Solar Leasing Guide Available

By: Peggy Kirk Hall
Source: https://farmoffice.osu.edu/blog
Large “utility-scale” solar energy development is on the rise in Ohio.  In the past two years, the Ohio Power Siting Board has approved six large scale solar projects with generating capacities of 50MW or more, and three more projects are pending approval.   These “solar farms” require a large land base, and in Ohio that land base is predominantly farmland.   The nine solar energy facilities noted on this map will cover about 16,500 acres in Brown, Clermont, Hardin, Highland and Vinton counties.  About 12,300 of those acres were previously used for agriculture.

With solar energy development, then, comes a new demand for farmland:  solar leasing.  Many Ohio farmland owners have received post cards and letters about the potential of leasing land to a solar energy developer.  This prospect might sound appealing at first, particularly in a difficult farming year like this one.  But leasing land for a solar energy development raises many implications for the land, family, farm operation, and community.  It’s a long-term legal commitment–usually 25 years or more–that requires careful assessment and a bit of homework.

To help landowners who are considering solar leasing, we’ve joined forces with Eric Romich, OSU Extension’s Field Specialist in Energy Education, to publish the Farmland Owner’s Guide to Solar Leasing.  The online guide explains the state of solar energy development in Ohio, reviews initial considerations for leasing farmland to solar, and describes legal documents and common terms used for solar leasing.  The guide’s solar leasing checklist organizes the information into a list of issues to consider, things to do, people to consult, and questions to ask before deciding whether to enter into a solar lease.

The Farmland Owner’s Guide to Solar Leasing is available at no cost on our Farm Office website, here.  A separate Law Bulletin of The Farmland Owner’s Solar Leasing Checklist is also available on Farm Office, here.  We produced the guide in partnership with the National Agricultural Law Center at the University of Arkansas, with funding from the National Agricultural Library, Agricultural Research Service, at the United States Department of Agriculture.

“Timber Harvesting-Things to Consider” program held at Zaleski State Forest on Friday, September 13

Timber harvest is a tool you can utilize to not only provide much needed income, but also to help you achieve a wide range of goals from improving forest health to enhancing wildlife habitat. However, without proper planning and implementation, harvests can have long-term negative consequences for your woodland and for your family’s ability to earn a sustainable income from your property in the future.

Timber Harvesting-Things to Consider, a program designed to help you make informed decisions about harvesting timber, will take place at the Zaleski – ODNR Complex on September 13. If you are thinking about selling timber in the future, consider attending this workshop where you will have the opportunity to:

Learn how to make sure your timber harvest is compatible with your goal

Obtain information on how to market and sell your timber to ensure you receive a competitive price

Understand where to get help with planning and implementation of your timber harvest

Visit properly planned and implemented timber harvests at Zaleski State Forest

Learn about Call Before You Cut (1-877-424-8288 or http://callB4Ucut.com) and other available resources

The program starts at 9:00 AM and ends at 3:30 PM. A registration fee of $12 will cover the cost of lunch and program materials.

Please RSVP by calling OSU Extension Vinton County at 740-596-5212, or email Dave Apsley at apsley.1@osu.edu by September 9. The Zaleski ODNR Complex is located at 29371 Wheelabout Road, McArthur, Ohio 45651

“A Day in the Woods” and the “2nd Friday Series” programs run from May through November and are sponsored by the Education and Demonstration Subcommittee of the Vinton Furnace State Forest with support from Ohio State University Extension, Ohio Department of Natural Resources Divisions of Forestry and Wildlife, Central State University Extension, USDA Forest Service, Vinton County Soil and Water Conservation District, National Wild Turkey Federation, Pixelle Specialty Solutions, Ohio Tree Farm Committee, U.S. Fish and Wildlife Service, Hocking College, and Ohio’s SFI Implementation Committee.

“Ask the Expert” Area Seeks to Help Farmers Mitigate the Challenges of 2019 at this year’s Farm Science Review

Each year, faculty and staff of The Ohio State University address some of the top farm management challenges which Ohio farmers are facing during the “Ask the Expert” sessions held each day at the Farm Science Review at the Molly Caren Agricultural Center near London, Ohio.  The 20 minute “Ask the Expert” presentations at Farm Science Review are one segment of the College of Food, Agricultural, and Environmental Sciences (CFAES) comprehensive extension education efforts during the three days of the Farm Science Review which will be held September 17-19 in London, Ohio.

The 2019 growing season has particularly challenging for Ohio growers and producers due to the historic rainfall in Ohio. Twenty-seven of this year’s “Ask the Expert” sessions will feature discussions aimed at helping farmers mitigate the challenges faced by agricultural producers in 2019 and beyond.   Our experts will share science-based recommendations and solutions to the issues growers are facing regarding weather impacts, tariffs, and low commodity prices.   Producers are encouraged to attend one or more of the sessions throughout the day.

The sessions will take place in the Ohio State Area in the center of the main Farm Science Review exhibit area located at 426 Friday Avenue. The farm management sessions will be featured include:

Tuesday, September 17, 2019

“Tax Strategies Under the New Tax Law” presented by Barry Ward 10:00 – 10:20 a.m.

