Farmland Leasing Workshops Offered Throughout Ohio

Source: Barry Ward, Assistant Professor, OSU Extension Leader, Production Business Management, Department of Agricultural, Environmental and Development Economics and Peggy Hall, Assistant Professor, OSU Extension Director, Agricultural & Resource Law Program

Ohio State University Extension will offer four Farmland Leasing Workshops throughout Ohio this upcoming February, 2016. The three hour workshops will include topics of interest to both landowners and farm operators, such as factors affecting leasing options and rental rates, analyzing rent survey data and legal requirements and provisions for farm leases. The speakers will help attendees consider how to use data in negotiations and to apply legal information to leasing practices. Workshop presenters include Barry Ward, Assistant Professor, OSU Extension and Leader, Production Business Management and Peggy Hall, Assistant Professor, OSU Extension and Director of OSU’s Agricultural & Resource Law Program.

Topics included in the workshop are:

Factors affecting leasing options and rates

Evaluating cash rent survey data

Farmland leasing options: fixed and flexible cash leases

Creating a legally enforceable lease

Legal provisions in farmland leases

Analyzing good and bad leasing practices

Dates and Locations of Farmland Leasing Workshops:

February 3, 2016, 1:00 pm—4:00 pm

Location: Kent State University Tuscarawas, New Philadelphia, Science and Advanced Technology Center

Registration:http://coshocton.osu.edu/program-areas/agriculture-and-natural-resources/news-and-upcoming-events

Questions: Contact Chris Zoller at 330-339-2337 or Emily Adams at 740-622-2265.

 

February 10, 2016, 6:00–9:00 pm

Location: OSUE Clermont County

Registration:  Contact OSU Extension at 513-732-7070

 

February 17, 1:00–4:00 pm

Location: OSUE Defiance County

Registration: Contact OSU Extension Defiance County at 419-782-4771; clevenger.10@osu.edu

 

February 17, 6:00 p.m.—9:00 pm

Location: OSUE Putnam County

Registration and questions: Contact Beth Scheckelhoff at 419-592-0806; Scheckelhoff.11@osu.edu

 

Check the events calendar at http://aglaw.osu.edu for workshop details.

President signs into law funding and tax extender bills impacting a host of tax provisions.

Source: Larry Gerhardt, OSU Extension Specialists, Taxation

The following article contains excerpts from the December 21 RIA Weekly Tax Watch, Checkpoint, published by ThompsonReuters, Inc.

On December 18, Congress passed and the President signed into law the “Consolidated Appropriations Act, 2016” and “Protecting Americans from Tax Hikes (PATH) Act of 2015,” funding the government and providing a number of significant tax changes. The Senate, by a vote of 65-33, had passed this legislation earlier in the day. The House had passed the Consolidated Appropriations Act earlier in the morning, by a vote of 316 to 113, and had previously passed the PATH Act, by a vote of 318 to 109, on December 17.

Tax provisions in the PATH Act include: the retroactive extension of the 50 or so taxpayer-favorable tax ”extender”—temporary tax provisions that are routinely extended by Congress on a one- or two-year basis that had been expired since the end of 2014, making permanent more than a dozen individual and business extenders (including the enhanced child tax credit, American opportunity tax credit, and earned income tax credit, parity for exclusion from income for employer-provided mass transit and parking benefits, the deduction of State and local general sales taxes, the research credit, and 15-year straight-line cost recovery for qualified leasehold improvements . . . ).

Three tax provisions particularly relevant for agriculture are:

 Extension and modification of increased expensing limitations and treatment of certain real property as section 179 property. The provision permanently extends the small business expensing limitation and phase-out amounts in effect from 2010 to 2014 ($500,000 and $2 million, respectively). These amounts currently are $25,000 and $200,000, respectively. The special rules that allow expensing for computer software and qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property) also are permanently extended. The provision modifies the expensing limitation by indexing both the $500,000 and $2 million limits for inflation beginning in 2016 and by treating air conditioning and heating units placed in service in tax years beginning after 2015 as eligible for expensing. The provision further modifies the expensing limitation with respect to qualified real property by eliminating the $250,000 cap beginning in 2016.

 Extension and modification of bonus depreciation. The provision extends bonus depreciation for property acquired and placed in service during 2015 through 2019 (with an additional year for certain property with a longer production period). The bonus depreciation percentage is 50 percent for property placed in service during 2015, 2016 and 2017 and phases down, with 40 percent in 2018, and 30 percent in 2019. The provision continues to allow taxpayers to elect to accelerate the use of AMT credits in lieu of bonus depreciation under special rules for property placed in service during 2015. The provision modifies the AMT rules beginning in 2016 by increasing the amount of unused AMT credits that may be claimed in lieu of bonus depreciation. The provision also modifies bonus depreciation to include qualified improvement property and to permit certain trees, vines, and plants bearing fruit or nuts to be eligible for bonus depreciation when planted or grafted, rather than when placed in service.

