Crop Insurance Affects SURE Payments

Farmers looking to participate in the Supplemental Revenue Assurance (SURE) Program that was created in the 2008 Farm Bill have until March 15 th to purchase crop insurance for their corn and soybeans.  If a farmer chooses not to purchase crop insurance, they cannot participate in SURE. Essentially the SURE revenue guarantee will be 115% of the crop insurance coverage level plus 120% of the NAP coverage levels.  If no crop insurance if purchased than 115% time zero will be zero.  If a 75% coverage level is purchased the SURE revenue guarantee will be approximately 86%.  The SURE revenue guarantee, however, will be capped at 90% of the farms expected crop revenue.  Any SURE payments will be triggered by a disaster declaration but the payment will be calculated by subtracting total farm revenue from the farm’s SURE revenue guarantee and multiplying the difference by 60% to arrive at the actual payment.  Linked to this article is a factsheet distributed by California FSA that outlines the SURE payment calculation.  Remember, this legislation is still under review and subject to change but warrants farmer’s attention now because of the link to crop insurance and the upcoming sales closing date.

Click here to learn more about the SURE program.

NASS Releases 2007 Census of Agriculture

The National Agricultural Statistics Service (NASS) has released the long-awaited results of the 2007 Census of Agriculture. The census, conducted every 5 years, is the only source of uniform, comprehensive agricultural data for every county in the nation. Every agency and every mission area within USDA uses census data on a daily basis. The census provides the factual data that underpins all of our programs and services. It tells us where the producers are, who they are, how they are changing, what they are producing, and how they are producing it. Visit the 2007 Census of Agriculture Web site

(http://www.agcensus.usda.gov/ )

to access the results, or contact NASS at

nass@nass.usda.gov

for more information.

You can access Ohio ‘s two-page summary at:

http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/County_Profiles/Ohio/cp99039.pdf .


Find your county’s summary at:

http://www.agcensus.usda.gov/Publications/2007/Online_Highlights/County_Profiles/Ohio/index.asp .

A few highlights of the 2007 Ag Census on a national basis is as follows:

  • The total value of U.S. farm production in 2007 was $297 billion, a $96 billion increase over the total in the last census of agriculture taken in 2002.
  • Production expenses – costs for things like fuel, fertilizer, seed and feed, livestock and labor – increased 39 percent between 2002 and 2007.
  • Since the 2002 census, 291,329 new farms have begun operation. The operators of these new farms tend to be younger and are more likely to also have off-farm jobs.
  • The 2007 census shows a continuation in the trend toward more small and very small farms.
  • The two largest groups of farms are residential/lifestyle farms (36 percent) and retirement farms (21 percent).
  • The top five states for the value of agricultural products sold and their percentage of the total are: California (11.4 percent), Texas (7.1 percent), Iowa (6.9 percent), Nebraska (5.2 percent) and Kansas (4.8 percent). Combined with four other states – Illinois , Minnesota , North Carolina and Wisconsin – these nine state produce 50 percent of the value of agricultural products. Eleven states saw declines in the number of farms: Georgia , Kentucky , Mississippi , Nebraska , New York , Ohio , Oregon , South Dakota , Virginia , and West Virginia .
  • The top five industries in terms of net cash income produced were: (1) grains and oilseeds; (2) milk; (3) poultry and eggs; (4) fruits and nuts; and (5) nursery and greenhouse.
  • Some industries had negative income in 2007, including sheep and goats, aquaculture and other animals (including horses).
  • Even though the total number of farms increased, a few sectors of production – including grains and oilseeds, horticulture, cattle and hog operations – saw a decline in the number of farms.
  • In 2007, 125,000 farms produced 75 percent of the value of U.S. agricultural products, down from 144,000 farms in 2002.

Methane Digester Economics 101

A famous and humorous series of children’s books gently introduces children to the idea that all animals (including little boys and girls) need some outlet for food that is eaten, and that the body is but a weigh station for much of the content that goes into the mouth ( The Gas We Pass and Everyone Poops ). While providing an excellent entrée to broaching this delicate though universal topic among children, these authors have yet to tackle the sticky issue of what comes next, i.e., what to do with the natural outcome of all this eating.