“Climate Smart- Weather, Climate & Extremes-Oh My!” presented by Aaron Wilson 10:20 – 10:40 a.m.

 “Before the Pearly Gates- Getting Your Farm Affairs in Order” presented by David Marrison 10:40 – 11:00 a.m.

“Crop Inputs & Cash Rent Outlook for 2020” presented by Barry Ward 11:00 – 11:20 a.m.

“Farm Stress-We Got Your Back” presented by Dee Jepsen 11:20 – 11:40 a.m.

“Farm Income Forecasts: Are Farmers Experiencing Financial Stress?” presented by Ani Katchova  12:20 – 12:40 p.m.

“How Much Money Stayed on the Farm? 2018 Ohio Corn & Soybean Production Costs” presented by Dianne Shoemaker  12:40 – 1:00 p.m.

“Where Are We on U.S. Trade Policy” presented by Ian Sheldon 1:00 – 1:20 p.m.

“Farm Accounting: Quicken or Quickbooks” presented by Wm. Bruce Clevenger  1:20 – 1:40 p.m.

“Commodity Markets – Finding Silence in the Noise” by Ben Brown 1:40 – 2:00 p.m.

Wednesday, September 18, 2019

“Climate Smart- Weather, Climate & Extremes-Oh My!” presented by Aaron Wilson 10:00 – 10:20 a.m.

“Solar Leasing Options” presented by Peggy Hall & Eric Romich 11:00 – 11:20 a.m.

 “Where Are We on U.S. Trade Policy” presented by Ben Brown 11:20 – 11:40 a.m.

“Crop Inputs & Cash Rent Outlook for 2020” presented by Barry Ward 12:00 – 12:20 p.m.

“Commodity Markets – Finding Silence in the Noise” by Ben Brown 12:20 – 12:40 p.m.

 Public Perception Risk: Building Trust in Modern Agriculture by Eric Richer 12:40 – 1:00 p.m.

“Farm Stress-We Got Your Back” presented by Dee Jepsen 1:00 – 1:20 p.m.

“How Much Money Stayed on the Farm? 2018 Ohio Corn & Soybean Production Costs” presented by Dianne Shoemaker 1:20 – 1:40 p.m.

 “Tax Strategies Under the New Tax Law” presented by Barry Ward 2:00 – 2:20 p.m.

 “Using On-Farm Research to Make Agronomic and Return on Investment Decisions” presented by Sam Custer 2:40 – 3:00 p.m.

Thursday, September 19, 2019

“Farm Stress-We Got Your Back” presented by Dee Jepsen 10:20 – 10:40 a.m.

“Tax Strategies Under the New Tax Law” presented by Barry Ward 10:40 – 11:00 a.m.

 “Solar Leasing Options” presented by Peggy Hall & Eric Romich   11:20 – 11:40 a.m.

 “Commodity Markets – Finding Silence in the Noise” by Ben Brown 11:40 – Noon

 “Crop Inputs & Cash Rent Outlook for 2020” presented by Barry Ward 12:00 – 12:20 p.m.

 “Where Are We on U.S. Trade Policy” presented by Ben Brown 12:40 – 1:00 p.m.

 “How Much Money Stayed on the Farm? 2018 Ohio Corn & Soybean Production Costs” presented by Dianne Shoemaker 1:40 – 2:00 p.m.

The complete schedule for the Ask the Expert sessions and other events at the 2019 Farm Science Review can be found at: https://fsr.osu.edu/

Additional farm management information from OSU Extension can be found at ohioagmanager.osu.edu or farmoffice.osu.edu

Source:

David Marrison, OSU Extension

740-622-2265

Marrison.2@osu.edu

#leanonyourlandgrant

Qualified Business Income Deduction for Sales to Cooperatives – Proposed Regulations

by: Barry Ward, Leader, Production Business Management
Director, OSU Income Tax Schools

Soon after the Tax Cuts and Jobs Act became law in December of 2017 it became evident that cooperatives had been granted a significant advantage under the new tax law. Sales to cooperatives would be allowed a Qualified Business Income Deduction (QBID) of 20% of gross income and not of net income. Sales to businesses other than cooperatives would be eligible only for the QBID of net income which was a significant disadvantage. Suddenly cooperatives had an advantage that non-cooperative businesses couldn’t match and most of the farm sector scrambled to position themselves to take advantage of this tax advantage. Some farmers directed larger portions of their sales or prospective sales toward cooperatives. Non-cooperative businesses lobbied for a change to this piece of the new tax law while looking for ways to add a cooperative model to their own businesses to stay competitive.

Congress passed the Consolidated Appropriations Act of 2018 in March of 2018 which eliminated this advantage to cooperatives and replaced it with a new hybrid QBID for sales to cooperatives which offered more tax neutrality between sales to cooperatives and non-cooperatives. While this new legislation leveled the playing field between cooperatives and non-cooperatives, it left many questions unanswered; chief among them was how taxpayers should allocate expenses between sales to cooperatives and non-cooperatives.

One area that was clarified for calculating the QBID for all businesses including cooperatives was how certain deductions should be handled with respect to the Qualified Business Income Deduction (QBID).

