Is your Lease Compatible WithYour Division of USDA Farm Program Payments Between Landlord and Tenant?

Synopsis: Whether a farm lease meets the technical definition of a “cash” lease or a “share” lease under federal regulations determines whether the farm operator, alone, or both the operator and the landlord is to receive certain USDA farm program payments. “Flexible” or “adjustable” cash rental arrangements, which technically may be “share” leases under the regulations, can be especially problematic. Improper division of farm program payments can result in ineligibility for farm program payments, and in some circumstances, a need to pay back previous payments. If a landlord and tenant have this problem, it may be wise for one to consult with legal counsel before taking further steps. To view the entire article on the web go to:

Annie's Project is coming to Ohio in 2007

The mission of Annie’s Project is to empower farm women to be better business partners through networks and by managing and organizing critical information. Annie’s Project is dedicated to the life of Annette Kohlhagen Fleck (1922-1997) and was founded by her daughter Ruth Fleck Hambleton, a University of Illinois Extension Educator, farm wife, and mother. The program was held for the first time in 2003 and has been very successful throughout the Midwest . Since that time, over 650 farm women have completed the six week course in risk management.

According to Jane Janecek, from Washington , Iowa , “I have completely enjoyed Annie’s Project. It made me realize that I am on task with some aspects of my record keeping and that I need to improve in others.” Luetta Greene, from Crawfordsville , Iowa , continued, “ This project has opened up communication and information shared between my husband and myself. I work full time in town, and I have learned so much from this project that will help me help my husband with our farm business.”

Women play an important role in the family farm business and Annie’s Project will help them improve their management and communication skills. It will also provide the opportunity for women to network with other women in similar situations and learn from one another.

Annie’s Project will be offered in two Ohio counties in the winter of 2007 as a result of funding by a North Central Risk Management Education Center Grant. The Wood County program will be coordinated by Doris Herringshaw, OSU Extension Educator. The Bowling Green Annie’s Project will begin on January 9, 2007 and will run for six consecutive Tuesday evenings. The classes will be held from 6:00 – 9:00 pm .

The second session of Annie’s Project will be held in Delaware County beginning on February 1, 2007 and running for six consecutive Thursday nights. It will also be held from 6:00 – 9:00 pm. Rob Leeds, OSU Extension Educator will be coordinating the Delaware series.

Topics in both counties will include Colors Personality workshop, financial record keeping, understanding basic financial statements, financial management tools, goal setting and mission statement writing, commodity marketing basics, crop insurance, family communication, farm transition, liability issues, land rental contracts and other contracts.

The registration fee is $60 and class space is limited. For registration information for the Delaware session, contact Rob Leeds at 740-833-2030. For Wood County , contact Doris Herringshaw at 419-354-9050 or check out the website at .

December 2006 Livestock Outlook

Feed Trends: Corn Price Up 76%, Distiller’s Grain up 38%

Since Labor Day corn-based feed prices have skyrocketed, though closer analysis shows that not all feedstuff prices have increased equally. For example, using central Illinois prices, we find that the price of corn has increased from around $2 to $3.55 (up 76%) while dried distiller’s grain (DDG) only increased from $79 to $109 (up 38%). Here in Ohio , the difference is even more pronounced: for that same time period, Toledo corn was up 67% while DDG from Lawrenceburg , Indiana (just west of Cincinnati ) increased only $7 (9%). These simple trends suggest that, if you haven’t considered incorporating ethanol co-products into your livestock rations, now might be the time to consider it. In this issue, I will talk about recent price trends for some ethanol co-products and the possible profitability of a switch to co-products. I will also link you to some ethanol co-product price data I have assembled and to some new USDA reports that track these increasingly important prices.