Within the livestock sector, one idea that has surfaced is to harness manure for its energy content through the on-farm installation of methane digesters. With energy prices poised to soar upon an economic recovery, and ever-increasing regulatory and societal pressures to handle manure carefully, any new technology with the potential to solve two pressing issues at one time will receive intense consideration. However, economic considerations are crucial when evaluating any new technology.

Bill Lazarus at the University of Minnesota, along with several colleagues, has prepared several useful information pieces that explore the economic aspects of methane digesters. For an overview of national issues, consider Lazarus’s USDA report

“This report summarizes the existing literature and analytical perspectives on farm-based digesters, highlights major efforts in the United States and Europe to expand digester usage, and discusses key policy issues affecting digester economics. The study serves as a snapshot overview of the industry. Digesters are fairly capital-intensive when viewed primarily as an energy source. On a strictly market basis, current U.S. average electricity prices do not appear to provide sufficient economic justification for digesters to move beyond a fairly limited niche. Digesters make the most sense today where the odor and nutrient management benefits are important, or where the electricity or heat has a higher-than-average value.”

For a view of issues at a state level, consider a report prepared by Bachewe, Lazarus and others for the Minnesota legislature : “ This review is prepared for a wide audience. The motivation for its preparation is a belief that Minnesota can improve the utilization of the manure and organic wastes that are byproducts of livestock farming and other activities, via the production of biogas that can be used to produce heat and electricity. A comparison is made between Minnesota and Denmark due to the many similarities between the two entities. Denmark serves as a role model for Minnesota in the number of central anaerobic digesters that it supports while Minnesota has none even though in terms of livestock and other organic waste production Minnesota has a similar potential to benefit from the development of central anaerobic digesters.”

Finally, if you want to run the numbers on whether a methane digester would be beneficial on your own farm, consider Lazarus’s excel spreadsheet that he describes as a “ Tool for doing rough initial calculations of annual costs and returns to be expected from owning and operating a methane digester on a dairy farm.”

MILC and LGM-DAIRY

As you read this it will be of no surprise that the prices paid on the dairy markets have dropped to levels not experienced since March of 2006. At that time, the prices reported by the National Agricultural Statistical Service, NASS, were $1.18 for cheese, $1.18 for butter, $0.88 for nonfat dry milk and $0.35 for whey. The Class 3 price at that time was $11.35 and headed lower over the coming months in 2006. The Class 3 price averaged $11.88 for all of 2006.

Today we are back at those 2006 price levels after reaching historical highs for these dairy commodities and the Class 3 milk price. Cheese topped out at $2.14 per pound in mid December 2008, butter at $1.72 in October of 2008, nonfat dry milk at $2.08 in October of 2008, and whey at $0.79 in April of 2008. All of these high dairy commodity prices combined to produce a Class 3 price which averaged just above $18.00 for 2007.

What is remarkable about this price behavior is not so much the levels reached, but how this developed. Coming out of the low price period of 2006, the normal expectation was for dairy product and milk prices to decline in the early part of 2007 as was the seasonal norm. Instead, with product shortages developing in the international skim milk powder markets, the nonfat dry milk and whey prices accelerated to new price heights. This intense international demand fueled the beginnings of an unprecedented two year advance in the Class 3 milk price. Now that this run has come to an end, at least for the coming six months, possibly longer, all are asking what can we do to protect our dairy business?

As most of you are aware, the Food, Conservation and Energy Act of 2008 Dairy Title includes a new version of the 2002 Milk Income Loss Contract (MILC) program. I am calling this new, as there are a couple of new provisions which make this similar to but not the same as the MILC program extended under the 2002 farm bill. It is definitely an improved version of the expiring MILC program.

The most significant changes are (1) the incorporation of a dairy feed ration cost adjuster to the trigger price, (2) the increase in the total eligible pounds from 2.4 to 2.985 million pounds, and (3) the return to a 45% payout, and (3) dropping the calculation which counted milk shipments against the production cap even in months with no MILC payment. If you are not signed-up for the MILC program, you certainly should do so right away. This can be accomplished by contacting your county Farm Services Agency.

