial safety. Furthermore, to make the combination as pro-
l ductive as possible, the quality of each party’s resource contribu-
tions should match that of the other party’s.
Sharing cosh production expenses
l _ · Once a tenant and a landlord have mutually selected each
other, the next problem is how to share out—of—pocket production
expenses such as tractor fuel, lubricants, most seeds, feed bought,
fertilizer, veterinary fees and others of similar nature. Not in-

 10
cluded are cash expenses such as insurance and taxes} Insurance ·
is a precaution against uncertainty. When a person takes out
insurance he pays a relatively small cost in premiums to prevent
an uncertain large loss. Premium payments are not inputs which
contribute to production. The same is true of taxes. Payment of
taxes represents only the privilege to carry on production. Thus,
only annual expenses which contribute to production are con- °
sidered here. l
A number of different ways of sharing expenses are used in _
rental agreements. A recent study of rented farms in central Ken-
tucky showed that for a given enterprise some expenses were
shared in the same proportion as the product while other expenses
were paid entirely either by the landlord or by the tenant. For ·
other enterprises, each party might pay all of individual expenses. . l
For example, in corn production the tenant often paid for all of
the seed and for all the machinery operating expenses while the
landlord paid for all the fertilizer. On the other hand, in hay A
production the tenant paid for all the machinery operating ex-
penses while the landlord paid for all the seed, lime and fertilizer. A
The annual individual out—of—pocket expenses per acre approxi- .
mated the following: A l
Corn Hay
Tenant Landlord Tenant Landlord
Machinery operating expenses ........ $2.61 $0.00 $1.88 $0.00 ‘
Seed .................................................... 1.80 0.00 0.00 2.50° .
Fertilizer ............................................ 0.00 5.44 0.00 5.44
Lime .................................................. 0.00 0.00 0.00 1.10 4
Total ........................................... $4.41 $5.44 $1.88 $9.04
  and orchard grass seeded for 2 years.   4
If tenant and landlord view these expenses separately, the ten-
ant will want the landlord to apply fertilizer on corn as long as it
can be expected to increase the yield. In other words, the tenant · _
will want the landlord to apply fertilizer up to the point where ·
the last bag of fertilizer or fraction of a bag adds no more than 4
an ear of corn. On the other hand, the landlord will want the .
tenant to increase the rate of planting seed corn as long as it can `
be expected to increase yields. He will want the tenant to increase
1 Real and property taxes should be paid by individual resource owners. . ·
The same holds true for insurance costs on buildings, machinery, livestock, etc.
Crop insurance, however, should be shared in the same proportions as gross in-
come is shared.

 V 11
1 the number of cultivations and other tillage practices and thereby
his machinery operating expenses for corn to the same extent.
What has been said for corn when the landlord and tenant view
production expenses separately also applies to hay. The point is:
When each party pays all of individual expenses and the parties
_ come to view these separately, then the one not paying a parti-
cular expense will want the one who does to increase the expendi-
. ture far beyond the point where profits are greatest for him. The
end result is losses in income and poor working relationships.
Rather than viewing these expenses separately, tenant and
landlord may view them as amounts that must be used together
_ ‘ as a bundle to produce individual products. Looking at expenses
in this manner, either party will want to shift resources to the
enterprises where each can expect the highest returns above their
individual expenses. To illustrate, suppose that the tenant and
. landlord plan to produce either 100 acres of corn or 100 acres of
hay. From the 100 acres they expect either 5,000 bushels of corn
at $1.60 or 250 tons of hay at $32.50 or a gross return of $8,000
_ from corn or $8,125 from hay. With individual expenses for corn
and hay as outlined above and with a 50-50 sharing of the product,
tenant and landlord returns above out—of-pocket expenses are as
follows:
Landlord Tenant
` Corn Hay Corn Hay
4 Value of share ................................ $4,000 $4,063 $4,000 $4,062
Share of expenses .......................... 544 904 441 188
. _ Returns above cash expenses° ...... 3,456 3,159 3,559 3,874
I · wmplify the illustration only cash expenses have been considered.
With expectations based on the foregoing returns, the tenant
will want to shift resources to hay while the landlord will want
. to shift resources to corn. Of course, the landlord may recognize
4 the soil-conserving and yield-increasing effects of grass—legume
' sods on other crops and, therefore, want to grow some hay. But
‘ _ regardless of the amount of hay the landlord would like to grow,
the tenant will want to grow more. Although the above—men—
tioned analysis has been applied to corn and hay it applies to all
· other farm enterprises where similar lease arrangements are in-
` I volved.
Thus, when product and expenses for individual enterprises
are shared in a manner to give the tenant and the landlord the

