Examining Share Lease Agreements for Cotton Operations in the Texas Panhandle Under Changing Market Conditions

Cotton producers on the Texas High Plains often incorporate rented land into their farming operations. Rental arrangements between landowners and producers can have a significant effect on farm risk and profitability.  The most common type of cotton lease agreement on the Texas High Plains is a 25% or 33% crop share, with the landlord paying a portion of expenses, and receiving a corresponding portion of crop receipts and government payments.  Typical expenses shared are fertilizer, chemicals, irrigation, and/or harvest.  Technological changes over the past few years such as an increase in genetically engineered seed and a rise in conservation tillage adoption may necessitate new lease negotiations.  However, rental arrangements often seem unresponsive to changes in production practices, and are generally slow to evolve.       

Little data exist concerning the crop share percentage that achieves a fair and equitable rental arrangement for both the landlord and the producer.  This analysis determines the optimal share arrangement for cotton operators and landlords in the Texas High Plains.  It also decides whether this result is affected by changing market environments.  The analysis examines the Net Returns above Variable Costs for the landlord and producer in five alternative share arrangements currently being used or considered in the region.  Results are determined at the whole farm level assuming a mix of irrigated and dryland cotton crops.  The analysis is first developed as a predominately irrigated farm and then as a predominately dryland farm.  Results are analyzed in two significantly different market environments: 2005 (low prices and low input costs) and 2008 (higher prices and higher input costs).