Flexible Cash Lease Arrangements for Farmland

“Volatile” and “Uncertain” are two words that might best describe grain prices and input costs for row crop production heading into the 2008 planting season. With this increased volatility and uncertainty, risk increases for producers and more uncertainty arises about the amount of cash rent to pay.

On the other side of the negotiating table, landowners, seeing higher profitability in commodity crops, are seeking higher cash rents. So, just what is that “most equitable” cash rent amount and how can it be maintained from year to year or contract to contract?

One answer is negotiating a flexible cash lease arrangement that varies from year to year based on price or yield or a combination of the two. Price and yield deviations from an agreed upon starting point (base rent) will trigger additional rent in the case of higher prices or yields or possibly lower rent in the case of price or yield shortfalls.

Several resources exist that will give you detailed information on how a flexible cash lease arrangement can be prepared.

Flexible-Cash Rents for Farmland – OSU Extension Factsheet
http://ohioline.osu.edu/fr-fact/0002.html

Flexible Farm Lease Agreements – Iowa State Decision Maker Article
http://www.extension.iastate.edu/agdm/wholefarm/html/c2-21.html

Flexible Cash Leases Based on Crop Insurance Parameters – Univ. of Illinois – farmdoc
http://www.farmdoc.uiuc.edu/manage/newsletters/fefo07_13/fefo07_13.html

Flexible leases and USDA payments – Iowa State Decision Maker Article
http://www.extension.iastate.edu/agdm/articles/edwards/EdwJune07.html

Cash Farm Lease with Flexible Provisions – North Central Region Extension Publication
http://agecon.uwyo.edu/RiskMgt/legalrisk/CashFarmLease.pdf

Flexible Lease Agreement Worksheet (Downloadable Excel Spreadsheet You May Consider Using is Included on this page.) – Iowa State
http://www.extension.iastate.edu/paloalto/news/Flex+Leases.htm

Example of Flex Lease Agreement – South Dakota
http://agbiopubs.sdstate.edu/articles/ExEx5068.pdf

Government Payments Under a Flexible Cash Lease Arrangements

The Farm Service Agency specifies that certain flexible cash lease arrangements are in fact “crop share leases” and certain government payments (direct and counter-cyclical payments) will be divided up between tenant and landowner according to the risk each bears in the production of crops on the leased parcel. To comply with FSA guidelines tenants and landowners need to do one of two things.

  1. Provide a copy of the flexible cash lease to your county FSA office, and request approval for the proposed sharing of the direct and counter cyclical payments.
  2. Structure your flexible cash lease so that it is defined as a cash lease arrangement under FSA Guidelines. See the following articles for more information on how to comply with FSA Guidelines.

When is Flexible Cash Rent Treated as Fixed Cash Rent by Farm Services Agency – OSU Extension – Ohio Ag Manager January 2008
http://ohioagmanager.osu.edu/uncategorized/when-is-flexible-cash-rent-treated-as-fixed-cash-rent-by-farm-services-agency/

Flexible leases and USDA payments – Iowa State Decision Maker Article
http://www.extension.iastate.edu/agdm/articles/edwards/EdwJune07.html

Flexible Cash Leases Based on Crop Insurance Parameters – Univ. of Illinois – farmdoc
http://www.farmdoc.uiuc.edu/manage/newsletters/fefo07_13/fefo07_13.html

Will Large Commodity Price Movements Change Your Planned Crop Mix for This Spring?

Large movements in commodity prices the last few weeks have changed projected budget bottom lines for many of the Enterprise Crop Budgets developed by OSU Extension. The Prospective Plantings Report issued by the National Agricultural Statistics (USDA) on March 31 st indicated that producers plan to plant 86 million acres of corn and 74.8 million acres of soybeans in the U.S. in 2008. This survey work was done with producers at the beginning of March before the major swings in price had taken place. Have producers changed their minds? No doubt, some have, but will there be substantial acreage shifts due to this change in price relationship between corn and soybeans? It will, no doubt, continue to be guesswork for most of the spring.

Projected profitability in soybean production has taken the biggest hit in the last 3 weeks as futures and forward prices for soybeans have dropped dramatically while projected profitability in corn production has seen slight increases even with continued increases in nitrogen prices.

