Abstract
In the past, the main reason for share leasing farm land has been to share the price and yield risk with the landowner. Because farm programs reduce price risk, the tenant farmer's preferred lease arrangement may be different today than in prior years. Previous cropland leasing studies have ignored the effects of farm policies on lease terms. This study explored the effect of yield and price variability and government programs on the optimal rental arrangement. A whole farm computer simulation model (FLIPSIM) was used to simulate the economic activity of five representative farms in the Central Plainss region of the United States under three lease arrangements. The three lease arrangements consisted of a typical share lease, alternative share lease, and cash lease. The simulation model generated an empirical probability density function for net present value to be used by a stochastic dominance program (STODOM). STODOM ranked the cumulative distributions of net present value for each of the five farms assuming participation and non-participation in two policy scenarios: (a) the current farm program, and (b) the farm program modified for GATT. A sensitivity analysis was performed on the upper bound of the risk aversion coefficient (RAC) to determine how sensitive the lease arrangement decision was to the level of risk neutrality.-The upper bound was increased and decreased by 10, 20, and 30 percent. The results show that the most preferred strategy for four of the five farms is the alternative share lease when comparing strategies within a policy. On three of the five farms the producer would be 'indifferent between the cash lease and the typical share lease when participating in the farm program. The results from the sensitivity analysis showed that a change of up to 30 percent for the upper bound of the RAC did not change the preferred strategy. The results indicated that participation and non-participation in the farm programs did not alter the preferred lease arrangement. It is most likely that landlords have increased the cash rent to offset not receiving any of the deficiency payments.
Zimmel, Peter Timothy (1994). The effects of farm program provisions on lease arrangements under uncertainty. Master's thesis, Texas A&M University. Available electronically from
https : / /hdl .handle .net /1969 .1 /ETD -TAMU -1994 -THESIS -Z64.