 Extension and modification of research credit. The provision permanently extends the research and development (R&D) tax credit. Additionally, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) may claim the credit against alternative minimum tax (AMT) liability, and the credit can be utilized by certain small businesses against the employer’s payroll tax (i.e., FICA) liability.

Farm Succession Workshop to be held in Medina County on January 21 & 28, 2016

Farm transition planning is the process by which the ownership and management of the family business are transferred to the next generation. Transition and estate planning helps farm families analyze the current farm situation, examine the future, and develop a plan of action for transferring assets and managerial control. Each farm is different in regards to the goal of transition, from passing farms onto the next generation or a new owner. There are family dynamics to consider, resources, finances, and managerial styles to consider.

The 2-day workshop will be held on January 21 and 28, 2016 from 9:00 AM to 3:00 PM at A.I.Root Candle Community Room, 623 West Liberty St., Medina, OH 44256. This workshop will help farmers assess the future of the farm business, discuss developing the next generation of managers, communicate about farm succession, review retirement planning and plan for the unexpected, consider long-term healthcare costs, understand legal considerations, and more. Pre-registration is required. Cost is $35.00 per person or $50 for up to 2 members of the same family attending together. Deadline to register is January 14, 2016.

To register, download the registration form at medina.osu.edu under events. For a mailed copy or for more information, contact Ashley Kulhanek, Agriculture and Natural Resource Extension Educator at 330-725-4911 ext.106 or Kulhanek.5@osu.edu.

Ten Strategies to Survive Tight Grain Margins

By: Chris Bruynis, Assistant Professor and Extension Educator

There are a few things that every business person knows about margins. There are typically only two ways to improve them; either increase revenues or reduce costs. Although this is very simple to say, making the management decisions to affect movement on either front is often difficult at best. Included in this article are some ideas that farmers can consider with today’s lower crop prices and projected lower profit margins.

  1. Complete a financial analysis. Knowing where the business stands financially will be critical in developing a plan to survive this period of low margins. This will provide insight into the how drastic the measures need to be to weather the storm. Good financial capacity will allow farm families to borrow new money, restructure term debt, or even make interest only payments on some loans. This does not mean to imply you shouldn’t look at other options in conjunction with this strategy. Contact your Extension Educator if you want assistance in calculating your current financial position.
  1. Lower the cost of production. This is paramount! There is significant variation among farmers in the cost of production depending on size and scale of the operation. Items such as cash rent, input costs, operating costs, and equipment depreciation can greatly affect this cost. Strategies to lower input costs can include: setting realistic yield goals and adjusting your inputs accordingly, selecting lower priced inputs providing they preform similarly, and making sure the input generates more that its cost (what might have paid for itself with $6.50 corn may not at $3.75). Knowing the true cost of production will allow farmers to look at their cost structures to make the necessary changes.
  1. Improve grain marketing skills. Grain marketing strategies vary somewhat depending on on-farm storage, crop insurance participation, and total bushels available for sale. Farms with 20,000 bushels to sell have fewer pricing opportunities compared to 200,000 bushel farms especially since many contracts are made on 5,000 bushel increments. Regardless of the farm constraints, it is critical to set price targets that are realistic and based on the farm’s true cost of production. Also the ability to use available marketing tools such as option contracts, hedge-to-arrive contracts, etc. and understand risk exposure created or protected by each will be important.
  1. Increase profitable enterprises. Most farmers are creatures of habit and do not easily abandon their crop rotations or shift to new crops. Farmers will need to closely evaluate the possibility of increasing acres of one crop over another in 2016. Farmers may also wish to adopt a different cropping strategy such as double cropping to maintain profitable income levels. Be careful not to exchange short term profitability over long term profitability. However, if the wolves are at the door, you may have to what is necessary.
  1. Reduce unproductive assets. Growing crops on marginal soils or rented ground with extremely high rental rates may be good candidates for removal from the business portfolio. Farmers need to weigh the loss from farming these properties compared to the fixed costs that will be spread over the remaining acres to determine if this is a good decision. Other ideas could include selling unused and underutilized equipment on the farm. However, be careful to examine the tax liability of the sale of these assets so that it does not consume the income generated from their disposal.
  1. Add additional revenue streams. Additional revenue streams can come from a few sources, but most commonly this would be the addition of off-farm employment for one or more of the adult family members. This lowers the need for the farm to generate all of the family living expenses and health care costs. Other ideas would be the addition of other agricultural production enterprises or agritourism/agritainment enterprises. Make sure you have studied these options thoroughly to predict the positive cash inflow they may generate.
  1. Talk to your lender. Believe it or not, your lender really wants to see you succeed and will work with you toward that end. The earlier you communicate with your lender, the more options which will be available to you. Bankruptcy auctions rarely provide the cash flow needed to repay the farm loans and meet the other financial obligation of the farm family.
  1. Cooperation among neighbors. Years ago, farmers understood that by pooling resources they could generate increased profits. This was evident by the number of supply and marketing cooperatives that once dotted the countryside. Is it time to create farming arrangements that bulk purchase inputs, own equipment, produce greater marketing opportunities, etc to maximize income? What about each farmer specializing in a farming practice such as planting, spraying and harvesting and work together to capitalize on the specialized strength of each other? These strategies have worked in other countries and could be beneficial under the right circumstances.
  1. Work toward full employment. This is not to suggest that grain farmers are not fully employed. However, there are plenty of examples where farmers have added enterprises to their business portfolio to utilize their and hired labor more fully. Examples include excavating, construction, painting, livestock, machine shop, and custom hire. There is even an example of a farmer that is a big ten basketball referee during the winter when row crop harvest is finished.
  1. Punt. This is not intended to be funny or flippant, but every farm business owner needs assess when exiting the business may be the best alternative for them. At some point, preserving wealth should become more important than continuing against all odds. This might look very different for someone that is 35 than someone 65 years old. If exiting the farming business is the correct management decision, make sure to visit with your tax accountant to create the proper exit strategy. Remember for the past several years, many farmers have been focused at reducing taxes and thus have created a substantial tax liability for the business.