For purposes of the QBID (IRC §199A), deductions such as the deductible portion of the tax on self-employment income under § 164(f), the self-employed health insurance deduction under § 162(l), and the deduction for contributions to qualified retirement plans under § 404 are considered attributable to a trade or business (including farm businesses) to the extent that the individual’s gross income from the trade or business is taken into account in calculating the allowable deduction, on a proportionate basis.

Under the final regulations, expenses for half the self-employment (SE) tax, self-employed health insurance, and pension contributions must be subtracted from preliminary QBI figure, before any cooperative reductions are made (if applicable).

While final regulations on the new QBID were published on Jan. 18, 2019, there were still many questions left unanswered as to how the deduction would be handled in relation to cooperatives. As the QBID is calculated differently between the income from sales to cooperatives and non-cooperatives, taxpayers and tax practitioners were left with uncertainty.

A simplified explanation of the steps used to calculate the QBID under Internal Revenue Code (IRC) §199A for income attributable to sales to cooperatives is listed here:

Step 1: First, patrons calculate the 20 percent §199A QBID that would apply if they had sold the commodity to a non-cooperative.

Step 2: The patron must then subtract from that initial §199A deduction amount whichever of the following is smaller:

  • 9 percent of the QBI allocable to cooperative sale(s) OR
  • 50 percent of W-2 wages paid allocable to income from sales to cooperatives

Step 3: Add the “Domestic Production Activities Deduction (DPAD)-like” deduction (if any) passed through to them by the cooperative pursuant to IRC §199A(g)(2)(A). The determination of the amount of this new “DPAD-like” deduction will generally range from 0 to 9 percent of the cooperative’s qualified production activities income (QPAI) attributable to that patron’s sales.

Parts of the new tax law do offer some simplification. Calculating the QBID isn’t necessarily one of those parts. The result of all of these calculations is that income attributable to sales to cooperatives may result in an effective net QBID that is:

  • Possibly greater than 20% if the farmer taxpayer pays no or few W2 wages and coop passes through all or a large portion of the allocable “DPAD-like” deduction
  • Approximately equal to 20% if the farmer taxpayer pays enough W2 wages to fully limit their coop sales QBID to 11% and the coop passes through all allocable “DPAD-like” deduction
  • Possibly less than 20% if farmer taxpayer pays enough W2 wages to fully limit their coop sales QBID to 11% and the coop passes through less than the allocable “DPAD-like” deduction

On June 18th, the IRS released proposed regulations under IRC §199A on the patron deduction and the IRC §199A calculations for cooperatives. The proposed regulations provide that when a taxpayer receives both qualified payments from cooperatives and other income from non-cooperatives, the taxpayer must allocate deductions using a “reasonable method based on all the facts and circumstances.” Different reasonable methods may be used for the different items and related deductions. The chosen reasonable method, however, must be consistently applied from one tax year to another and must clearly reflect the income and expenses of the business.

So what “reasonable methods” might be accepted by the IRS? The final regulations (when they are provided) may give us further guidance or we may be left to choose some “reasonable” method in allocating expenses between the two types of income. Acceptable methods may include allocating expenses on a prorated basis by bushel/cwt or by gross sales attributable to cooperatives and non-cooperatives. Producers may also consider tracing costs on a per field basis and tracking sales of those bushels/cwt to either a cooperative or non-cooperative.

Included in the proposed regulations released in June was a set of rules for “safe harbor”. A taxpayer with taxable income under the QBID threshold ($157,500 Single Filer / $315,000 Joint Filer) may ratably apportion business expenses based on the amount of payments from sales to cooperative and non-cooperatives as they relate to total gross receipts. In other words, expenses may be allocated between cooperative and non-cooperative income based on the respective proportions of gross sales that fall to cooperatives and non-cooperatives.

Some questions that haven’t been answered clearly is how certain other income should be allocated between income from cooperatives and non-cooperatives. Tax reform now requires farmers to report gain on traded-in farm equipment. In many cases, farm income will be negative and all of the income for the business will be from trading-in farm equipment. The question is how do we allocate this income (IRC §1245 Gain)? Some commentators contend that none of these gains should be allocated to cooperative income which would eliminate the issue, however, the depreciation deduction taken on the equipment was likely allocated to cooperative income, thus reducing the effect of the 9% of AGI patron reduction. This would suggest that these gains may have to be allocated between cooperative and non-cooperative income.

How should government payments be allocated? If a farmer sells all of their commodities to a cooperative and receive a government payment (i.e. ARC or PLC), should that be treated as cooperative income or not. Hopefully, the final regulations will provide some further clarity on these issues.

The information in this article is the opinion of the author and is intended for educational purposes only. You are encouraged to consult professional tax or legal advice in regards to your facts and circumstances regarding the application of the general tax principles cited in this article.