Every bushel of corn put through an ethanol plant yields about as much distiller’s grain as it does ethanol (about 18 pounds of each). Dried distiller’s grains have as much dry matter (about 89%) and energy (0.89 mcal/lb) as corn and soybean meal and have much more protein than corn alone (31% compared to 9%). The high protein of DDG means it can replace both corn and bean meal in many rations. However other traits of DDG, including its high fat content, mean that there are limitations to how much can be fed, particularly for hogs and poultry. Other issues also arise with a switch to distiller’s products, e.g., rations often need to be ‘tweaked’ to accommodate different nutrient and fiber profiles of DDG. Also, manure must be more intensively monitored and managed because DDG-based rations often generate manure with more phosphorus. Other forms of distiller’s grains can also be created, with wet distiller’s grain (WDG) and modified wet distiller’s grain (MWDG) being two of the more popular variants. Prices for dried distiller’s grain have been tracked the longest, and I will focus on this co-product most closely.

What determines the price of DDG? Well, the cost of its key input, corn, is the most important factor. The two price series often move together (see Figure 1), though there are notable exceptions. Analysis of the cost of central Illinois DDG suggests that, from 1999 through 2006, the average price of DDG was $85 when south central Illinois corn was at $2. In fact, over that time period, the average DDG price reported in central Illinois was $85.10 while in Lawrenceburg , Indiana , it was $87.90. For every dime that corn increased, the price of DDG went up by $2.58 (see Figure 2).

Figure 1.

Figure 2.

However, when you look at figure 2, you note several observations circled – these are the observations from the last 4 weeks. Note that these are well south of the thick straight ‘trend’ line draw through the bulk of the observations in figure 2. Whenever an observation is below this line it means DDG prices are cheap compared to corn prices relative to the average relationship observed over this time period. Over the past five weeks or so, if price relationships had stuck to historical trends, the DDG price would have been about $15 higher.

This poses a fundamental question – is the relatively cheap DDG price of the past few weeks a temporary aberration or the new standard? It is a question that only time will fully answer. Some will argue that the rapid expansion in ethanol plants will alter this relationship so that DDG will be cheaper relative to corn than the historical trends documented in figure 2 suggest. Perhaps this aberration could persist for several years, until adoption of DDG and other by-products by livestock producers increases to catch up with increases in ethanol production. The more quickly livestock producers respond, the shorter will be the window for DDG ‘bargains’ meaning, as usual, that early successful adopters will reap the greatest benefits.

Others will argue that, if all the ethanol plant construction occurs and plants run at planned capacity, the livestock cannot realistically utilize all the DDG. Take Ohio for example. Two plants are under construction in the western part of the state. Together they have a planned capacity of 160 million gallons per year, which at 2.72 gallons per bushel, would require about 59 million bushels of corn and generate more than 500,000 tons of DDG. At a 33% inclusion rate in finishing feedlot cattle rations, this would be enough for 700,000 head to gain 600 pounds. Ohio listed 180,000 cattle on feed last January. For a 10% inclusion rate in hog finishing rations, this would be enough to finish more than 12 million hogs. Ohio listed 1.5 million hogs on feed in September. What about exporting DDG to Indiana and Michigan ? Well, these states have their own ethanol plants under construction as well. This suggests the potential for excess DDG supply and the potential that the price relationship between corn and DDG observed in the past few weeks may be more the rule than the exception.

The key question for livestock producers is: When does it make sense to displace corn and soybean meal from a ration to accommodate DDG? From the burgeoning literature I’ve read, there are many different substitutions rates between DDG and the more traditional corn and soybean meal feedstuffs. Furthermore, appropriate substitution will vary by species and by stage of development and will require other modifications to the ration beyond these three ingredients. One example I’ve seen – in the context of a hog grow-finish ration – is to substitute one ton of DDGS for 26.1 bushels of corn and 420 pounds of soybean meal. For the central Illinois case, I plot out the average cost savings from this substitution (Figure 3).

Figure 3.

Over the 1999-2006 timeframe examined, the average savings from such a substitution was $92.90 for each ton of DDG added to the feed ration. Furthermore, this has spiked during the past 2 months, rising to nearly $130 per ton. This seems like a large savings but remember: this differential has to cover any additional transportation costs that might be associated with using DDG instead of the old standby ingredients. While DDG is similar to bean meal and corn in dry matter, most livestock operations may be located further from an ethanol plant than from existing sources of corn and bean meal, which will mean higher transport costs and less savings than the simple calculations would imply. The cost savings from another substitution I’ve seen – using 1 ton DDG in place of 31.8 bushels of corn and 190 pounds of SBM – is also plotted in figure 3. If this is the appropriate substitution for your situation, then recent prices suggest that cost savings available this past week are at there all-time high for the timeframe examined.

