Author: marrison.2

Evaluating the Prevent Plant Option

by: Eric Richer & Chris Bruynis, OSU Extension Educators

Planting progress goes differently every year and in each part of the state. This year is no different in Ohio. Some places got in early and are finished. Others had their ‘normal’ planting progress with ‘normal’ Mother Nature breaks, perhaps with some re-plant needed. And still others have not had ideal conditions all spring to plant.  As such, we have received some recent calls regarding the mechanics and economics of utilizing the Prevent Plant through crop insurance this year in certain parts of the state. First and foremost, we are not crop insurance agents, so speaking with your agent is of utmost importance. In this article, we will walk through an example on the economics of electing Prevent Plant.

In Ohio, once you arrive at the final plant date of June 5 for corn (already passed) and June 20 for soybeans, you basically have 3 options in a corn scenario:

Your first option is to plant the corn crop no matter what the date is on the calendar. Up until the final plant date, you are eligible for your full guarantee at the level you have selected.  This article will reference the 2022 Ohio Corn Production Enterprise Budget, the 20-year USDA-NASS Trendline Ohio corn yield of 184 bu/ac as the Actual Production History (APH) and $5.90/bu 2022 base price for corn. So for your full guarantee at 80% coverage: 184 bu/ac APH x $5.90 x 80% coverage = $868/acre. If you elect to plant corn after June 5, you will incur a 1% reduction in your guarantee up through June 25. If you plant your corn after June 25, you can choose not to insure your corn crop or you can insure at the policy’s prevent plant revenue level.  For example, if you plant corn on June 8, the guarantee formula (184 APH, 80% coverage) would be: 80% x 184 bu/ac x $5.90 x 97% = $842/acre.  Planting dates need to be recorded, as these rules apply on field-by-field and acre-by-acre basis.

Secondly, you can elect to switch your intended corn acres to soybean acres.  You will be charged for the soybean insurance premium, not the corn premium.  A key agronomy question: Did you apply chemistry that does not allow you to plant soybean? June weather (local and regional), supply/demand economics, geo-political issues, trade policy and input options increase the complexity of this decision.

Your last option is to file for Prevent Plant, assuming you did not get corn planted by June 5.  The mechanics of prevented plant deserve a review to ensure understanding.  New in 2021, is that there must have been a crop planted, harvested, and insured on the acres in question in one of the last four years to qualify for prevent plant. Consult your crop insurance agent to determine your total eligible acres for each crop, as this is a key question. Prevent plant covers Yield Protection (YP), Revenue Protection (RP) and Revenue Protection with Harvest Price Exclusion (RPHPE) policies and references the February new crop corn pricing period (aka base price) of $5.90/bu for the 2022 corn crop ($14.33/bu for soybean). To be very clear, prevent plant indemnities will not be re-adjusted to a higher harvest price; prevent plant indemnities are based on the February (base) price only. A corn policy has a standard 55% Prevent Plant guarantee (buy-up available to 60%) and soybeans a standard 60% guarantee (with buy-up available to 65%). To further be eligible for Prevent Plant, at least 20 acres or 20% of that unit must not get planted (the lesser of the two).  Prevented Plant does not affect your yield history as long as you do not plant a second crop.  Also, prevent plant claims can be denied if not common to the area.

So, to continue our example from above, the indemnity for prevented plant corn would be: 184 bu/ac x $5.90 x 80% coverage x 55% prevent plant rate = $477/acre. Please remember that this calculation can vary widely based on coverage level elected (50-85%), prevent plant buy up (55% to 60% for corn) and your farm/field’s APH. . In our example, this $477/acre would also be the amount at which you could chose to insure a corn crop planted after June 25 (versus no insurance at all).

To be sure, there are costs besides the premium that are associated with Prevent Plant. Are there ‘restocking fees’ associated with returned seed or other inputs? How much fertilizer has already been applied? What are the year-long weed control costs? Does my applied chemistry limit my options? If utilizing cover crops, what will their cost be? Will there be enough to address Fixed Costs of Land, Labor, Management? And finally, are their opportunity costs (marketing) missed because of taking Prevent Plant? While this article is not intended to address all these questions, they are questions you should raise and probably already have.

Once the “Net to Prevent Plant” is known (ie PP Indemnity minus all fixed costs plus any variable costs), the simple economic comparison to make is against your farm’s estimated Return Above Total Costs. According to the 2022 Ohio Corn Enterprise Budget, for trendline yields and costs, the Return Above Total Costs is $232/acre.  As planting date gets later and later, you will have to evaluate how much of a yield (ie revenue) reduction you will need to plug into your enterprise budget.