 

 

Tax Planning in an Unusual Year – Prevented Planting Indemnity Payments, Market Facilitation Payments and Cost-Share Payments

by: Barry Ward, Leader, Production Business Management & Director, OSU Income Tax Schools

Prevented Planting Crop Insurance Indemnity Payments

With unprecedented amounts of prevented planting insurance claims this year in Ohio and other parts of the Midwest, many producers will be considering different tax management strategies in dealing with this unusual income stream. In a normal year, producers have flexibility in how they generate and report income. In a year such as this when they will have a large amount of income from insurance indemnity payments the flexibility is greatly reduced. In a normal year a producer may sell a part of grain produced in the year of production and store the remainder until the following year to potentially take advantage of higher prices and/or stronger basis. For example, a producer harvests 200,000 bushels of corn in 2019, sells 100,000 bushels this year and the remainder in 2020. As most producers use the cash method of accounting and file taxes as a cash based filer, the production sold in the following year is reported as income in that year and not in the year of production. This allows for flexibility when dealing with the ups and downs of farm revenue.

Generally, crop insurance proceeds should be included in gross income in the year the payments are received, however Internal Revenue Code Section (IRC §) 451(f) provides a special provision that allows insurance proceeds to be deferred if they are received as a result of “destruction or damage to crops.”

As prevented planting insurance proceeds qualify under this definition, they can qualify for a 1 year deferral for inclusion in taxable income. These proceeds can qualify if the producer meets the following criteria:

  1. Taxpayer uses the cash method of accounting.
  2. Taxpayer receives the crop insurance proceeds in the same tax year the crops are damaged.
  3. Taxpayer shows that under their normal business practice they would have included income from the damaged crops in any tax year following the year the damage occurred.

The third criteria is the sometimes the problem. Most can meet the criteria, although if producers want reasonable audit protection, they should have records showing the normal practice of deferring sales of grain produced and harvested in year 1 subsequently stored and sold in the following year. To safely “show that under their normal business practice they would have included income from the damaged crops in any tax year following the year the damage occurred” the taxpayer should follow IRS Revenue Ruling 75-145 that requires that he or she would have reported more than 50 percent of the income from the damaged or destroyed crops in the year following the loss. A reasonable interpretation in meeting the 50% test is that a farmer may aggregate the historical sales for crops receiving insurance proceeds but tax practitioners differ on the interpretation of how this test may be met.

One big problem with these crop insurance proceeds is that a producer can’t divide it between years. It is either claimed in the year the damage occurred and the crop insurance proceeds were received or it is all deferred until the following year. The election to defer recognition of crop insurance proceeds that qualify is an all or nothing election for each trade or business IRS Revenue Ruling 74-145, 1971-1.

Tax planning options for producers depend a great deal on past income and future income prospects. Producers that have lower taxable income in the last 3 years (or tax brackets that weren’t completely filled) may want to consider claiming the prevented planting insurance proceeds this year and using Income Averaging to spread some of this year’s income into the prior 3 years. Producers that have had high income in the past 3 years and will experience high net income in 2019 may consider deferring these insurance proceeds to 2020 if they feel that this year may have lower farm net income.

Market Facilitation Payments

When the next round(s) of Market Facilitation Payments (MFPs) are issued, they will be treated the same as the previous rounds for income tax purposes. These payments must be taken as taxable income in the year they are received. As these payments are intended to replace income due to low prices stemming from trade disputes, these payments should be included in gross income in the year received. As these payments constitute earnings from the farmers’ trade or business they are subject to federal income tax and self-employment tax. Producers will almost certainly not have the option to defer these taxes until next year. Some producers waited until early 2019 to report production from 2018 and therefore will report this income from the first round of Market Facilitation Payments as taxable income in 2019.

Producers will likely not have the option of delaying their reporting and subsequent MFP payments due to the fact they are contingent upon planted acreage reporting of eligible crops and not yield reporting as the first round of MFP payments were.

Cost Share Payments

Increased prevented planting acres this year have many producers considering cover crops to better manage weeds and erosion and possibly qualify for a reduced MFP. There is also the possibility that producers will be eligible for cost-share payments via the Natural Resources Conservation Service for planting cover crops. Producers should be aware that these cost-share payments will be included on Form 1099-G that they will receive and the cost-share payments will need to be included as income.

You are advised to consult a tax professional for clarification of these issues as they relate to your circumstances.

Western Ohio Cropland Values and Cash Rents 2018-19

by: Barry Ward, Leader, Production Business Management, Director, OSU Income Tax Schools

Ohio cropland values and cash rental rates are projected to decrease slightly in 2019. According to the Western Ohio Cropland Values and Cash Rents Survey, bare cropland values in western Ohio are expected to decline by 1.3 to 2.9 percent in 2019 depending on the region and land class. Cash rents are expected to decrease from one-half a percent to 2.5 percent depending on the region and land class.

The Western Ohio Cropland Values and Cash Rents study was conducted from February through April in 2019. The opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were farm managers, rural appraisers, agricultural lenders, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel. The study results are based on 162 surveys returned, analyzed, and summarized. For the complete survey summary go to the OSU Extension FarmOffice website at:

https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents

 

 

Ohio Ag Law Blog—Prevented planting, idle land, and CAUV taxation

By: Peggy Kirk Hall, Tuesday, June 18th, 2019
Original Source: https://farmoffice.osu.edu/blog
The decision on whether to take prevented planting is a tough one, but don’t let concerns about increased property taxes on idle land enter into the equation.  Ohio’s Current Agricultural Use Valuation program allows landowners to retain the benefit of CAUV tax assessment on agricultural land even if the land lies idle or fallow for a period of time.