Projected Returns Above Total Costs for Corn (Conservation Tillage – NH3 used as Nitrogen Source) is $337.49 for a 181 Bushel Corn Crop at $5.50/bushel Forward Cash Priced (October Delivery). Projected Returns Above Total Costs for Soybeans (No Tillage – Roundup Ready) is $128.62 for a 56 Bushel Soybean Crop at $10.50/bushel Forward Cash Priced (October Delivery). These are estimates and may not be representative of your own farm costs and prices. Always use your own costs and prices to make these important management decisions!

Check out our latest 2008 Enterprise Budgets updated April 3 rd at:

http://aede.osu.edu/Programs/FarmManagement/Budgets/crops-2008/

Getting the Most from Dairy Manure

(At the time this article was authored, fertilizer prices were lower than where they are presently. Present costs of fertilizer per pound of actual product are as of 3/25/08 approximately: N(UAN): $0.67 per lb., P2O5(MAP): $0.78 per lb., K2O(Potash): $0.46 per lb. This will translate into even higher nutrient values than what are listed in the following article.)

To maximize the nutrient value of dairy manure it must replace other nutrient inputs and be placed where a crop response is expected. The following examples place a value on liquid dairy manure within a corn-soybean-wheat rotation, and demonstrates how the value of manure depends upon the need for supplemental nutrients, manure handling and application practices. In these examples, the gross nutrient value of dairy manure ranges from $250 to ($126) per acre.

A manure test from this dairy facility indicates that 36 lbs of total nitrogen (TN), 16 lbs ammonia – nitrogen (NH4), 20 lbs organic-nitrogen (ON), 14 lbs of phosphorous (P2O5) and 28 lbs of potassium (K2O) are contained in 1,000 gallons. If the manure is injected below the soil surface in the spring, 19 lbs/1,000 gallons of the 36 lbs TN/1,000 gallons would be plant available nitrogen (PAN). On the other hand, if manure is spring surface applied without incorporation 75% of the NH4 -nitrogen could be lost, resulting in 11 lbs of PAN/1,000 gallons, a loss of nearly $7/1,000 gallons applied. The difference in PAN from manure and the estimated need of the crop can be supplied at planting as starter fertilizer.

Under ideal application conditions about $250/acre of dairy manure nutrients can be supplied from 9,570 gallons/acre of manure (Table 1). Ideal conditions include: (1) soil tests that indicate the addition of P2O5 and K2O will likely produce a yield response, (2) manure is injected evenly and uniformly and, (3) manure replaces other purchased nutrient inputs. In this situation, all of the nutrients in the manure are expected to be utilized by the growing crop over a corn, corn silage rotation. Under these conditions no additional P2O5 and K2O will likely be needed for the subsequent corn silage crop. Rather the nutrients supplied in excess will be held in the soil and drawn down by the subsequent crop. Although NH4 -nitrogen losses do not reflect a direct cash outlay, they do represent an opportunity where manure nutrients can be more fully utilized by minimizing these losses. Practices which capture more of the NH4 -nitrogen in manure will increase the value of this nutrient resource. Expected NH4 -nitrogen loss from surface applied manure are estimated to be $45/ac (Table 1). It is worth noting that ammonia-nitrogen easily volatilizes into the atmosphere from the time it is excreted through land application. Manure handling and storage practices which minimize volatilization of this resource will increase the nutrient value of manure and decrease the impact to the environment. Ammonia-nitrogen losses from earthen storage structures are estimated to range between 20% – 40%, or $5,467 to $14,580 at current market prices for nitrogen fertilizer ($0.60/lb).

When soil test results indicate P2O5 and K2O are above critical values (see Ohio State University , Tri-State Fertility Recommendations) additional nutrients will not result in a yield response, and the value of adding these nutrients is significantly diminished. Under these conditions only the PAN from manure can be utilized and the additions of P2O5 and K2O are not necessary and would be better utilized on other acres (Table 2). Nearly $143/acre of P2O5 and K2O are applied above agronomic recommendations and will not result in a yield response, representing a cost or a lost opportunity. The gross value of incorporated manure nutrients is expected to be ($36)/acre. When surface applied the volatilization of NH 4 -nitrogen reduces PAN and increases the opportunity cost of under utilizing N, P2O5 and K2O resulting in a loss of $126/acre. In addition, applying surplus nutrients may increase the risk of these nutrients being lost into the environment. Current input prices may afford those with excess soil nutrients to “draw-down” this balance by selling manure nutrients and purchasing only the nitrogen needs for the growing season.