For feedlot cattle and dairy cows wet distiller’s grains (WDG) or its cousin, modified wet distiller’s grains (MWDG), are often the preferred ethanol co-product. Additional issues arise due to the higher moisture content, including higher transport costs relative to DDG, corn and bean meal, and storage challenges (it must usually be fed within a week or be stored in an anaerobic state). Adding WDG to feedlot diets means a corresponding reduction in corn and urea. While USDA has relatively good information on DDG, it only began tracking WDG and MWDG prices in late February, 2006. These prices are gathered from 9 different ethanol plants and distilleries in Illinois , Indiana , Michigan and Ohio and are published as USDA-AMS report number GX-GR212 ( ). A similar series has been developed for Iowa ethanol co-products (NW_GR111). These Eastern Corn Belt prices, contrasted against south central Illinois corn, are plotted in figure 4. A similar trend appears: wet and modified wet distiller’s grains have increased only 22% and 26% compared to corn, which is up 76% since Labor Day.

Figure 4.

If you take the plunge and incorporate a distiller’s product into your ration there are likely to be several transition costs. First you’ll need to consult with a nutritionist to closely examine how much DDG (or other co-product) to add to the ration. There will be other ration ‘tweaking’ that will need to occur, and these adjustments may incur additional costs. Also, you’ll need to spend time during the transition monitoring the quality of incoming feed (darker DDG can cause problems) and seeing how the animals are responding to the change in ration both in terms of palatability and performance. Second there may be additional capital and labor expenses as these feeds may require new bins or modifications to existing facilities. Again, you may need to ‘step up’ your management effort to make sure the new feedstuff is being stored properly and protected from the elements and moisture. Next there is the additional leg work involved in sourcing the co-product, e.g., finding out where to get it, possible quirks of scheduling delivery, etc. Finally there may be changes in manure management that will have to implemented to deal with its higher phosphorus conent.

To help conduct your own planning, I have posted on my website data on various Eastern Corn Belt and Midwestern price series, including historical data on DDG from central Illinois , Lawrenceburg , Indiana , Nebraska , Minnesota and Iowa (only Illinois and Indiana go back to 1999). I have also entered this year’s data on the wet and modified wet products for the Eastern Corn Belt , and provided several corn and soybean meal prices series (including futures prices). To access these, go to . I’ll also mention two good websites that feature a variety of useful information. One is at Iowa State and one is at the University of Minnesota ( and ).

Thinking of "Corn after Corn"? Pencil it Out First!

Higher corn prices have many wondering if planting more corn acres next year might not be a bad idea. But are prices high enough to trigger a switch that will change your crop rotations and have other long term effects? Some of the questions to ask when looking at “2 nd Year Corn” are:

  1. Yield – How much less corn yield can you stand on corn after corn acres?
  2. Nitrogen – How many more extra lbs. of N are needed to raise corn after corn?
  3. Crop Protection – How much additional cost will be involved when faced with some form of rootworm control (seed trait or insecticide) and possibly additional fungicide cost for corn disease pressure?
  4. Bottlenecks – Will there be unaccustomed “bottlenecks” due to managing more corn acres?
    1. Planting Bottlenecks – Farms accustomed to and equipped for planting corn and soybeans simultaneously might encounter problems with getting crops planted in the “optimal window”.
    2. N-Application Bottlenecks – Farms already pushing the envelope on pre-plant or side-dress timeliness may need bigger equipment or help via “custom hire”.
    3. Harvest Bottlenecks – More corn acres means more volume to harvest, transport, dry and store.
  5. Long-Term Pest Problems – Will Corn after Corn result in increased weed, insect or disease pressure? Or will this be a net positive as the 2 nd year of corn may help with problems such as glyphosate resistant weeds, soybean cyst nematode, soybean foliar disease and other problems inherent to soybean production. (This one will vary much from field to field and region to region.)