Ohio’s CAUV program provides differential property tax assessment to parcels of land “devoted exclusively to agricultural use” that are ten acres or more or, if less than ten acres, generated an average gross income for the previous three years of $2,500 or more from commercial agricultural production.  Timber lands adjacent to CAUV land, land enrolled in federal conservation programs, and land devoted to agritourism or bio-mass and similar types of energy production on a farm also qualify for CAUV.

There must have been some farmers in the legislature when the CAUV law was enacted, because the legislature anticipated the possibility that qualifying CAUV lands would not always be actively engaged in agricultural production.   The law allows CAUV land to sit “idle or fallow” for up to one year and remain eligible for CAUV, but only if there’s not an activity or use taking place on the land that’s inconsistent with returning the land to agricultural production or that converts the land from agricultural production.  After one year of lying idle or fallow, a landowner may retain the CAUV status for up to three years by showing good cause to the board of revision for why the land is not actively engaged in agricultural production.

The law would play out as follows.  When the auditor sends the next CAUV reenrollment form for a parcel that qualifies for CAUV but was not planted this year due to the weather, a landowner must certify that the land is still devoted to agricultural production and return the CAUV form to the auditor.  The auditor must allow the land to retain its CAUV status the first year of lying idle or fallow, as long as the land is not being used or converted to a non-agricultural use.  If the land continues to be idle or fallow for the following year or two years, the auditor could ask the landowner to show cause as to why the land is not being used for agricultural production.  The landowner would then have an opportunity to prove that the weather has prevented plans to plant field crops, as intended by the landowner.  After three years, the landowner would have to change the land to a different type of commercial agricultural production to retain its CAUV status if the weather still prevents the ability to plant field crops on the parcel.  Other agricultural uses could include commercial animal or poultry husbandry, aquaculture, algaculture, apiculture, the production for a commercial purpose of timber, tobacco, fruits, vegetables, nursery stock, ornamental trees, sod, or flowers, or the growth of timber for a noncommercial purpose, if the land on which the timber is grown is contiguous to or part of a parcel of land under common ownership that is otherwise devoted exclusively to agricultural use.

Being forced out of the fields due to rain is a frustrating reality for many Ohio farmers today.   One positive assurance we can offer in the face of prevented planting is that farmers won’t lose agricultural property tax status on those fields this year.  Read Ohio’s CAUV law in the Ohio Revised Code at sections 5713.30 and 5713.31.

Mid to Late Prevented Planting Decisions

by: Ben Brown, Sarah Noggle, Barry Ward- The Ohio State University

Consistent rains across Ohio and the Corn Belt continue to delay planting progress as the June 17 USDA Planting Progress report showed that 68% of intended corn acres and 50% of intended soybean acres have been planted in Ohio. Nationwide, roughly 27 million acres of corn and soybeans will either be planted or filed under prevented planting insurance. Across Ohio, the Final Plant Date (FPD) for soybeans is June 20. Soybeans can be planted after the FPD, but a one percent reduction in the insurance guarantee occurs. This brief article outlines economic considerations for soybean prevented planting under three scenarios: planting soybeans on corn acres, planting soybeans late, and taking prevent plant soybeans. There are three sections to this article: a brief market update on corn and soybeans, a policy update on Market Facilitation Payments, and then finally the scenarios listed above. This article contains the best information available as of release, but conditions may change. Farmers should check with their crop insurance agents when making prevented planting decisions. OSU Extension is not an authorizing body of federal crop insurance policies.

Market Update

The World Agricultural Supply and Demand Estimates released on June 11, 2019, provided a mixed bag of news for corn prices, but the bullish factors outweighed the bearish factors and the December futures price increased 15 cents by market close. The Outlook Board lowered acreage 3 million acres reflective of relative returns from prevent plant and revenue over variable costs. However, the 10 bu. /acre drop in the national yield, reflective of the late planting across the Corn-Belt, provided possibly the biggest shock to the corn market. Most analysists had a decrease in final yield, but few expected a 10-bushel decrease down to 166 bushels per acre in the June WASDE- a month that rarely sees a decrease in yield given the length of season left. The market seems to have now figured in a yield decline and a reduction of 5-7 million acres. Further declines in yield during the growing season and increases in prevented planting acres favor price increases heading into fall. However, these are still largely unknown factors and market softness could happen as well.

The mixed bag continued with bearish signals in the corn balance sheet- corn exports continue to weaken on large to near record production quantities in Southern Hemisphere and currency exchange rates working against U.S. grain sellers. Strong yields in South America and the price differential may significantly reduce U.S. corn exports. Higher prices and lower production in the U.S. reduce the availability of corn for feed use. U.S. corn exports and corn for feed use estimates were collectively lowered 425 million bushels. The U.S. corn ending stocks to use ratio is lowered to 11.8%, the lowest ratio since the 9.2% experienced during the 2013/14 marketing year. Market increases in the fall of 2019 provide opportunities for producers to market multiple years’ worth of grain at profitable prices.

