Crop Insurance and Prevented Planting

Source: RMA News Release (Springfield, Illinois)

Heavy rainfall, floods and cool temperatures across the Midwest have slowed planting this spring. For crop insurance, the final planting date for corn in Ohio is June 5. The final planting date for soybeans is June 20.

Here are some basic guidelines if you are unable to plant because of an insurable cause of loss by the final planting date. You may:

• Plant during the 25 day late planting period. There is a one percent reduction per day of your yield guarantee.
• Not plant a crop and receive a prevented planting payment.
• After the late planting period ends, plant the acreage to another crop and receive a reduced prevented planting payment.

The most important thing you can do if you are unable to plant the crop by the final planting date is contact your crop insurance agent to review your policy and options before you make a decision.

To qualify for a prevented planting payment, the affected acreage must be at least 20 acres or 20 percent of your crop acreage in the insured unit. Prevented planting is not available on group insurance policies (Group Risk Protection and Group Risk Income Protection).

Replant payments may also be available for land that was planted that does not have an adequate stand. Contact your insurance agent if you believe acreage should be replanted. Your insurance company must give you written permission to replant, abandon or destroy the crop.

Crop insurance is sold and delivered solely through private crop insurance agents. Contact a local crop insurance agent for more information about the program. A list of crop insurance agents is available at all USDA Service Centers or on the RMA web site at www.rma.usda.gov/tools/agents/.

Making the ACRE/DCP Election

Source: Chris Bruynis, Assistant Professor, OSU Extension, Ross County

I have been telling farmers all spring to wait to make the ACRE/DCP Election until late May and gather information about the crop condition and price outlook. Well that time is approaching. On 5/15/13 the harvest market price for corn, soybeans, and wheat were $5.64, $13.38, and $7.05 respectively. Yield estimates continue to be lowered due to the weather and delayed planting across Ohio. Using trend yields (see table below) and harvest market prices for 2013, ACRE should not make a payment in 2013 unless yield and/or average market price for the 2013 crop year changes significantly. However, the premium to enroll in ACRE is relatively small (>$4.00/acre), and one might still consider enrolling to mitigate risk of lower market prices during the upcoming market year (harvest to harvest). If anyone wants to discuss this issue further, I can be reached at 740-702-3200 or at bruynis.1@osu.edu.

acre-june2013

What is Driving Farmland Value?

By: Barry Ward, OSU Extension, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics

Farmland values continue to increase by large amounts each year and have reached record levels in most states in the Midwest measured by both non-inflation adjusted (nominal) and inflation adjusted (real) values. Landowners, potential buyers, economists and many others have been evaluating this land boom and have been trying to evaluate whether the bull market is close to being over and if so, how much of a price correction, if any, will occur. Some in the business have been predicting the demise of this land bull market for the last two years. Alas, not yet. The Chicago Federal Reserve District reported that the year-over-year increase in farmland values (April 1, 2012 through April 1, 2013) within its district was 15%. Now that isn’t to say that a large northern hemisphere crop with accompanying lower prices and possible lower profits may cool off the land market, but there are other important factors to consider.

What are the continuing driving forces behind this escalation? Let’s examine a few of the key factors driving farmland values and some factors that may affect these values going forward.

Crop net income has been generally good to excellent for the last six years and is projected to be good again this year (pending fall grain prices). With the potential for a large crop due to large planted acreages, outlook economists have been predicting somewhat lower grain prices (if weather conditions return to a more typical pattern this year i.e. no widespread drought). With potential surplus supply, how will global demand react? Will lower corn prices stimulate the ethanol industry? Will lower soybean prices stimulate additional buying from China and other developing countries? Will lower feed prices allow for an expansion in domestic livestock production? This global supply/demand balance will ultimately dictate grain prices in the near term and will be a big driver in profitability.

The other key factor in crop profitability is cost. How will crop input costs change over the near term? Fertilizer and rental expense will likely be the input costs with the most near-term flexibility. Due to high margins in fertilizer mining and manufacturing during this previous 6 year period, additional infrastructure has been built or is being planned. This may allow for fertilizer supply to outpace demand and cause fertilizer prices to soften, especially if crop profit margins do weaken. Although landowners often resist when decreases in cash rental rates are proposed, persistent negative margins (2 years+) will likely move these rental rates lower…and then again it may take a longer period of negative margins to move these rental rates lower. This is a difficult one to judge.

Land values may continue higher or only level off even in the face of diminished or negative profit margins for the average producer. If the most efficient producers continue to see positive profit margins, the land bull market may cool off slower than some are predicting.

