Share Cropping (cash purchase). This type of contract is similar to the traditional, with the exception that the hay contractor purchases the landowner’s portion of the hay crop immediately. This purchase agreement is based on the market value or any mutually agreeable value. Value may be based on tonnage or per bale.
Share cropping agreements described above can be very fair as both the landowner and the hay contractor share the risk and rewards of hay markets, quality, and quantity. However, determining the correct share ratio can be a point of contention under certain market or harvest scenarios if volume and price are dramatically different than initially expected. Similar to issues that can arise with per acre rent, hay contractor harvest inputs generally remain constant regardless of hay value or quantity. In low quantity situations, the hay contractor receives less ‘profit’ in relation to input expenses and therefore may wish to re-negotiate the terms of the share. Conversely, in high market scenarios landowners may feel that they are not receiving a large enough portion of the profit potential and may want to negotiate for a higher portion of the share.
Cash Agreements. A third option which is receiving much interest lately is a cash-based agreement that accounts for total hay value less the pre-determined value of the cost of production to the hay contractor. Essentially, this system is very similar to the share cropping agreements but it allows for the hay contractor and landowner to discuss and agree upon a fixed rate for harvest costs, of which the hay contractor is fully reimbursed for regardless of the quality, quantity, or value of the hay.
In a typical cash agreement, the landowner has no desire to retain any interest in the hay crop. The hay contractor desires to purchase the hay from the landowner. Often these relationships are the result of a hay contractor approaching a landowner with an offer to harvest the standing crop of hay for the landowner. After the Hay Contractor Expenses are accounted for (usually cost per bale), it is then subtracted from the Initial Hay Value to determine the Final Hay Value (the amount paid to the landowner). See the example.
A cash agreement offers a great deal of appeal for landowners and hay contractors because it can reduce ambiguity in the relationship, therefore decreasing the risk of a contract being considered ‘unfair’ by one or both parties. Cash agreements allow for the landowner to reap increased rewards during high yield years while protecting the hay contractor from relatively high harvest expenses (cutting, raking, baling, transport, etc.) in low yield years. The hay contractor assumes all risk/reward resulting from use or sale of the hay after paying the landowner for the hay crop.