Flexible Cash Lease Calculator

Volatile commodity markets continue to make it challenging to negotiate equitable and sustainable cash rents between landowner and farmer. Rental rates left unchanged for the past 5 years may have been un-equitable the last two years as farm profitability was higher in parts of the Midwest with respectable yields. Fixed cash rental rates negotiated last year may seem too high in the face of lower grain prices and higher fertilizer prices. A flexible cash lease may be worth considering as we continue to grapple with uncertain market conditions.

What it Can Do

The Flexible Cash Lease Calculator allows the user to input a base rent and baseline yields, prices and costs along with minimum and maximum lease amounts if desired. These parameters will serve as the basis for the base rent. Year end yields, prices and costs will be added by the user to formulate the actual “flexed” rental amount at the end of the year based on the deviations in yield, price and costs from the baseline figures.

One aspect of the Flexible Cash Lease Calculator that is different from others is the inclusion of costs as a variable in the flex lease formula. This component allows the volatility in costs to be included in the “flexible cash rent formula” if both landowner and tenant agree.

Where to Find It

The Flexible Cash Lease Calculator is an Excel Spreadsheet that can be viewed and downloaded at: http://aede.osu.edu/Programs/FarmManagement/Budgets/download.htm

How Does It Work

The Input Page is the section of the calculator where the user inputs their particular production numbers. This page has 6 different sections where user input is required for an accurate estimation of a flexible rent.

Part 1, entitled “Basic planting, yield, and rent information,” allows the user to input the expected acres of corn, soybeans, and wheat that will be planted. If other crops are grown, the user can type those in the boxes provided instead of the three defaults. The user will also be expected to type in the Base Cash Rent, which is negotiated between landowner and tenant. The user also inputs a Base Yield. This Base Yield is the typical or target yield for the field or farm and corresponds to the Base Rent. The Yr. End Yield is the actual farm yield or a third party pre-agreed upon yield for the growing season.

The user will then input their Base Price which corresponds to the base rent. Normally, crop futures may be used to estimate this number. The Yr. End Price is a harvest price or an average of a basket of marketing year prices that both parties agree upon at the lease signing. The user may then type a Minimum Rent, which will ensure that the landowner receives some compensation in case of poor performance. The Maximum Rent ensures that, in the case of a higher than expected yield or price, the tenant will receive fair compensation. These various user inputs are available for three separate crops, but will summarize to one rental rate.

Part 2, entitled “Fertilizer input costs by Crops,” allows the user to input Base and Yr. End Nitrogen, Phosphorus, and Potassium pries. These prices are to be inputted at a cost per acre rate. Just like the yield and price in Part 1, the base costs are generally what the planned costs are at the start of the lease term while the Yr. End Costs are the actual or indexed costs (costs indexed from a third party such as university enterprise budgets) during the current growing season.

Part 3, “Chemical Input Costs,” takes the Base and Yr. End Chemical prices per acre. This should include all herbicide, insecticide, and fungicide costs that are expected for the particular crops and the actual costs (or indexed costs) for the growing season.

Part 4, entitled “Diesel Input Costs,” is the farmgate cost of diesel used per acre. The 2009 OSU Extension Enterprise Budgets currently available on the OSU Farm Management website can be a useful tool in estimating the cost of diesel fuel used per acre.

Part 5, “Seed Input Costs,” will allow the user to input a seeding rate per acre a well as the Base and Yr. End seed costs per 1000. This will automatically calculate the total Base and total Yr. End Seed costs for the users benefit.

Part 6 is the “Other Input Costs” section where the user can input other costs that have not at this point been covered. These can be written or typed up to the right of the input boxes. These should be calculated in cost per acre.

This page will then calculate the total Base and Year End input costs. This section does not require any user input, but is there for reference, and will be used in the subsequent page for the calculations.

Output Page

The Output Page documents four different methods of calculating your flexible cash rent.

Method I is Flexing for Price Only. This will take your base rent; multiply it by your adjusted price ratio (yr. end price divided by base price). This will equal the rent per acre, which will then be multiplied by acres grown. This is the suggested rental rate for the year based on changes in market conditions.