The soybean balance sheet continues to show market softness with no change in acreage or yield. The March Planting Intentions Report had already lowered soybean acres 4.6 million earlier in the year to 84.6 million acres and planting challenges for corn potentially have shifted some intended corn acres to soybeans. With a couple more weeks to go in the soybean-planting window, final soybean acreage is far from known. However, soybean ending stocks topped the 1 billion bushel mark- an emotional mark for soybean prices. U.S. soybean exports continue to struggle with lower world demand and competitive prices. The U.S. soybean beginning stocks for 2019/2020 were increased on softness in soybean export estimates for the end of 2018/2019. The reduced planting intentions earlier in the year and some switching from corn acreage could mean there is little price rally in a moderate reduction in soybean acreage or yield. An increase in soybean acreage would provide another bearish signal to an already soft market. While an increase in soybean acreage might sound crazy given current planting conditions, the current acreage count was already lowered in March.

Policy Update

A USDA issued press release on June 10th provided some details of the announced trade package.

  1. The 2019 Market Facilitation Program (MFP) payments will be made on a planted acre basis and the rates will be calculated for each county. The rates were not released. All eligible crops in a county will receive the same payment.
  1. If a cover crop is planted and that cover crop has the potential to be harvested, then that cover crop will be eligible for a minimum MFP payment- providing a way to get an MFP payment on prevented plant acres. The definition of a harvestable cover crop was not defined. This payment is not included in the examples below there is no way to know the size of this payment.
  1. The disaster assistance in the “Additional Supplemental Appropriations for Disaster Relief Act of 2019” will be eligible for Secretarial or Presidential declared disaster areas. On June 14, Governor DeWine sent a letter to Secretary Purdue requesting a disaster deceleration request for Ohio. The additional assistance could increase the prevented planting payment value, but the press release indicated a modest increase. The Disaster Bill passed by Congress and signed by President Trump also allows for the use of the higher of the projected price or the harvest price for the targeted areas. Because it is unknown which or if any areas will be included in the disaster aid bill, there is not the inclusion of changes in prevented payments in the examples below.

Acres intended to be planted to Corn

The corn FPD for full crop insurance purposes in Ohio was June 5. Producers could still plant corn in Ohio at a reduced crop insurance guarantee of 1% per day after the FPD or they could take a prevented planting indemnity on Revenue Insurance (RP), Yield Insurance (YP) or other Common Crop Insurance Policies (COMBO). Producers have 4 options available for intended corn acres:

  1. Plant corn
  2. Take a prevented planting payment
  3. Plant soybeans
  4. Take 35% of the corn prevented planting payment and plant soybeans after the late plating soybean period of June 20 in Ohio.

Given the calendar is starting the 3rd week of June, it is unlikely that there are many producers who are still planning to plant corn that have not done so. However, a relatively high 18% was planted last week in Ohio. Planting corn this late in the season is connected to the expectation that prices will increase through the year and be high enough to offset yield losses and added increases in drying costs. Two additional scenarios exist where producers will likely still see the benefits of planting a corn crop.

  1. He or she has applied nutrients and some input costs
  2. He or she needs feed for a livestock operation

Still, it is difficult to see corn reaching black layer before the first fall frost. For acres where no input costs have been applied, yield and insurance guarantee declines along with current futures prices of $4.62/ bushel and an increase to drying costs do not suggest producers should continue to plant corn. As mentioned in the market update section there is a possibility for higher prices, especially if the market is on the high end of acreage estimates and summer weather is not cooperative for moderate yield variations. For producers that have applied some input costs, the window is almost closed for expected returns to be larger than the prevented planting corn payment. This varies on the producer and the level of input costs.

The third option is to plant soybeans on those intended corn acres. As mentioned in a previous OSU Extension article- soybean returns above variable costs at current prices do not return a higher value than taking corn prevented planting payments. Higher soybean prices would tighten the decision, but the current balance sheet does not show the needed support to soybean prices. In the case that soybean planting continues to be delayed, the usual soybean prevented planting payment is considerably lower than the original corn prevented planting payment. Most producers will want to maximize the corn share of their prevented plant acres given the corn/soybean indemnity ratio.

The last option to take 35% of the corn prevented planting payment and plant soybeans become relevant for corn acres after the late planting period has concluded (June 25 in Ohio). Producers do not have this option available to them at this moment. A consideration of this option needs to be made that historical production history or APH yields will be negatively affected decreasing the insurance guarantee in future years. At this time, market signals do not suggest this option provides returns that are larger than straight prevented planting payments of corn. The inclusion of a MFP payment on the planted soybeans could make this option comparable. It is hard to know without the release of county payment rates.

Acres intended to be planted to Soybeans

The FPD for soybeans in Ohio is approaching quickly and with only half the crop planted, there is the potential that large amounts of Ohio soybean acreage will be planted in the late planting period or classified as prevented planting under insurance policies. Producers should continue to plant soybeans up to the FPD if possible. Once the FPD on June 20 is reached, producers have three options:

  1. Plant soybeans
  2. Take the prevented planting payment for soybeans
  3. Wait until the late planting period has finished and plant an alternative crop while taking 35% of the prevented planting payment on soybeans.