In the final scenario (Table 3), dairy manure is applied following a legume crop where additional nitrogen is not recommended. In this case the nitrogen from manure is not fully utilized and has a lost opportunity cost of $107/acre, regardless of how manure is applied. In this situation the value of not applying manure where the nitrogen fraction is best utilized results in an opportunity cost of $16.56. Equally important is the nitrogen from manure is likely lost to the environment, negatively impacting those down stream.

In these examples the value of manure is determined by how this nutrient resource is managed within a cropping rotation. It is estimated that at least $250/ac of manure nutrients can be recycled when P2O5 and K2O contributions are matched to soil test nutrients, crop needs and when NH4 -nitrogen losses are minimized. When managed for only one nutrient, such as nitrogen, about $107/ac of the $250/ac is captured from the manure under typical conditions, but as much as $126/ac is forfeited when surface applied (Table 2). When manure is managed for only P2O5 and K2O about $36 of nutrients may be captured, but at least $107/acre of nitrogen may have been under utilized and/or lost to the environment.

The value of manure nutrients in these three scenarios is based upon how these nutrients are utilized by a growing crop. Applying this nutrient resource where additional nutrients are likely to produce a positive yield response will maximize the value of this resource. Adding nutrients above recommended critical levels will significantly decrease the value this resource and increases the potential of those nutrients being lost to the environment.

For some, brokering/bartering these nutrients may be more economical than hauling manure greater distances. When manure is treated like a nutrient resource, manure can be a cost-effective asset to the operation. Manure management does take time and the value of this resource can only be realized as it replaces commercial fertilizer or other purchased inputs.

Legal Aspects of Ohio Farmland Leases

Farm lease arrangements are an important component of farming operations in Ohio.  The contractural nature of a farm lease necessitates that farmland owners and tenant farmers understand the legal aspects of farm lease agreements.  A newly revised facthseet on farmland leases covers these legal issues, including:

  • Types of farmland leasing arrangements
  • Verbal versus writeen leases
  • Legal requirements for enforceability
  • Terms of the lease agreement
  • Termination of the lease
  • Using model leases and attorneys
  • Common legal questions on farmland leases in Ohio.

To review these topics, please click on the link below for the full factsheet:

http://aede.ag.ohio-state.edu/programs/aglaw/docs/FarmLeaseFactSheet2008.pdf

Helpful Hints to Retaining Hispanic Labor

Good help is hard to find and often painful to lose. Hispanic workers have proven to be a much-wanted source of hardworking, dependable labor for Ohio producers/employers. Under the shadow of increased immigration enforcement, accessing this labor and retaining it have become a matter of increased priority. No doubt, a generous wages & benefits package can attract labor and is about the best way to help keep good employees on the job. Still, if you are looking to secure your Hispanic labor, here are some things to consider.

Orientation

Securing your labor begins with a thorough and proper orientation. Let workers know what your business objectives, goals and philosophies are. What are you and your workplace all about? What are your expectations of them as employees? Ask them what they expect from you and their coming employment. Introduce your work rules and procedures. Emphasize your operation as not just a place for them to work but also a business to operate. Your workers may be in the U.S. for the first time, may know little English, and have little or no experience in your type of operation. Assume nothing and assess everything.

Team Building

Among other things, Hispanics are known for their strong family ties, extended-family relationships, and group vs individual outlook. These can be your basis for teambuilding to incorporate them into your total workforce with non-Hispanic, non-Spanish-speaking labor. As noted above, a good orientation can welcome them into your operation, and effectively defining their role in the workplace as part of your business “family” can help solidify their commitment to employment.