Method II is Flexing for Price and Yield. This method will use the same methods as above, but include the adjusted yield ratio which is the yr. end yield divided by base yield.

Method III is Flexing for Price and Input Costs. This section will combine Method I with the total input costs calculated on the user input page. This will take the adjusted input costs ratio (base input costs divided by yr. end input costs) and multiply it by the adjusted price from Method I.

Method IV incorporates flexing for Price, Yield and Input costs. This will multiply the base rent by the adjusted price ratio, adjusted yield ratio, and the adjusted input cost ratio.

In all four methods, the Total Rent per Acre line is the suggested flexed rent per acre for the land for the end of the growing season. Choosing which method to decide rental rates from will come from negotiation between land owner and tenant.

Story Marketing for your Farm

Over the past several years I have been working with livestock producers in developing a “Story Market” or branding program to add value to their farm business. Story marketing works backward from consumer to conception instead of the traditional methods we are used to in production agriculture. What we try to identify are the characteristics in a product or service that the customer will pay a premium for, versus the norm of what the competition has to offer.

As commodity producers in agriculture, our history is such that we are price takers and not price makers. Why? Well, by definition commodity goods equal their cost of production. So if corn historically is $3.00 a bushel, that is what it takes on average to produce a bushel. So the least-cost producer typically reaps the profit. As eastern corn belt producers, it is difficult for us to achieve the economics of scale in production agriculture whether it be in crops or animal production. We are limited by geography and by human population.

So how do we get a bigger piece of the pie? Let’s look at the market place and work backwards. What is our potential customer willing to pay for in a product that they cannot get now? Can you produce that product? And can you produce it at a sustainable profit?

What’s your story? Crafting a marketing story is not as easy as it sounds, and you may need to let go of some outdated thinking in order to bring your story to life. Doing your homework ahead of time is the key. Obtaining a professionally conducted survey that explores the characteristics of your market will be your initial focus. Let the market you wish to serve create your story.

Do you know who you really are? A farm business that knows who they are and what they can do can go on to deliver their message, knowing well that some people are just not going to buy into what the business has to say. But those that do get it, really get it and are the potential customer.

How will your product or service change your customer? All stories or marketing messages have to do with change. A health-based product provides change from poor health to good health. A cosmetic company provides change from plain to beautiful, from self doubt to self confidence. The customer wants a change. People who are satisfied with the way things exist are not motivated to be customers. A story market targets people who are motivated; people who want to better themselves to be stronger, healthier, prettier, smarter and richer. If your potential customer isn’t motivated to change, and if your product or service cannot deliver change, then you’re wasting your time and money.

Is your message different? You must stand out. Your product or service must provide something different. Your message to the customer is that you are a leader and not a follower. Most likely your competition has focused on specific characteristics and features of the product and ignored the emotional marketing value that greatly influences why people choose one product over another.

Can you tell your story? You must have more than a story to tell or a message to deliver. You must know how to tell it. Your story needs to create a unique identity in the mind of your clientele. Try to position your product or service as a lifestyle choice.

Who is your customer? After conducting your market research, you should have a pretty good idea of who your customer is. Discover what motivates them and design your sales approach to trigger what stimulates them. Your approach must have direction. It must be focused and it must deliver a clear identity of your purpose.

Can you handle criticism? People engaged in production agriculture trend towards traditionalism. Can you take pressure from your peers who subscribe to “It can’t work” thinking? Too often we lose good ideas because we worry too much about what other people think. Are you willing to roll up your sleeves and separate yourself from the crowd?

Now that you have read the previous lines regarding “Story Marketing”, do you have an idea you’d like to pursue? If yes, give me a call and we can visit about your idea and your approach. I can be reached at the ABE Center, at 419-354-6916.

MarketMaker Linking Agricultural Markets

It’s easier than ever for food producers to connect with buyers

MarketMaker, an easy-to-use web-based resource for all businesses in the food supply chain, has been launched in Ohio through the collaboration of Ohio State University Extension and OARDC, the Ohio Department of Agriculture (ODA), Ohio Farm Bureau, and the Center for Innovative Food Technology (CIFT).