Predicting crop profits for the next 3 years is next to impossible with the many different variables in play, but knowing what factors are important in this complex calculation will allow each of us to incorporate those key factors in our decision making process.

Low interest rates have been key in the land bull market and with the Federal Reserve Bank indicating that it will not raise interest rates in the near term, this looks unlikely to be a large factor in a “cooling off” of the land market in the next three years. Although increased inflation (if it were to occur) would likely cause the Fed to change its tactics.

Farmers balance sheets continue to strengthen. The U.S. Farm Sector Debt to Asset Ratio was 10.6% in 2012. This compares to a 14.1% Debt to Asset Ratio for the farm sector in 2002. This strong financial position has been driven partly by an escalation in land values (the denominator in the equation –assets) but few will argue that the farm sector, especially the grain sector, is not in reasonably good “financial health”.

Outside Investors are still seeking investment alternatives including farmland. Investors outside of farming are still considering farmland as investment that may add value to their portfolio.

The supply of farmland is low. Farmland owners have been reluctant to part with this valuable asset and may be seeking the “top” in the market. Hence, land available for purchase is lower than normal. More dollars chasing fewer acres offered for sale equals higher land prices.

Land isn’t a commodity. We can’t go buy some in Alabama and move it up here to Ohio and plop it down next to our existing farm operation. Therefore, farmland being offered in your geographic comfort zone (area where you presently farm) might command even more of premium, especially when the farm sector is healthy.

Land isn’t a frequently traded asset. Land is not offered for sale every year or even every 10 years. There is no law that states it has to change hands every X number of years. Again, with a relatively strong farm sector, premiums bids may be offered if competing farms see a buying opportunity that may not present itself for another 3 or 4 generations. Farmers close to retirement may purchase this land for legacy purposes to secure continued survivability of their farm business.

The key to understanding land values and their possible directions won’t be just to listen to one or two experts tell you which direction the land market is going. Instead, this understanding will hinge on your knowledge of how these key factors and other will affect farmland values.

Midwest Land Values Strong in First Quarter of 2013 Interest Rates Remain Low

By: Barry Ward, OSU Extension, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics

Farmland values continue to increase by large amounts each year and have reached record levels in most states in the Midwest measured by both non-inflation adjusted (nominal) and inflation adjusted (real) values. The Chicago Federal Reserve District reported that the year-over-year increase in value (nominal value) of “good” farmland (April 1, 2012 through April 1, 2013) within its district was 15%. Adjoining eastern corn-belt states Indiana and Michigan were included in this survey and showed yearly increases of 15% and 24%, respectively. Quarterly increases in the value of “good” farmland (January 1 – April 1, 2013) for these two states were 4% and 12%, respectively.

District cash rental rates are up 11% over 2012. According to this survey, Indiana cash rental rates are up 11%in 2013 while Michigan cash rental rates show a 2% increase. Interest rates on farm related transactions in the Seventh Fed District showed decreases from the 4th quarter of 2012. Interest rates on “operating loans” averaged 4.91% at the end of the 1st quarter of 2013 compared to 5.03% at the end of the 4th quarter of last year. Interest rates on loans for feeder cattle purchases averaged 5.12% at the end of the 1st quarter of 2013 compared to 5.24% at the end of the 4th quarter of 2012. Interest rates on real estate loans in the 7th Fed District averaged 4.6% at the end of the 1st quarter of 2013 compared to 4.7% at the end of the 4th quarter of 2012.

For the complete analysis of land values, cash rents, credit conditions and other economic indicators see the May, 2013 Edition of the Agricultural Newsletter of the Federal Reserve Bank of Chicago online at:
http://www.chicagofed.org/digital_assets/publications/agletter/2010_2014/may_2013.pdf

Agricultural Activities in Ohio can be Exempt from Local Zoning

Peggy Kirk Hall, Asst.  Professor, OSU Extension Agricultural & Resource Law Program Spring brings an increase in agricultural land use activity and with it comes a surge of inquiries about Ohio’s agricultural zoning laws.  Here at OSU, we repeatedly hear a common question from … Continue reading

Legally Selling Your Baked Goods at a Farmer’s Market

Catharine Daniels, Attorney, OSU Extension Agricultural & Resource Law Program Soon, farmer’s markets all over Ohio will be full of vendors selling a variety of products–from fresh fruits and vegetables to home baked goods. For vendors selling  home baked goods, it can be … Continue reading

2013 Ohio Field Crop and Livestock Enterprise Budgets

Barry Ward, OSU Extension, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics & Greg Reinhart, Undergraduate Student Intern, OSU Department of Agricultural, Environmental and Development Economics

Budgeting helps guide you through your decision making process as you attempt to commit resources to the most profitable enterprises on the farm. Crops or Livestock? Corn, Soybeans, Wheat, Hay? We can begin to answer these questions with well thought out budgets that include all revenue and costs. Without some form of budgeting and some method to track your enterprises’ progress you’ll have difficulty determining your most profitable enterprise(s) and if you’ve met your goals for the farm.