My initial budget drafts of 2007 variable costs (operating expenses) for 2 nd Year Corn and Soybeans (after corn) are below. Caution: Your costs may vary considerably from those listed. Be sure to pencil your own numbers out!


  1. Yield decrease of 10% from corn-soybean rotation yield average due to “corn after corn”.
  2. Additional 30 lbs. of N applied.
  3. Rootworm control via “traited” seed.
  4. No foliar fungicide required in corn.
  5. No soybean fungicide or insecticide cost for rust or aphid control. These added costs will make the argument stronger for “corn after corn”.
  6. No adjustments made for 20% refuge requirement for planting Bt Rootworm corn. In refuge growers would have to use soil insecticide or high rate of seed insecticide for rootworm control.

My brief (and rough) estimates of the present “Contribution Margin’s” (or what’s left to pay land, machinery and labor/management) of 2 nd Year Corn versus Soybeans. The following table shows gross receipts minus variable (or operating) expenses (shown above). Caution: Your relative yields and direct payments may vary considerably from those listed. Be sure to pencil your own numbers out!

Is this “advantage enough to offset probable higher fixed costs for corn? Higher labor and machinery costs for producing an acre of conventional corn versus an acre of no-till “glyphosate resistant” soybeans may require more of an advantage for corn when comparing their “contribution margins! So do we need an even higher ’07 fall delivery corn price (relative to soybean prices)? Pencil it out!

The Basics of Using Credit Cards

Good players know the rules of the game. But, when the rules are buried in fine print, use language that’s hard to understand, and change periodically, it’s easy to get confused. Add enticements of “no payments for 6 months” and the credit card game becomes the playing field for serious financial injuries.

In today’s financial world, credit cards are a necessary convenience and one of many financial tools. As with any tool, used correctly and maintained properly, credit can be very helpful. Unfortunately, it can also be a complicated tool that comes with no instructions. However, getting a grasp of the basics can help you take good care of your credit and be in a better position to score well in the game.

Dig out your contract– the “agreement” that became a legal and binding contract the first time you used the card. Review the rules of the games you’re in. Recognize that each card has its own terms related to specific information. If you can’t find your contract, much of the information will be in the details on your last statement. Or, call the 800 customer service number on the back of your card and request a copy of the terms and conditions of your contract.

If you have more than one card, compare the terms of each so you know the best way to play each game. You’ll find some useful worksheets by clicking on the resources at the end of this article. Look for your specifics related to the following general information:

The Annual Percentage Rate (APR) is the interest rate charged on any balance not paid by the due date. If you always pay your bill in full by the due date, the APR doesn’t really matter. If you don’t, the lower the APR, the less you’ll pay.

Be aware that your APR may suddenly increase because of a universal default clause in your contract. Look for a term similar to “default rate” which indicates a higher interest rate if you pay late on that or another credit card, or do something else the credit card issuer deems as too risky. That’s why people have been surprised when their APR suddenly goes up even though they’ve been making those particular payments on time.

Watch out for low “teaser” rates on new cards as they typically only last for six months to a year. Also, cards generally have different rates for different balances – such as new purchases vs. balance transfers vs. cash advances vs. those tempting “convenience checks” that often accompany statements.

Paying by the due date is important! Your contract will spell out when a payment is considered “late” – often noting a specific time on a specific date. Having your payment postmarked or even on your creditor’s desk by the due date is not “on time.” You’re on time if your payment is actually applied to your account by the due date. Mail early or pay online so you know when the payment is applied.

The grace period, if any , is the number of days you have to pay your balance before incurring a finance charge. Note that if you carry any balance forward from one month to the next, the grace period for new purchases may disappear, depending on how your balance is calculated. That means if you didn’t pay your last bill in full, the interest clock probably starts ticking on new purchases the instant you swipe that card to pay for them.

If you typically carry a balance on your card, know the balance calculation method – how they come up with the amount you owe finance charges on. It can make a big difference in the size of that charge!

Of the four common calculation methods, adjusted balance is the least expensive. It would be hard to find a new card today that used that method. The most common method is the average daily balance. Essentially, this is the sum of each day’s balance divided by the number of days in the billing cycle. The two-cycle average daily balance triggers the biggest charges for those who carry a balance from month to month. That’s because it adds together the average daily balances of two billing cycles to compute the charges. The previous balance simply uses the amount owed at the end of the previous billing period.