 12
highest profit advantages in different enterprises conflicts can de-
velop. Such conflicts, however, could be avoided very easily by
deciding to share all annual cash production expenses without 4
reference to how the product is to be shared. The reasons for
making no agreements on product sharing at this stage will be-
come clear at a later point.
The proportions in which the annual out-of-pocket produc-
tion expenses are shared are unimportant for efficient operation
of the farm and for making a fair lease. The important thing is V V
that all of these expenses are shared and shared in the same pro-
portions. The amount of cash that the tenant and landlord each . `
can contribute should determine the proportions in which to
share these expenses. The landlord may know or the landlord
and tenant together can estimate the total amount needed for ‘
these expenses. If the amount is $4,000 and the tenant can furnish ‘ ‘
$1,600 and the landlord $3,400, then all individual expenses mak-
ing up the $4,000 should be shared two—fifths, three-iifths—two-
fifths by the tenant and three-fifths by the landlord. On the other
hand, if the tenant can furnish only $1,000 of the $4,000 while ,
the landlord can furnish $3,000, the tenant should then pay one-
fourth of these expenses and the landlord should pay three—fourths.
Obviously, when the tenant and landlord select each other it be- _ 4
comes important for each of them to know what the yearly cash
production expenses for the farm are going to be and how much _- _ `
cash each can furnish. If the amount needed is $4,000 and the ,
landlord can furnish only $1,000, he should not be looking for a -
tenant who can furnish less than $3,000. i
NV hen agreement has been reached on how to share annual A
cash production expenses, the next problem is how to share non- i -
cash production expenses. · T
Sharing noncash production expenses
Noncash production expenses are the annual amounts used up ~
in production of capital items such as machinery, breeding live- V
stock, buildings and other improvements. In addition, noncash l
production expenses include the annual contributions of land and '
of all labor (operator and family) other than hired. The amounts
of capital items, such as machinery, buildings and breeding live- 0
stock, annually used up in production are usually measured by

 13
K depreciation.2 The annual contribution of land to production is
usually measured by a mutually agreeable rate of return on the
current investment value, while the contribution of labor other
than hired is measured by use of current wage rates.
The over—all guide for sharing noncash production expenses
is: Share them on the basis of who furnishes the capital items (in-
cluding land) and nonhired labor. For example, the landlord
V usually furnishes land, buildings and other permanent improve-
_ ments. Hence, the annual contribution (noncash production ex-
" penses) of these items is the landlord’s. Similarly, if the tenant
furnishes all the machinery and non-hired labor, the noncash ex-
pense of depreciation on machinery and the annual contribution
_ of nonhired labor are the tenant’s. On the other hand, if tenant
and landlord both furnish some machinery then each is charged
with the noncash production expense (depreciation) of the items
he furnishes. The same is true for breeding livestock and non-
hired labor.
T Thus, it makes no difference who furnishes a particular invest-
ment as long as the one who furnishes it has the opportunity of
realizing full return on it. In other words, the investor should
· have the opportunity to receive the same return that an owner-
. operator would receive from a like investment. If the investor
· is not assured of a full return on an investment, he will not wish
V to make it and if he is forced to make it, conflicts are likely to
» develop.
. To help make certain that the investor will receive full return
on his investment and to help prevent conflicts, tenants and land-
i l , lords should share noncash production expenses in line with their
A A contributions of capital items and nonhired labor. Hence, in
leasing either party can make all of an investment, assume the
entire noncash production expense of it and receive a larger share
_ K of the total product, or both parties can share the investment,
share the noncash production expense of it in the same proportion
l and both share the larger total product.
' Contrary to what is sometimes believed, neither fairness of
. lease nor maximum farm profits depends on a 50-50 sharing of
· 2 Some breeding livestock may have no depreciation since the salvage value
. (because of gain in weight) is equal to current value. Beef cows, for example,
` may have HO Hllflllal d€p1'€Cl8.tlOl'l. In this lHSt3.HC€, l'l0W€V€I', the €Stlm3.t€d value
of annual death loss would represent a noncash production expense.