Budgeting is often described as “penciling it out” before committing resources to a plan. Ohio State University Extension has had a long history of developing “Enterprise Budgets” that can be used as a starting point for producers in their budgeting process.

Newly updated Enterprise Budgets for 2013 have been completed and posted to the Farm Management Website of the Department of Agricultural, Environmental and Development Economics. Updated Enterprise Budgets can be viewed and downloaded from the following website:
http://aede.osu.edu/research/osu-farm-management/enterprise-budgets

Enterprise Budget projections updated for 2013 include: Corn-Conservation Tillage; Soybeans-No-Till (Roundup Ready); Wheat-Conservation Tillage, (Grain & Straw); Alfalfa Hay; Alfalfa Haylage; Grass Hay; Swine – Farrow to Wean; Swine –Wean to Finish; Cow- Calf Spring Calving; Market Steer; Yearling Market Steer; Market Heifer; Ewe and Lamb.

Our enterprise budgets are compiled on downloadable Excel Spreadsheets that contain macros for ease of use. Users can input their own production and price levels to calculate their own numbers. These Enterprise Budgets have color coded cells that allow users to plug in numbers to easily calculate bottoms lines for different scenarios. Detailed footnotes are included to help explain methodologies used to obtain the budget numbers. Budgets include a date in the upper right hand corner of the front page indicating when the last update occurred.

Western Ohio Cropland Values and Cash Rents 2012-13

Source: Barry Ward, OSU Extension, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics

Ohio cropland varies significantly in its production capabilities and cropland values and cash rents vary widely throughout the state. Generally speaking, western Ohio cropland values and cash rents differ substantially from eastern Ohio cropland values and cash rents. This is due to a number of factors including land productivity and potential crop return, the variability of those crop returns, field size, field shape, drainage, population, ease of access, market access, local market price, potential for wildlife damage, and competition for rented cropland in a region. This article highlights the summary of data collected for western Ohio cropland values and cash rents.

Ohio cropland values and cash rental rates are projected to increase in 2013. According to the Ohio Cropland Values and Cash Rents Survey bare cropland values in western Ohio are expected to increase from 6.8% to 15.4% in 2013 depending on the region and land class. Cash rents are expected to increase from 7.8% to 10.7% depending on the region and land class.

The “Western Ohio Cropland Values and Cash Rents” study was conducted surveying professionals knowledgeable about Ohio’s cropland markets. Surveyed groups include farm managers, rural appraisers, agricultural lenders, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel.

Average Cropland

Survey results for “average” producing cropland show an average yield to be 160.7 bushels of corn per acre. Results show that the value of “average” cropland in western Ohio was $6,516 per acre in 2012. According to survey data this “average” producing cropland is expected to be valued at $7,069 per acre in 2013. This is a projected increase of 8.5%.

“Average” cropland rented for an average of $197 per acre in 2012 according to survey results. “Average” cropland is expected to rent for $215 per acre in 2013. This equates to a cash rent of $1.34 per bushel of corn produced. Rents in the “average” cropland category are expected to equal 3.0% of land value in 2013.

Top Cropland

Survey results indicate that “top” performing cropland in western Ohio averages 192.3 bushels of corn per acre. Results also show that average value of “top” cropland in 2012 was $7,865 per acre. According to this survey “top” cropland in western Ohio is expected to be valued at $8,515 in 2013. This is a projected increase of 8.3%.

“Top” cropland in western Ohio rented for an average of $256 per acre in 2012 according to survey results. “Top” cropland is expected to rent for $283 in 2013. This equates to a cash rent of $1.47 per bushel of corn produced. Rents in the “top” cropland category are expected to equal 3.3% of land value in 2013.

Poor Cropland

The survey summary shows the average yield for “poor” performing cropland equals 127.2 bushels of corn per acre. Results also show that the average value of “poor” cropland was $5,053 per acre in 2012. According to survey data this “poor” producing cropland is expected to be valued at $5,645 in 2013. This is an increase of 11.7%.