Cards will have varying fees. Some charge an annual fee just for the privilege of having the card. Often, cards with an annual fee have lower APRs and cards without an annual fee have higher APRs. So, the best card for you depends on whether you tend to carry a balance from month to month. Other costs to compare between issuers include late payment, cash advance, balance transfer, and over-the-limit fees.

The minimum payment is the smallest amount you can pay by the due date without triggering even more charges. Historically, this has been around 2% of the outstanding balance. Look for this to about double in the coming months as creditors address federal banking regulator concerns of debtors taking too long to pay off their card balance.

Your credit limit is the highest balance you can carry on the card during any billing cycle without incurring extra fees. It’s good not to be pushing your limit and not to have so many cards that your total limit is really beyond your means!

Use the rules of the credit game to make effective plays:

•  Limit charges to what you can pay in full each month. If you can’t pay in full, pay as much more than the minimum payment as you possibly can.

•  Pay on time! But if you can’t, call your creditor immediately to explain. They may waive late fees. Be ready to offer the “how much” and “when” of your next payment. Follow up in writing and do what you promise.

•  Ignore offers to “reduce” or “skip” payments because the finance charges keep accruing.

•  Know what you are paying for credit. For example, if you pay only the minimum payment on a $1000 computer, let’s say about $20 a month, your total cost at an APR of more than 18% can be close to $3000 and take nearly 19 years to pay off.

•  The FDIC recommends not more than two to four credit cards for most adults. More cards tend to trigger costly impulse buying. Also, each card you own – even ones you don’t use – represent what you could borrow. If you applied for new credit, you may only qualify for a smaller or costlier loan.

Click below for credit worksheets and more in-depth information.

“Know What You Owe” will help you summarize your secured and unsecured debt. Click on Worksheet 2-A at

To compare the terms of various cards, click on Worksheet 4-D at

The bulletin “In Over Your Head: Lifesaving Strategies for Financial Crisis” provides information and outlines financial actions to address overwhelming debt.

Transition Planning Workshops Planned for Ohio

OSU Extension is pleased to announce that four
“Building For the Successful Transition of Your Agricultural Business” workshops will be held across the State of Ohio during January, February, and March 2007. Each of these two-day workshops is designed to help family businesses develop a transition plan for their family business. The sessions will challenge you to examine your business to the core and to actively plan for the future. These sessions will help farm families come together to develop a plan for the farm’s future, discover ways to increase family communication, plan for retirement, and learn strategies for transferring management skills and the farm’s assets from one generation to the next. These workshops are made possible by a grant received from the North Central Risk Management Education Center .

The program dates and locations are:

January 23 & 24 (Carroll County)

Carrollton Days-Inn

1111 Canton Road

Carrollton , Ohio 44615

January 25 & February 7 (Henry County)

Northwest State Community College

22600 State Route 34

Archbold , Ohio 43502

February 26 & 27 ( Pickaway County )

Deer Creek Resort

22300 State Park Road 20

Mt Sterling , Ohio 43143

February 27 & March 6 ( Marion County)

All Occasion Catering

989 Waldo Delaware Road

Waldo , Ohio 43356

All sessions will be held from 9:00 a.m. to 4:30 pm. A special evening program is being developed for the sessions in Carroll and Pickaway Counties . The registration fee for attending the two-day workshop will be $75 for the first member of a family and $50 for each additional family member attending. Registration includes workshop notebook, refreshments and lunch for both sessions.

Registration brochures can be obtained by calling the Extension Center at Lima at 419-422-6106 or by accessing the registration flyer at: For specific details about the workshops, contact the Ashtabula County Extension office at 440-576-9008.

Mid American Ag and Hort Human Resource Conference Slated for January 15

Agricultural and horticultural employers will have an opportunity to focus on human resource issues during a conference sponsored by Mid American Ag and Hort Services (MAAHS). The organization is holding its second Mid American Ag and Hort Human Resource Conference along with its sixth Annual Meeting. The conference will be held Jan. 15, 2007 at the Greater Columbus Convention Center in Ohio. It will cover topics such as advanced recruiting strategies, labor and immigration compliance issue update, worker safety and workforce development.