MarketMaker is a national network of state websites connecting farmers and processors with food retailers, caterers, chefs, and other food supply chain contacts. The network has one of the most extensive collections of searchable food industry related data in the U.S. All told, more than 39,000 retail outlets, wholesalers, processors and specialty food stores are accessible via the site, with more being added all the time. Each state’s site allows users to query, map and locate data. Each site is open and accessible on a no-fee basis.

Here are a few of the highlights

* More than 1,000 people log onto Ohio MarketMaker each month.

* Since the program launched in mid-march, the Ohio site has received more than 400,000 hits.

* Nationally, MarketMaker has logged almost 4 million hits in 2008.

* There is a growing list of participating states: Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Mississippi, Nebraska, New York, and Ohio. Three new states’ sites include: Colorado, South Carolina and Washington DC.

* New technology is being released later this year to make the site even easier for buyers to locate and map sources for local food.

Be a part of the success in Ohio.

1. Every Ohio producer can have a free listing on this site. You can help more buyers find you by registering your business online, http://www.ohiomarketmaker.com.

2. You can also use the easy-to-use search tools to locate new markets and potential buyers.

3. Check out the case studies of how the site can be used for three different people. There are currently three examples on the website: A cattle farmer, an independent maker of jams and jellies and a chef in search of organic produce.

4. Visit the Buy & Sell Forum, where specific requests can be posted. A recent example: Iowa State University needs 300 pounds of sweet potatoes by the week of Nov. 3, delivered to Ames, Iowa.

“It answers all the questions you could have: How do I contact farmers, how do I buy locally, who do I contact?” said Mark Newton, associate director and executive chef for OSU Campus Dining Services. “I can type in ‘salsa’ and it brings up a list of vendors who have loaded their information into the system, like where they’re located, how they take payment and when their products are available.”

Julie Fox, marketing and tourism development specialist at the OSU South Centers, is the point person for the project and says the response from the food services industry has been astonishing. For further information, contact Julie Fox, 740-289-2071, ext. 225; fox.264@osu.edu .

COOL Implementation: The First 45 Days

After much controversy and confusion about the rules for COOL it is appropriate to look at impacts on producers and consumers after roughly six weeks of mandatory COOL. USDA-AMS has previously indicated that the first six months of COOL will be devoted to education and implementation of COOL before the focus shifts to enforcement. The final rules for COOL have not been published so there is still a chance of more changes to the rules.

In Oklahoma, general indications are that COOL is not resulting in major difficulties for cattle producers. Most cattle auctions in the state are providing affidavit forms for their customers, usually as continuous affidavits which are filed with the auction. It is less clear that cattle buyers are aware that they need to be asking for COOL documentation for purchased cattle although in many cases the documentation is included in routine documentation of the transaction. In private treaty sales, both buyers and sellers need to make the effort to make sure that COOL documentation is passed from seller to buyer. The affidavits developed by the industry seem to be successful in minimizing the burden on producers to provide required COOL documentation. It remains to be seen how effective and complete the paper trail will be if and when there is an attempt or need to verify origin back to the producer from retail.

At the consumer level, most retailers are now providing the required COOL information on retail beef sales. In Oklahoma, it appears most beef is utilizing the “Product of USA, Canada and Mexico” label initially. However use of the “Product of USA” label may increase in the future. There have been only a few reports of any consumer reaction of any sort to whatever label is being used. Although some retailers have a preference for using a particular product and label, several retailers have indicated that they are more concerned with using only one type of label (regardless of which label it might be) to avoid the expense of tracking multiple product categories.

Much of the cost of COOL has always been presumed to occur at the packer level where it is most difficult to segregate product of different origins. Most major beef packers have designated certain plants and shifts to process mixed label cattle and minimize these costs. This results in some additional shipping costs for some producers. The magnitude of these additional costs for packers and producers is not yet clear.

The major bone of contention about COOL has always been whether the potential benefits would outweigh the costs of implementation. It is clear that it will take more time before either the costs or benefits of COOL will be known.