After the FPD for soybeans has been reached, the first option for soybean intended acres is to plant soybeans in the late planting period. Remember, like corn, the soybean insurance guarantee decreases a percent per day during this period. Yield declines in soybeans are harder to estimate given the variability in previous late planting years and final yields. The trend line does decrease with late planting but the variation in yields is larger as a percent than that experienced in corn. Economic considerations for planting soybeans versus taking the prevented planting soybean payment should first be calculated on the net return of the soybean crop above variable cost and the net return of soybean prevented planting payment. The calculations below are illustrated for an 80% coverage level on a RP insurance policy and a trend-adjusted actual production history of 50 bu. / acre. As mentioned in the policy section, the Federal Disaster Bill allows for the inclusion of the higher of the projected price or the harvest price. However, that is not guaranteed so the projected price of $9.54/bushel is used in these calculations.

Returns from Planting Soybeans

The insurance guarantee for soybeans in this scenario is

(80% x 50 bu. x $9.54/bu.)= $381.60

However, producers planting soybeans do not receive the projected Variable costs will need to be subtracted from this an addition of a reasonable MFP payment. Using the Farm Budget for soybeans on the OSU Farm Office webpage, a variable cost of $220/ acre on soybeans seems reasonable. Adding in a $45/ acre MFP payment (it is not sacred about this value other than if you weight MFP payments in 2018 for corn and soybean acres the average is close to $45/acre) you get your expected returns for planting soybeans.

Insurance Guarantee of $381.60 minus cost of $220 plus MFP payment of $45 = $206.60/acre

Remember that this insurance guarantee drops 1% per day after the FPD of June 20. Given that current November futures contracts are $9.34/bushel, there is the possibility of an insurance payment being made with a relatively large drop in yield. In this scenario of the price at $9.34/bu. a yield of 41 bushels/ acre would be needed to trigger insurance payments. A lower price would not require as large of a drop in yield similarly as a higher price would require a larger drop in yield.

Returns from Soybean Prevented Planting

Using the same scenario as above- the prevented planting payment would be 60% of the insurance guarantee. Some producers could have bought up to a higher coverage level, but most Ohio producers have a 60% prevented planting coverage level.

Insurance Guarantee of $381.60 x 60% = $228.96

There is no MFP added to this scenario and we are assuming that there is no additional cost to include. It is possible that soybean seed has already been purchased and will need to be factored into the equation. However, a maintenance charge of $25/acre is included to manage the bare acres. This brings the prevented planting return to $203.96/ acre.

In comparison, the net return for planting soybeans was roughly $3/acre higher for planting soybeans given an estimate for possible MFP payments at $45. Outside of planting a soybean crop in 2019 and having low yields that could affect future actual production history values, the minimum returns to planting soybeans is similar to those of taking prevented planting payments. There is some potential upside to net returns if prices strengthen most likely due to further decreases in soybean acreage or U.S. soybean exports increase at the end of 2018/19, the beginning of 2019/20 or both. A price later in the season that provides a cash price (futures minus basis) above $7.63/bu. and a yield that matches the historical production of 50 bu./acre would calculate to a higher net revenue than prevented planting payments. Similarly, a yield of 45 bu./acre would need a cash price above $8.48/bu. to trigger a higher return than the prevented planting payment. Because of yield and insurance guarantees of 1% per day after June 20, the downside risk of planting a soybean crop will grow.

Conclusion

The above analysis is based on a set of assumptions for soybean planting near the FPD of June 20 in Ohio. It is assumed that the MFP payment will be $45/acre (again this is not a final rule, and should be seen as illustration purposes only) and that costs are roughly $220 per acre. Some producers will have variable costs included on prevented planting soybean acres- especially purchases treated soybean seeds.

Decisions around prevented planting will continue to be difficult. However, corn prevented plant payments are estimated to have a higher net return than soybean prevented planting payments. Switching corn intended acres to soybeans and taking a prevented planting payment on soybeans does not seem like the best option. The producer should continue to plant soybeans up to the June 20 FPD, after that the decision is tight between planting a soybean crop and taking the prevented planting payment. There is some upside potential for planting soybeans although the current U.S. soybean balance sheet does not provide many positives. Moving later into the late planting period window decreases the insurance guarantee and soybean yields and improves the possibility of soybean prevented planting net returns being larger than late planted soybean net returns. For most Ohio producers this point comes roughly around June 25, the same day that the late planting period for corn ends. As a final reminder- producers should always consult with their crop insurance provider before making final decisions.

New Podcast Episodes

by: Amanda Douridas, OSU Extension Educator

The Agronomy and Farm Management Podcast has been releasing new episodes every other week since May 2018 and is set to release its 29th episode next Wednesday. To make it easier for listeners to find past episodes, the podcast has a new landing page at http://go.osu.edu/AFM.

Here you will find a listing of all past episodes, descriptions of what we talked about and links to additional resources. We cover a wide range of topics for corn, soybean and small grain farmers on agronomic and farm management topics. Episodes include legal topics such as leases, LEBOR, and hemp; timely seasonal topics like disease, insects and weather; and operational improving strategies related to nutrient management, precision agriculture and grain marketing.