“Poor” cropland rented for an average of $144 per acre in 2012 according to survey results. Cash Rent for “Poor” cropland is expected to average $156 per acre in 2013. This equates to a cash rent of $1.23 per bushel of corn produced in 2013. Rents in the “poor” cropland category are expected to equal 2.8% of land value in 2013.

The entire survey summary is available online at:

http://aede.osu.edu/about-us/publications/western-ohio-cropland-values-and-cash-rents-2012-13

 

 

U.S. Supreme Court Protects Monsanto’s Patent Rights in Roundup Ready Bean Case

Court rules that farmer’s replanting of Roundup Ready beans violates federal patent law

Peggy Kirk Hall, Asst. Professor, OSU Extension Agricultural & Resource Law Program

The U.S. Supreme Court today ruled that a farmer’s replanting of harvested Roundup Ready© soybeans violates Monsanto Company’s patent rights.  The ruling leaves in place a former court award of $84,456 against farmer Vernon Bowman for planting and harvesting the soybeans, which he had purchased as commodity beans from a local grain elevator or saved from his prior harvests.

Relying on the theory of “patent exhaustion,” Bowman argued that Monsanto’s patent rights exhausted after the first sale of the seed and did not apply to later uses or sales.  This exception to patent protection allows a purchaser of a patented good to resell the “used” good without violating patent rights.   The Court unanimously disagreed that patent exhaustion was applicable in Bowman’s case, explaining that the patent exhaustion theory applies to later uses of a good but not to the creation of new and additional goods from a patented good.  While Bowman could sell harvested Roundup Ready beans or use them as feed, he could not plant those beans, produce new beans and sell the new beans without violating Monsanto’s patent rights.  “That is how “to ‘make’ a new product,” said the Court, or to ”reproduce Monsanto’s patented invention” without compensation to Monsanto.   “A patentee retains an undiminished right to prohibit others from making the thing his patent protects,” said the Court.

Bowman tried to distinguish the application of patent exhaustion to his case based on the “self-replicating” nature of seed, arguing that the seed, rather than Bowman, controlled the seed’s actual reproduction.  Monsanto should not be allowed to interfere with natural reproduction, claimed Bowman.  The Court again disagreed, rejecting what it referred to as Bowman’s “blame the bean” and “seeds are special” arguments and pointing out that Bowman played an active role in the seed reproduction process.  But the Court carefully noted that its ruling does not automatically apply to every  self-replicating product, as there could be situations where a self-replication might occur outside a purchaser’s control or be a necessary but incidental step in using the item for another purpose.

Many expected the Court to rule in favor of Monsanto based solely on the argument that ruling otherwise would negate the incentive for innovation that Congress intended upon passing the federal Patent Act.  The Court was mindful of this argument when clarifying the parameters of the patent exhaustion doctrine, referring several times to the importance of not depriving Monsanto of its monopoly and the rewards of innovation.

What does the case mean for farmers?  The Monsanto ruling is not a big surprise but it does send a strong message to farmers, some of whom have likely grumbled over seed patents and limitations on the age-old practice of saving seed.  With the Supreme Court’s decision, it’s clear that the current legal system simply won’t tolerate replantings of patented seeds.  Instead, the law will support continued efforts by patent holders to monitor what farmers do with patented seed.  Replanting of patented seed, whether intentional or accidental, is more than ever a high risk activity.

Read the Supreme Court’s decision in Bowman v. Monsanto Co. here.

Produce Growers: Still Time to Comment on Federal Produce Safety Standards

Catharine Daniels, Attorney, OSU Extension Agricultural & Resource Law Program

As the temperatures start to climb, many producers are gearing up for planting season. If you are a farmer who grows, harvests, packs, or holds fruits and vegetables intended for human consumption, you should be aware of the proposed produce safety standards that were released by FDA on January 16, 2013, as part of the Food Safety Modernization Act. The proposed rule could impact your business later this year. The comment period has been extended: originally all comments were due by May 16, 2013, but now with the extension, you have until September 16, 2013 to submit comments. So, if you have not had a chance to review and comment on the proposed rule, there is still time.

What does the proposed produce safety rule do? The focus of the proposed rule is foodborne illness prevention. The goal is to now focus on preventing a foodborne illness outbreak rather than reacting to one. Foodborne illness outbreaks are a major concern and produce is often associated with such outbreaks. As a producer, you are responsible for ensuring your product is safe. If you fail to do so, you could face liability.