Source:  http://agecon.okstate.edu/livestock/

HogMonster.com? Online Employment Forums for the Hog Industry

Online job searching is becoming the norm for young job seekers in many professions. Posting your resume on Monster.com or one of the many industry-specific online job platforms is now a rite of passage rather than the exotic approach to employment it was merely a few years ago.

As with so many technological advancements, the agricultural sector is following suit. Consider the hog sector, for example, where pigcareers.com seeks to become this profession’s on line employment clearing house (www.pigcareers.com). While its ambitions are only slowly being fulfilled (in early December, the site boasted only 18 job postings), it has the potential to be an important pork portal for those seeking to fill positions or to follow career opportunities in the hog sector. For a limited time, employers can advertise positions for free, though if the site takes off, employers will pay $250 for single job postings that stay listed until the job is filled.

More general agricultural employment sites also exist, with www.agcareers.com (part of the farms.com franchise) being one popular alternative. While less focused than pigcareers.com, it offers postings from all areas of agriculture and, for the adventurous, from all parts of the world. Compared to pigcareers.com, it featured a few more pork-sector job postings during early December viewing (about 23 versus 18 at pigcareers.com), though it took a little more trial and error during search to locate just those jobs associated with the pork sector.

More than ever employers in the hog sector and throughout agriculture are rediscovering the truthfulness of the old bromide ‘good help is hard to find’. Tapping into the power of the internet allows employers and job seekers one more way to locate mutually beneficial arrangements that continue to allow the industry to succeed.

2008 Ohio Survey of Food, Agriculture and Environmental Issues

It is important for people involved in agriculture to know what the perceptions of the state’s population are relative to the agriculture industry. Every two years the Ohio survey of food, agriculture and environmental issues is conducted by Dr Jeff Sharp. This report, found at http://ohiosurvey.osu.edu/pdf/2008OHSurveyConcernIssueSummaryRpt.pdf, describes Ohioans’ concerns and attitudes and considers changes in these attitudes since 2002. Some of the highlights are:

  • A very large proportion of Ohioans reported being very concerned about the rising cost of gas, heating fuel, and food.
  • The level of concern about global warming in 2008 was similar to levels reported in 2006.
  • Concern about large-scale poultry and livestock development in Ohio declined in 2008.
  • Ohioans continue to express very positive attitudes about farming’s contribution to the quality of life in Ohio. and
  • Negative perceptions of food safety continue to rise among Ohioans.

ACRE Publications Available

Below are links to two files on ACRE from Dr. Carl Zulauf.  One discusses the decision question regarding the alternative policy suites while the second discusses the debate over which method to use to calculate the price component of the ACRE state revenue guarantee.  As a reminder, most of Carl’s farm bill related publications are available through his website http://aede.osu.edu/people/display2.php?user=zulauf.1 or by going to http://aede.osu.edu/resources/ docs/display.php?cat=21

Decision Question: http://ohioagmanager.osu.edu/resources/DecisionQuestion.pdf

Alternative Calculations: http://ohioagmanager.osu.edu/resources/alternativecalcs.pdf

Income Tax Management

“Income Tax Management for Farmers in 2008,” Purdue Extension CES-366-W, November 2008 is available at http://www.agecon.purdue.edu/extension/pubs/taxplan2008.pdf. The 2007 version is still on the website as it illustrates how an indemnity from revenue insurance can be allocated to physical loss (which may be deferred until the next tax year) and a decline in part (which is not eligible for deferral).

Commodity Programs and Biofuels Focus of Latest Choices Magazine

The latest edition of Choices Magazine has two timely feature themes.  The first theme, “Commodity Programs and Beyond in the 2008 Farm Bill”, follows agriculture and trade in five separate articles.  The articles may be viewed here:

http://www.choicesmagazine.org/magazine/block.php?block=16

The next theme, “Agriculture and Biofuels”, also has five separate articles discussing trends in the food vs. fuel debate.  The articles may be viewed here:

http://www.choicesmagazine.org/magazine/block.php?block=17