How should farmland investors structure lease income: fixed cash rent or a share of crop revenue?
This whitepaper compares two farmland leasing approaches using Saskatchewan farmland data and evaluates both through a risk-adjusted return framework.
The analysis models a standard three-crop rotation of canola, spring wheat, and red lentils across high, mid, and low commodity environments calibrated to historical conditions from 2012 to 2026.
Under the cash rent model, the landowner receives a fixed prepaid lease payment of $160 per acre, creating stable and predictable income.
Under the gross revenue royalty (GRR) model, the landowner receives 20%, 25%, or 30% of gross crop revenue, with no exposure to farm operating costs. Income remains positive when crops generate revenue, but payments fluctuate with commodity markets.
The study found that cash rent delivered stronger risk-adjusted outcomes across all tested scenarios, with a Sharpe ratio of 1.29 versus 0.97–1.10 for gross revenue royalties.
Probability-weighted income outcomes showed:
- -Cash Rent: $160 per acre
- -20% GRR: $77 per acre
- -25% GRR: $97 per acre
- -30% GRR: $116 per acre
The paper concludes that the performance difference is driven primarily by lower expected income under royalty structures rather than significantly higher volatility.
Beyond quantitative results, the report also discusses operational considerations including revenue verification requirements, audit rights, contract complexity, and portfolio governance considerations associated with royalty-based leasing structures.