 14
investments. Many business partnerships are set up where both
parties are unable to contribute like amounts, but each benefits
from the pooling of resources. The same holds true for tenants I
and landlords.
There is no logical reason why a tenant and a landlord should
put off an agreement just because, say, the tenant is unable to
match the landlord’s resources with a like amount. Of utmost
importance, however, is to make the lease provisions in such a way
that each party can receive full return from any investment he .
makes. When cash and noncash production expenses have been
determined for the farm as a whole and when the sharing of these ‘ `
expenses have been mutually determined, then the problem of
how to share the product is also solved.
Sharing the product l
The gross farm income should be shared in the same propor-
tions in which cash plus noncash production expenses are shared.
Thus if the tenant contributes one—fourth, one-third, one-half,
three—f1fths or any other amount of cash plus noncash production _-
expenses he then receives the same proportion of the gross income.
This procedure is followed generally by business partnerships. In
business, it is the total proceeds from the sale of all the products `
which are shared.
Most of the time, landlord—tenant operations do not follow ‘
this procedure for all crops and livestock produced. More likely, ·
the agreement provides that each party is to receive a certain share ‘
of each product. For instance, the provision may be for each to
receive one—half of the tobacco, corn, oats, lambs, hogs, and other V _
products. According to this provision, each is often free to sell the , ·
individual products when or where he expects to get the highest
price.
When products are sold separately, chances are good that ‘
eventually they are going to be shared in different proportions. _ I
Coming to share products in different proportions can be a per- _
fectly natural adjustment in rental agreements in order to give
the tenant or landlord a "fair" share of the product. For example, _ ~
the landlord may build a new sheep shed. In order to keep the
share of gross income from sheep "fair," the tenant agrees that the
landlord is to receive two-thirds of the lambs and wool while other _

 15
, products remain on a 50-50 sharing basis. As long as the landlord
shares the annual expenses on sheep in the same proportion (two-
thirds) as the products from sheep, this arrangement is frequently
looked upon as satisfactory. Yet under particular price relation-
ships, landlord profits may be highest if all sheep and no hogs are
produced, while tenant profits may be highest if all hogs and no
sheep are produced.
( A simple example can illustrate this point. Suppose that the
_ . combined tenant and landlord resources of $600 (the amount an-
nually used up in the production process) yield $800 worth of
lambs and wool. The same amount of resources yields $750 in hog
production. The landlord receives two-thirds share and one-half
share of the sheep and hog production respectively and pays two-
L thirds and one-half of the annual costs in sheep and hog produc-
tion respectively. The tenant receives and pays the remaining
proportions of the returns and costs. With these arrangements,
net returns from sheep and hogs for the tenant and landlord are
l as follows:
Sheep Hogs
Landlord Tenant Landlord Tenant
Share of product ................ . ................... $533 $267 $375 $375
` Share of costs .......................................... 400 200 300 300
Net retums .............................................. 133 67 75 75
Obviously, with these arrangements and the price relationships
( reflected here, the landlord will want the entire $600 devoted to
V sheep production while the tenant will want the $600 used in hog
production. Only when gross income from hogs drops below $734
- - while gross income from sheep remains unchanged would both
·' tenant and landlord receive greatest net income with the $600
l used for sheep production. ·
The point illustrated with this example is often overlooked by
V tenants and landlords when making an agreement. Consequently,
· conflicting interests may develop over time. In the foregoing illus-
- tration, if the sharing arrangements for sheep were the same as for
hogs (50-50 for contributions and returns) or if they were the same
- L for hogs as for sheep (66%,-33%, for contributions and returns)
there would be no conflict. Both tenant and landlord would want
_ to use the entire $600 for sheep production, which is also what
· _ an owner-operator would want to do.
Thus, the guide for sharing products is: All products should

 16
be shared in like proportions, and these proportions should be the
same as those for the contributions (cash plus noncash production —
expenses).
THE EFFECT OF TENURE UNCERTAINTY (TENANT
INSECURITY) ON PROFITABLE FARMING
Some leasing agreements cause large amounts of tenure uncer-
tainty. Many of these are one-year contracts without compensa-
tion provisions for investments which yield returns over several _
years. Also, leasing agreements often fail to provide compensation ‘ i
for acts of disturbance and neglect, and to include provisions for
terminating the agreement. Such agreements invite losses in in-
come over the long pull either because of the farming plans or the
conflicts which are likely to be associated with them. However,
leasing agreements can be made to include provisions which will
reduce tenure uncertainty and as a result promote more profitable
farming over time.
Tenure uncertainty and ye¤r—t0-year planning
A tenant who isn’t sure he will be on the same farm next year
will want to operate the farm he is now on so as to get the highest - 4
dollar returns within the year} Farms operated on a year—to-year
basis are not necessarily the ones which yield the highest income A -
over time.
Cash—crop farming, for example, particularly if it emphasizes A .
row crops, may yield highest income within the year or over the
next few years. But if it results in excessi