This conference provides a great opportunity for employers from all sectors of agriculture and horticulture to share ideas on the working with the people in their businesses.  Presentations include the following.

· 9:00-11:50 AM – Experienced Supervisor Hiring Workshop – Bernie Erven of Erven HR Services, LLC
· 10:30- 11:50 AM – What’s New with Labor and Immigration Compliance? – John Wargowsky, Executive Director, Mid American Ag and Hort Services, Inc.
· 12:00-1:30 PM – Mid American Ag and Hort Services, Inc. Sixth Annual Meeting and Luncheon – Mike Adolph, President and John Wargowsky, Executive Director
· 1:45-2:45 PM – Business Networking and Developing Career Ladders – Dave Boulay – Management Specialist, Ohio State University South Centers
· 3:00- 4:30 PM – Developing a Safety Recipe – John Wargowsky

The MAAHS conference is being held in conjunction with the Ohio Fruit and Vegetable Growers Congress, Ohio Direct Agricultural Marketing Conference and National Bramble Conference, which runs January 15 to 17. Members of MAAHS, Ohio Fruit Growers Society, Ohio Vegetable and Potato Growers Society, North American Bramble Growers Association and Ohio Direct Agricultural Marketing Association are entitled to member pricing for the combined conference. Member pricing starts as low as $65 for members who register by January 4.

Those wanting to attend the human resource conference only should register with MAAHS at , or 614-246-8286. To register for multiple days of the combined conference visit , call 614-246-8292 or e-mail

Health Insurance Deductions and Health Savings Accounts

Health insurance costs are a major farm family expense.  As a result much attention is focused on adopting a health insurance strategy that will save on taxes.  For any given strategy, the effect on Social Security (both Self Employment and FICA tax) must be considered in addition to income tax savings.

Sole proprietorships, partnerships and LLC’s taxed as a partnership, are not allowed to provide tax-free fringe benefits (other than qualified retirement plans) to the proprietor and family.  The farm operator is not an employee.  However, the farmer can employ the spouse and the dependents. This may be done under IRS Code Section 105.  The spouse must be a bona fide employee and must be paid a reasonable salary plus benefits, based upon the duties performed.  With this strategy, the farmer may deduct the cost of family health insurance (in the spouse’s name) as a business expense, thus saving both income tax and self-employment tax.  However, the spouse’s wages are subject to Social Security (FICA) and Medicare taxes.  If the spouse is not employed by the business, the farmer can claim self-employment health insurance as a deduction on line 28 of the Form 1040.  Under this deduction, however, self-employment tax is not reduced.

If a partnership pays the health insurance for the partner, the payment is treated as income to the partner for both income and self-employment taxes.  The partner can claim the self-employed health insurance deduction, same as the sole-proprietor.  The S Corporation rules for fringe benefits are much the same as a partnership, however, unlike a partnership, no social security (FICA) tax is imposed on the value of the premiums.  Thus, the total tax liability is less for a S Corporation shareholder-employee than that for a partner or LLC member receiving the same health insurance benefits.

A farmer can achieve the most favorable tax treatment of fringe benefits by utilizing a C or regular corporation.  The corporation furnishes the health insurance and deducts the premiums.  However, no income is attributed to the shareholder-employee.  Also, no FICA or Social Security tax is imposed on the health insurance benefit.

Health Saving Accounts (HSAs) first became available in 2004, under IRC Section 223.  HSAs are custodial accounts or tax-exempt trusts that are created to pay qualified medical expenses for the account holder, spouse and dependents.  Contributions to HSAs are deductible if made by an eligible individual, an employer, or both.  Distributions from the HSA are tax-free if they are used to pay for qualified medical expenses.  In addition, investment earnings are not taxable.  Distributions used for non-medical expenses are taxable and subject to a 10% penalty.