Period of tight margins have plagued farmers many times throughout history. The last time we saw this in row crop farming was in the early 1980’s. It followed a very profitable period through the late 1970’s similar to what we have just experience in the early 2010’s. Currently, the nation’s farm balance sheet is in much better shape relative to 1980, but that does not relieve the responsibility of operators in making management decisions necessary to keep it there.

Ohio Nutrient Management Record Keeper (OnMRK) Available

by John Barker, OSU Extension – Knox County

Ohio Nutrient Management Record Keeper (OnMRK) is a computerized recordkeeping system
that sync’s with your smartphone or tablet to create a simple, easy and quick way to record all
of your fertilizer and manure applications from the field. The free app which works on tablets,
iPads and smartphones can be downloaded from the Google Play store for Android devices and
iTunes for the Apple products.

To get started, simply go to the app’s website www.onmrk.com.  After setting up your account, enter your farm and field information. Download and open the app on you smartphone or
tablet and enter your applicator key. All of the data that has been entered on your computer
will now synchronize with your smartphone or tablet. The app features drop‐down menus and
quick entry fields which make it fast and easy to enter the required information.

Click here for Ohio Nutrient Management Record Keeper Instructions

The application information you enter from the field is combined with the GPS Location data
from your smartphone or tablet. Both the current weather data and the weather forecast for
this location is recorded. Once the application is saved the data is synced with the website.
From the website you can print your application records or export them to a spreadsheet.
The app was developed with input from OSU Extension Knox County, Ohio Farm Bureau and
Knox County Soil and Water Conservation District to meet the new state record keeping
requirements for both Senate Bill 1 (SB 1) and Senate Bill 150 (SB 150).

A detailed set of instructions can be downloaded from the OSU Extension – Knox County
website at www.knox.osu.edu.

Examining Land Values, Rents, Crop Input Costs & Margins in 2016

by: Barry Ward, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics

Low crop margins and uncertain land value and cash rental markets will continue to be important themes as we look ahead to 2016 as producers grapple with high costs relative to crop prices received.

According to data from the Ohio Ag Statistics Service, bare cropland value increased 3.5% in Ohio in 2015. According to this data, bare cropland averaged $5850/acre, up from $5,650/acre the previous year. The Western Ohio Cropland Values and Cash Rents Survey (AEDE) was conducted in January 2015. The projected value for Average cropland in western Ohio was $7,315 per acre. Top cropland in western Ohio was projected to average $9,190 per acre while Poor cropland in western Ohio was expected to average $5,673 per acre. These values reflect projected decreases of 5.5 to 9.5%.