As an aid in learning how the MILC program will benefit your dairy, I have completed a revamp of the MILC Excel calculator to reflect these changes. The Microsoft Excel program can be obtained from my Ohio Dairy Web 2009 website. The address is:

http://aede.osu.edu/programs/ohiodairy/MILC_Center/MILC_Center.htm .

At this link you will find both an Excel 2007(xlsx) and an Excel 2003(xls) workbook. Download your selection by using the “save target as” feature.

The workbook program includes (1) a worksheet for MILC calculations by month of the fiscal year and (2) a worksheet to calculate the new feed cost adjuster. A producer can use this program by entering average dairy yield, number of cows and month that he or she may wish to start eligibility for MILC payments. The program will calculate the anticipated MILC payments for each month the anticipated total payout from the MILC program. With the dairy feed price adjustment, there will be payouts under this program in the coming year. There is also a worksheet which can be used to calculate the expected or anticipated National Average Dairy Feed Cost ration value, based on the rules for the MILC program. A producer can enter her or his expected feed prices (corn, soybean, alfalfa hay) and the worksheet calculates the National Average Dairy Feed Cost ration value. These values can be used to play a “what-if’ game using the FYMILC-Calc worksheet.

Another new risk management tool made available to dairy producers through the Federal Crop Insurance system is the Livestock Gross Margin-Dairy insurance product LGM-DAIRY. This was announced in June and made available in August for purchase each month. This insurance product provides the dairy producer the opportunity to purchase an insurance contract on the level of milk income remaining after feed costs are subtracted. This is more complicated financial product than the MILC program and requires the payment of a premium. Like the MILC workbook, there is a LGM-DAIRY workbook available on my Ohio Dairy Web 2009 website which can be downloaded.

http://aede.osu.edu/programs/ohiodairy/LGM_Dairy.htm

This Excel workbook will allow you to calculate the expected payout and premium cost for purchasing a given level of insurance. You can enter specific information about your dairy, expected milk and feed prices and complete ‘what-if’ evaluations. You will also find a link to the USDA / RMA which has all of the information on this new product.

Legal Issues for Agriculure Conference Slated for NW Ohio

A wide variety of legal issues relating to agriculture is the focus of a unique one day conference hosted by OSU Extension on Wednesday, March 25, 2009. The Northwest Ohio Agricultural Law Conference will feature sessions taught by attorneys on Using Flexible Farm Rental Agreements, Ohio Conservancy District Law, Legal Risk Assessment Issues, Authority over Large Livestock Operations, Farm Business Planning Strategies, and a general Agricultural Law Update.

Featured speakers include Bill Beach and Kathryn Mohr of Robison, Curphey and O’Connell; Larry Gearhardt and Dave Pennington of Ohio Farm Bureau Federation; Peggy Hall of The Ohio State University Agricultural & Resource Law Program and Robert Moore of Wright Law Company, LPA.

Joining OSU Extension in sponsoring the program are the law firms of Robison, Curphey and O’Connell in Findlay ; Wright Law Company, LPA in Dublin ; Ohio Farm Bureau Federation; Ag Credit and Farm Credit Services of Mid-America.

Early registration is necessary for the conference, which takes place from 8:30 a.m. until 3:30 p.m. at The Lighthouse Banquet Facility, 10055 W US 224 in Findlay , Ohio . A brochure and registration form are available through local OSU Extension offices or online at

http://www.aede.osu.edu/programs/aglaw .

The registration fee of $30 per person or $20 for additional family or company members covers lunch and materials. For registration questions, contact OSU Extension, Hancock County at 491.422.3851.

Agricultural Financial Conditions – 2009

Farms and agribusinesses experienced historic volatility throughout 2008, but what does that mean for 2009. In and effort to better understand what is happening in the agricultural economy, a survey was conducted in January 2009 by the Extension Risk Management Education Regional Centers and the Center for Farm Financial Management at the University of Minnesota.