Eligibility requirements for an HSA include:
1.  Must be covered by a high deductible health plan (HDHP).  A HDHP must have an annual deductible of at least $1,050 for individual coverage and $2,100 for family coverage, and an annual out-of-pocket expense limit of $5,250 for individual coverage and $10,500 for family coverage.
2.  Can not be covered by other health plans that are not a HDHP.
3.  Can not be entitled to Medicare benefits.
4.  Also, can not be eligible to be claimed by another taxpayer.

The maximum contribution to a HSA is the lesser of the annual deductible of the HDHP or for self coverage $2,700 in 2006 (each year will be adjusted for inflation) and $5,450 for family coverage (also to be adjusted for inflation).  Individual policyholders and covered spouses who are 55 or older are allowed a “catch-up” amount of $700 for 2006 (this will increase by $100 per year to $1,000 by 2009).

There is no “use-it-or-lose-it” provision for Health Savings Accounts.  Therefore, unused contributions can be carried forward and use for eligible medical expenses after the beneficiary has retired.  The beneficiary can also withdraw funds penalty-free after age 65, thus treating the HSA as the equivalent of an traditional IRA.

Farmland Lease Provisions

Many farmers have experienced striking differences in the management of farmland they cash rent when the land is transferred to the second generation. Gone are the days of a gentlemen’s agreement that concludes with a handshake around the kitchen table. The new landowners are trying to maximize their return on assets and want some written provisions in place to protect their interests. There are some excellent resources available for landowners and farm tenants that address farm leases. The fact sheet found at the website provides a thorough list of items that should be discussed and included in a farmland lease. Sample farmland leases can be found at or

In addition to changing the way land rental agreements are discussed, these new landowners are not shy about renegotiating cash rental rates when they believe the opportunity exists. Current cash prices for corn and beans have landowners Farmers add to this “renegotiation” issue through business expansion goals. This desire to expand results in competition for land and from there supply and demand curves move the market price. There is an excellent article addressing the issue of rising cash rents at .

2006 Federal Income Tax Notes

Business Travel Mileage Rates
Rather than use actual costs of operating a vehicle, a business may use the standard mileage rate on up to four vehicles.  The 2006 business mileage rate is $.445, and in 2007 it will be $.485 per mile of business use.  The depreciation component of this rate was 16 cents for 2004 and 2003.  It is 17 cents per mile for 2005 and 2006.  The depreciation component is used to reduce the basis of the vehicle for calculating gain or loss upon disposition.

Social Security
The maximum earnings subject to Social Security for 2007 will be $97,500, up $3,300 from $94,200 for 2006.  The rates for Old Age, Survivors and Disability Insurance OASDI has not changed since 1990.  It remains at 6.2% for OASDI and 1.45% for Medicare (Hospital Insurance), paid by employers and matched by employees.  Self-employed persons pay both parts themselves or 12.4% for OASDI and 2.9% for Medicare (15.3% SE Tax). The cost of one quarter of coverage goes from $970 to $1,000 in 2007.  For those under full retirement age and drawing benefits have withheld $1 of benefits for every $2 above earned income of $12,480 in 2006 and $12,960 in 2007. The cost-of-living or COLA for 2007 is 3.3%.  Considering the COLA, in 2007 the maximum Social Security retirement benefit for someone at full retirement age will be $2,116.  It is estimated that the 2007 average Social Security retirement benefit will be $1,044 for a retired individual currently drawing benefits.

Education Credits in 2006
The Hope Scholarship Credit is $1,650 per eligible student. The Lifetime Learning Credit is $2,000 per return.  The Student Loan Interest Deduction per return is $2,500.

Limits for Retirement Plan Contributions
The 2006 limits are:  IRA’s $4,000, SIMPLE $10,000, SEP, 403b or 401k $15,000,and in a Defined Benefit Plan $44,000.

Standard Deduction and Exemption in 2006
The standard deduction is $5,150 for single and $10,300 for joint returns.    For a taxpayer claimed as a dependent, the deduction is $850 or earned income plus $300.  The personal and dependent exemption is $3,300.

Capital Gain and Dividend Rates
The capital gain rate on collectibles is 28%, for long-term capital gains or dividends the maximum rate is 15%.  The long-term capital gain rate is reduced to 5% if the ordinary tax rate is 10 or 15%.