Feeling Accepted

We all want and need to be accepted, whether at work or in our communities, and a worker straight out of Mexico and landing in Ohio might certainly feel out of place. Your role as employer should include both personal/individual contact with your employees as well as the “impersonal” of everyday business exchanges. Encourage contact between Hispanic and non-Hispanic employees through work assignments. Also, orient them to community Hispanic resources and events, something local churches and Hispanic organizations can help you with. Your Hispanic employees should feel welcome. Welcome to the United States . Welcome to Ohio. Welcome to our business family.

Communication

The most obvious here is that they lack English while we lack Spanish. Maybe you already have a bilingual employee on board, or maybe one of your Hispanic hires knows some English. Lucky you! There are also high schools, universities, libraries and non-profits who may offer English and/or Spanish classes. Good communication is essential to efficient work, safety and personal exchange. For the Hispanic worker, better English skills can promote conversation, self-esteem, potential for job promotion, understanding of workplace & safety rules, and efficiency on the job.

[Here are some ideas put forth by New York dairies with Hispanic labor, and their consultants]

  • Greet workers everyday with a handshake, smile or a new word.
  • Have employees learn a few words – both English and Spanish – every week. Post the words in a visible area and encourage all employees to use them at least once in the week.
  • Have periodic educational sessions to increase [work] knowledge & clear up questions.
  • Have each English- and Spanish-speaking employee work together for at least an hour when someone is first hired. It can break the ice, reduce segregation and foster respect.
  • Have staff parties on holidays and include food from both cultures.
  • Take Spanish-speaking employees on a weekly shopping trip.
  • Provide outings, such as a soccer game, church or a tourist spot, for employees. This gives them a break from the daily grind and can increase productivity. It also teaches employees about U.S. culture.
  • Post pictures of employees, their families and farm events on a bulletin board. This builds morale, and visitors love to see the photos.
  • Provide newspapers from the employee’s country of origin. (Contact the country’s embassy to get papers.)

New 15 Measures of Dairy Farm Competitiveness Available

“How do I know if I am competitive?” “How can I become more competitive?” These were the questions from producers that led to the development and publication of “Dairy Excel’s 15 Measures of Dairy Farm Competitiveness” in 1997. Those same questions are just as valid today and can be answered in the context of today’s dairy industry using the newly released 2008 edition of the 15 Measures.

The 15 measures fall into 10 broad areas, which together provide a good view of the competitiveness of a dairy farm business. The 10 areas are:

1. Rate of production

2. Cost control

3. Capital efficiency

4. Profitability

5. Liquidity

6. Repayment schedule

7. Solvency

8. Mission

9. Maintain family’s standard of living

10. Motivated labor force

These measures represent key characteristics of the most competitive dairy producers in the midwest. Some dairy producers already exceed many of the measures. While a single dairy business is unlikely to meet all 15 measures, dairy producers who meet most of the measures are competitive with dairy producers anywhere in the world and enjoy a high standard of living.

Following a complete listing of the 15 measures and their competitive levels, are pages describing each measure in detail. These pages explain each measure, tell how to compute and interpret it, and discuss the desirable range. The measures were designed to be easily calculated with information readily available on most farms. We also suggest changes to help a dairy operation move into the desirable range.

Some dairy businesses do not meet many of the measures. Without change, these producers will likely be exiting the dairy business within the next 10 years.

The new “15 Measures of Dairy Farm Competitiveness” will be available both on-line and as a for-sale publication. Individual full-color, 50 page publications can be ordered through your local Extension Office. A link to the on-line version can be found at http://dairy.osu.edu after April 20th.

The US Ethanol Sector: An Infant Industry?

n an article published last year, Robbin Johnson and Ford Runge noted, “…Since 1974, when the first federal legislation to promote corn-based ethanol as a fuel was approved, ethanol has been considered an infant industry and provided with increasingly generous government subsidies and mandates…” (Johnson and Runge, 2007)  Earlier this year, Don Warlick stated, “…The beginnings of the ethanol industry started with the Energy Bill of 2005 that supported an infant industry but provided for a ramped-up construction program to build ethanol plants across the Midwest …” (Warlick, 2008)  In this new Andersons Policy Bulletin the arguments for infant industry protection and whether they can be applied to the US ethanol sector are outlined and assessed.

See the entire Bulletin at:

http://aede.osu.edu/programs/Anderson/trade/EthanolBulletin.htm