The results expressed the level of financial stress facing producers, factors contributing to the financial stress, expectations of lenders, and how well agricultural producers are equipped to endure the financial stress.

Results can be found at:

http://www.agrisk.umn.edu/uploads/ARL03971.pdf

The survey was completed by over 2,300 agricultural professionals, representing all 50 states.

Determining Income for Farm Program Payment Eligibility Programs

The 2008 Farm Bill and subsequent regulations have established new adjusted gross income (AGI) and adjusted gross farm income (AGFI) limitations for farm program payment eligibility. The new limitations are considerably lower than the previous limitation of $2,500,000 and could have application to more producers than did the limitation under prior law.  As a result, the corect computation of AGI and AGFI can be critical for ensuring that a producer remains eligible for farm program payments.
Click here to read a full article on the new income limitation rules.

Ag-Link Deposit Program Applications Due March 13, 2009

Ohio farmers can now apply for 2009 funding assistance through the Treasury’s Agricultural Linked Deposit Program (Ag-link). Participating banks throughout the state will begin accepting applications for the competitive program through March 13, 2009.  Ag-Link offers reduced interest rate loans to farmers who have been hit hard by economic times and need assistance. The Treasury allocates $125 million of its annual portfolio for the purchase of certificates of deposits from banks, which then pass the savings on to farmers who have been approved for loans. Recipients are chosen on an as-needed basis.

In order to qualify for Ag-link, farms must be for-profit with headquarters and more than half of their operations maintained in Ohio . Additionally, farmers must have a documented need for the reduced interest rate and may request the reduction for up to the first $100,000 of a loan.  To apply, farmers must first be approved for an operating loan or line of credit from their Farm Credit System lender or a participating bank. After approval, they may then apply for an interest-rate reduction from the Ohio Treasury. The Treasury does not restrict how the farmer spends the loan funds, but priority for the rate reduction will be given to farmers using the funds for feed, seed, fertilizer and fuel. Honorably discharged veterans will also receive preference.

The deadline for receipt applications is Friday, March 13, 2009 at 5:00 P.M, and applications must be mailed. Faxed applications are not accepted due to the high demand for the program. Written notification of the status of each application will be mailed no later than April 6, 2009. Treasurer Boyce will announce the amount of money invested in each county in early April. Funding will be available as early as April 8, 2009 to assist with spring planting.

Click here for a one page information sheet on this program.

Applications and a list of participating lenders are available on the Ohio Treasury Web site at

www.ohiotreasurer.gov.

No Federal Estate Tax Next Year

The federal estate tax rate is 45% but none will be charged on the estates of even those most wealthy if they die next year in 2010. This year no federal estate tax will be charged for a single person without a spouse if net taxable estate value is below 3.5 million. Let’s hope the death rate of those very rich doesn’t increase this and next year!

However, most of us, even many farmers who are known to live poor but die rich don’t have to worry about federal estate tax rates. The conservative long term estate planning approach is to assume the threshold level at which federal estate tax will be assessed will be one million dollars worth of net taxed assets during and after 2011 and that the rate will be just shy of 50%. A less conservative approach would put the net threshold amount for a person without a spouse at two million.

Those with estates below one or two million will still have estate settlement costs, comprised primarily of Ohio estate tax but also with significant attorney expense. The “Basic Estate Planning Fact Sheet Series”
http://hocking.osu.edu/agriculture-natural-resources/estate-planning

estimates the following costs for settling the various estate sizes of a single person without a spouse: $50,000 would cost $8,000; $250,000 would cost $38,000 and $500,000 would cost $87,000, or costs in the 16 to 17% range.

Those quite wealthy, with federal taxable estates of one to two million need to do estate planning. Those less wealthy without federal estate tax liability can and may reduce estate settlement costs below the 16 to 17% range, especially if both spouses are still living. Refer to the fact sheet series for a basic discussion on costs plus the following topics: transferring property before death; wills; letter of instruction; life insurance; trusts; giving; sale of home; nursing home costs; medicare and medicaid.