Stay up to date on the latest episodes by following us on Twitter and Facebook (@AFMPodcast) and adding us to your favorites in Apple Podcasts or Stitcher. Give us a good rating and review if you like the podcast! If there is a listening platform you would like us to broadcast on or you have a topic suggestion, reach out on social media or by email at Douridas.9@osu.edu.

 

Ohio Ag Law Blog – The Ag Law Harvest

Written by Evin Bachelor, Law Fellow, OSU Extension Agricultural & Resource Law Program

Here’s our latest gathering of agricultural law news that you may want to know:

Congress considers bankruptcy code changes with Family Farmer Relief Act of 2019.  Senator Grassley and Representative Delgado introduced companion bills in their respective chambers of Congress that would modify the definition of “family farmer” in the federal bankruptcy code.  The change would raise the operating debt limit for a family farmer from $3.2 million as listed in the U.S. Code to $10 million.  Sometimes a small change can make a big difference.  In chapter 12 of the bankruptcy code, a “family farmer” has special options that other chapters do not offer, such as the power to determine a long-term payment schedule and pay the present market value of the asset instead of the amount due on the loan.  Many farmers had not been able to take advantage of the special bankruptcy provisions because of the low debt limit, but that may change.  For more information on the bills, click HERE for S.897 and HERE for H.R. 2336.

Congress also considers changing the number of daily hours a driver may transport livestock.  The Transporting Livestock Across America Safely Act would instruct the Secretary of Transportation to amend the rules governing drivers who transport certain animals.  The changes would loosen restrictions on the number of hours that drivers may drive, and increase the types of activities that are exempt from counting toward the maximum time.  Travel under 300 miles would be exempt from the hours of service (HOS) and electronic logging (ELD) requirements.  Both chambers of Congress are considering this bill, and both companion bills are currently in committee.  For more information on the bills and to learn about the changes proposed, click HERE for S.1255 and HERE for H.R. 487.

It’s not too late to submit comments to the FDA about its potential cannabidiol rulemaking.  Electronic or written comments can be sent to the FDA until July 2nd, although the deadline to request to make an oral presentation or comment at tomorrow’s hearing has passed.  Click HERE for more information from the Federal Register about the May 31st hearing and submitting comments.

 

Meatpackers face second class-action lawsuit, and R-CALF refiles.  In our last edition of The Harvest, we talked about a new class-action lawsuit filed in Illinois federal court by a number of cattle ranchers, including R-CALF, against the nation’s largest meatpacking companies.  Now, another lawsuit has been filed in Minnesota federal court also alleging a price fixing conspiracy by the meatpackers.  The second lawsuit is being brought by a cattle futures trader, rather than a rancher.  After the second suit was filed, R-CALF voluntarily dismissed its case in Illinois to refile it in Minnesota.  This refiling allows the lawsuits to be heard by the same court.

 

Tyson sues the USDA’s Food Safety and Inspection Service.  Tyson, which is named as a defendant in the class action suits we just mentioned, is a plaintiff in a case against the USDA’s Food Safety and Inspection Service.  The company alleges that a FSIS inspector falsified an inspection of 4,622 hogs, which were intermingled with another 8,000 carcasses, at one of its Iowa facilities in 2018.  The company claims that the false inspection required it to destroy all of the carcasses, and cost nearly $2.5 million in total losses and expenses.  The complaint, which is available HERE, alleges four counts: negligence, negligent inspection, negligent retention, and negligent supervision.  The lawsuit is based on the legal principle that an employer is liable for the actions of its employee.

 

 

Ohio Case Law Update

 

Plaintiff must prove that a defendant wedding barn operator’s breach of a duty caused her harm.  Conrad Botzum Farmstead is a privately operated wedding and event barn located in the Cuyahoga Valley National Recreation Area and on lease from the National Park Service.  The plaintiff in the case was attending a wedding at the barn, where she broke her ankle while dancing on a wooden deck.  The jury trial found that the barn operator was 51% at fault for her injuries, and awarded the plaintiff compensation.  However, the barn operator appealed the decision and won.  The Ohio Ninth District Court of Appeals found that the plaintiff did not introduce sufficient evidence to prove that any act or breach of duty by the barn operator actually or proximately caused the plaintiff to fall and break her ankle.  The case raises standard questions of negligence, but it is worth noting in the Ag Law Blog because the court did not base its decision on Ohio’s agritourism immunity statute.  The case is cited as Tyrrell v. Conrad Botzum Farmstead, 2019-Ohio-1874 (9th Dist.), and the decision is available HERE.

 

Ohio History Connection can use eminent domain to cancel Moundbuilders Country Club’s lease.  A Licking County judge ruled in early May that the Ohio History Connection, formerly the Ohio Historical Society, can reclaim full ownership of land that it had leased to a country club.  The Moundbuilders County Club has operated a golf course around prehistoric Native American earthworks for decades under a long-term lease with the state.  The Ohio History Connection sought to have the lease terminated in order to give the public full access to the earthworks as part of a World Heritage List nomination.  The judge viewed the request as sufficiently in the public interest to apply Ohio’s eminent domain laws.