The proposed rule establishes “science-based standards for growing, harvesting, packing and holding produce on domestic and foreign farms.” To address foodborne illness prevention, the proposed rule identifies seven routes of microbial contamination where prevention is key and sets standards for each:

  • Agricultural Water – The rule proposes requiring all agricultural water to be safe and of adequate sanitary quality for its intended use and to be inspected at the beginning of the growing season to identify conditions that are reasonably likely to introduce pathogens. An alternative to the water requirements may be permitted if the alternative is scientifically established to provide the same amount of protection as the proposed requirement.
  • Biological Soil Amendments of Animal Origin – Types of treatment, methods of application, and time intervals between the application of a biological soil amendment of animal origin and crop harvest are three proposed measures to reduce risk. An alternative to these requirements is also permitted as long as the alternative is scientifically established to provide the same amount of protection as the proposed requirement.
  • Health and Hygiene – The rule proposes farm personnel be required to use hygienic practices, including hand washing and maintaining adequate personal cleanliness.
  • Domesticated and Wild Animals – For domesticated animals, the rule proposes waiting an adequate period between grazing of the animals and harvesting produce from that growing area. If working animals are being used where produce has been planted, the rule requires farms to take measures to prevent pathogens from being introduced onto the produce. For wild animals, the rule requires farms to monitor for significant wild animal intrusion immediately before harvest and as needed during the growing season.
  • Equipment, Tools, and Buildings – Some of the key requirements proposed for equipment and tools includes: using equipment and tools that are of adequate design, construction, and workmanship, inspecting, maintaining, and cleaning all food-contact surfaces of equipment and tools, and storing and maintaining equipment and tools to prevent contamination. Some of the key requirements proposed for buildings includes: requiring buildings to be a suitable size, construction, and design to facilitate maintenance and sanitary operations, buildings must provide sufficient space for placement of equipment and storage of materials, and requiring the plumbing system be properly designed, installed, and maintained.
  • Sprouts – Requirements include: treating seeds before sprouting, testing spent sprout irrigation water for pathogens, and monitoring the growing environment for Listeria species or Listeria monocytogenes.
  • Training – Training would be required for farm personnel would handle produce or food-contact surfaces, and for supervisors.

Who is exempt from the proposed rule? The standards and requirements of the proposed rule will apply to farms that grow, harvest, pack, or hold fruits and vegetables intended for human consumption in its raw or natural state. The rule however, does exempt certain farms. Total exemptions include:

  • Produce that is rarely consumed raw, such as potatoes.
  • Produce that is destined for further processing, such as green beans destined for a canning operation.
  • Produce intended for personal or on-farm consumption
  • Farms that sell $25,000 or less of food per year

A farm could also be partially exempt from the rule if they meet two requirements:

  1. Food sales average less than $500,000 per year during the last 3 years
  2. Sales to qualified end-users exceed sales to others during the same period

For purposes of the second requirement, a qualified end-user is a consumer, restaurant, or retail food establishment. The consumer may be located anywhere, but the restaurant or retail food establishment must be located in the same state as the farm or not more than 275 miles away from the farm.

If your farm does qualify for a partial exemption, then you must comply with certain labeling requirements. If a label is already required on the produce, then the name and business address of the farm where the produce was grown must be included on that label. If a label is not already required, then the name and business address must be displayed at the point of purchase.

Could I lose my exemption status? Yes. FDA may withdraw an exemption if:

  • There is an investigation of a foodborne illness outbreak directly linked to your farm, or
  • FDA determines it is necessary to protect the public health and prevent or mitigate a foodborne illness outbreak based on conduct or conditions associated with your farm

How soon do I have to start complying with the rule? After the final rule is published, it will become effective within 60 days. Farms would have between two and four years to comply with the rule depending on the value of food their operation sells during the previous three-year period:

  • Businesses selling less than $250,000 per year would have 4 years after the effective date to comply and 6 years to comply with some of the water requirements
  • Businesses selling between $250,000 and $500,000 per year would have 3 years after the effective date to comply and 5 years for some of the water requirements
  • Businesses selling more than $500,00 per year would have 2 years after the effective date to comply and 4 years to comply with some of the water requirements.

The proposed rule is currently open for comments. Comments must be submitted by September 16, 2013 to be considered. For more information on the proposed rule and to submit a comment, visit: http://www.fda.gov/Food/FoodSafety/FSMA/ucm334114.htm.