The Chicago Federal Reserve Bank October 1 survey of bankers found land values of “good” farmland were unchanged from last year however the 3rd quarter showed an increase in farmland values of 1% across the district. Purdue University conducted their annual land value survey in June 2015 and found decreases in farmland value that ranged from 3.8 to 5.1% depending on land productivity class.

Strong equity positions together with continued low interest rates continue to lend positive support to land values. Low projected profit margins in 2016 will likely restrict further land value increases and possibly cause values to decrease. These competing fundamentals create a continued uncertain picture for land values in 2016 although continued low margins together with the potential for higher interest rates suggest lower farmland values in 2016.

Enterprise budget projections for Ohio’s primary row crops for 2016 indicate the potential for low margins. Returns to Variable Costs (gross revenue minus variable costs) are projected to be $185-$345 per acre for Ohio corn in 2016 depending on land production capabilities. Budget projections for 2016 soybeans show Returns to Variable Costs to be $179-$331 per acre. Wheat budget projections for 2016 show Returns to Variable Costs to be between $125 and $218 per acre. This is assuming current prices of inputs and current December, November and September 2016 futures prices, respectively. These projections are based on OSU Extension Ohio Crop Enterprise Budgets available online at: http://aede.osu.edu/research/osu-farm-management/enterprise-budgets

Strong equity positions together with higher property taxes will continue to lend support to cash rental rates however low profit margins in 2016 will put downward pressure on rents. These competing fundamentals suggest a flat to slightly lower cash rental market outlook for 2016.

Variable costs for Ohio corn for 2016 will be 8.5% to 10.6% lower compared to 2015. Variable costs for corn for 2015 are projected to be $336 to $421 per acre. Variable costs for 2016 Ohio soybeans are projected to be 6.2% to 6.6% lower and range from $196 to $214 per acre. Wheat variable expenses for 2016 are projected to range from $169 to $211 per acre. Lower fuel and fertilizer prices will be the primary fundamental drivers of lower variable costs in 2016.

Outlook information presented here was developed with data from AEDE research, the Energy Information Administration, USDA, other Land Grant research, futures markets and retail sector surveys. While gauged to the best of this author’s capabilities, forward looking statements contained in this document may prove to be incorrect due to changes in supply and demand and other political and economic related events.

 

 

2016 Ohio Corn and Soybean Enterprise Budgets Project Lower Costs But Low to Negative Returns

by: Barry Ward, Leader, Production Business Management, Department of Agricultural, Environmental, and Development Economics

Production costs for Ohio field crops are forecast to be somewhat lower in 2016 but the profit picture looks poor, much the same as it did 2015. Variable costs for Ohio corn for 2016 will be 8.5% to 10.6% lower compared to 2015. Variable costs for corn for 2015 are projected to be $336 to $421 per acre. Variable costs for 2016 Ohio soybeans are projected to be 6.2% to 6.6% lower and range from $196 to $214 per acre. Wheat variable expenses for 2016 are projected to range from $169 to $211 per acre. Lower fuel and fertilizer prices will be the primary fundamental drivers of lower variable costs in 2016.

With continued lower crop prices expected for 2016, returns will likely be low to negative for many producers. Projected Returns to Variable Costs (gross revenue minus variable costs) are projected to be $185 to $345 per acre for Ohio corn in 2016 depending on land production capabilities. Budget projections for 2016 soybeans show Returns to Variable Costs to be $179 to $331 per acre. Wheat budget projections for 2016 show Returns to Variable Costs to be between $125 and $218 per acre. This is assuming current prices of inputs and current December, November and September 2016 futures prices, respectively.

Returns to Land for Ohio corn (Gross Revenue minus all costs except land cost) are projected to range from -$40 to $108/acre in 2016 depending on land production capabilities. Returns to Land for Ohio soybeans are expected to range from $6 to $150 per acre depending on land production capabilities. Wheat returns to land are projected to fall between -$51 and $35 per acre in 2016.

Total costs projected for trend line corn production in Ohio are estimated to be $813 per acre. This includes all variable costs as well as fixed machinery, labor, management and land costs. Fixed machinery costs of $130 per acre include depreciation, interest, insurance and housing. A land charge of $199 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are computed to be $77 per acre. Returns Above Total Costs for trend line corn production are negative at -$169 per acre.

Total costs projected for trend line soybean production in Ohio are estimated to be $581 per acre. (Fixed machinery costs, $108 per acre, land charge, $199 per acre, labor and management costs combined, $53 per acre.) Returns Above Total Costs for trend line soybean production are also negative at -$120 per acre.

These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2016 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