In the end, every farmer and situation is unique.  It is important to run the numbers for yourself to make an informed farm management decision.

 

Ukraine: The Breadbasket of Europe

by: Ian Sheldon, Professor and Andersons Chair of Agricultural Marketing, Trade, and Policy, Agricultural, Environmental, and Development Economics, Ohio State University

This short essay, recently published in the Ohio State online magazine Origins: Current Events in Historical Perspective, places the impact of the war in Ukraine on global markets into a historical context.  Since the collapse of the Soviet Union, Ukrainian agriculture has returned to its pre-revolutionary position as a major agricultural exporter, largely due to land reform and restructuring of its collective farms.  Land reform has resulted in the development of large-scale, privately-operated farms with owners investing in new technology and introducing best management practices. By 2018, cereal yields had increased by almost 40%, Ukraine re-establishing itself as the “breadbasket of Europe. The full article can be accessed at: https://origins.osu.edu/read/ukraine-food-war-agriculture

Ohio Crop Returns Outlook for 2022: Final Crop Enterprise Budgets for 2022

by: Barry Ward, Leader, Production Business Management, College of Food, Agricultural and Environmental Sciences, Ohio State University Extension

Higher input costs and higher crop prices have been the theme for the last several months. Higher production costs in 2021 gave way to even higher costs for the 2022 production year. Factors affecting both supply and demand have continued to drive commodity crop prices higher. The result of all of this change is a positive margin outlook for 2022 commodity crops.

Production costs for Ohio field crops are forecast to be higher than last year with higher fertilizer prices leading the way. Variable costs for corn in Ohio for 2022 are projected to range from $578 to $708 per acre depending on land productivity. The trend line corn yield (183.7 bpa) scenario included in the corn enterprise budget shows an increase in variable costs of 44%.

Variable costs for 2022 Ohio soybeans are projected to range from $311 to $360 per acre. Variable costs for trend-line soybeans (56.5 bpa) are expected to increase 40% in 2022 compared to 2021.

Wheat variable expenses for 2022 are projected to range from $249 to $321 per acre. The trend line wheat yield (74 bpa) scenario included in the wheat enterprise budget shows an increase in variable costs of 50%.

Returns will likely be positive for most producers depending on crop price change throughout the rest of the year. Grain prices used as assumptions in the 2022 crop enterprise budgets are $7.00/bushel for corn, $14.25/bushel for soybeans and $7.50/bushel for wheat. Projected returns above variable costs (contribution margin) range from $450 to $835 per acre for corn and $333 to $606 per acre for soybeans. Projected returns above variable costs for wheat range from $195 to $345 per acre although significant crop price increases since last fall (when the price was set for this enterprise budget) will likely cause wheat to be more profitable than these return projections indicate.

Return to Land is a measure calculated to assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $260 to $619 per acre in 2022 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $205 to $462 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $100 per acre to $239 per acre assuming a planting-time price of $7.50/bushel. If a current forward harvest price for wheat of $11.50/bushel is used, the Return to Land is in a much higher range of $325 to $576 per acre depending on land production capabilities.

Total costs projected for trend line corn production in Ohio are estimated to be $1,054 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $78 per acre include depreciation, interest, insurance and housing. A land charge of $207 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $105 per acre. Details of budget assumptions and numbers can be found in footnotes included in each budget.

Total costs projected for trend line soybean production in Ohio are estimated to be $678 per acre. (Fixed machinery costs: $62 per acre, land charge: $207 per acre, labor and management costs combined: $60 per acre.)

Total costs projected for trend line wheat production in Ohio are estimated to be $593 per acre. (Fixed machinery costs: $36 per acre, land charge: $207 per acre, labor and management costs combined: $52 per acre.)

Data used to compile these enterprise budgets includes research, surveys, market data, economic modeling, calculations and experience of authors.

Current budget analyses indicates very favorable returns for all three primary commodity crops but crop price change and harvest yields may change this outcome. These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2022. have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets

Market Outlook Report: Wheat

by: Chris Zoller, Extension Educator, ANR, Tuscarawas County

The United States Department of Agriculture Economic Research Service (USDA ERS) released its Wheat Outlook on May 16, 2022.  This report provides domestic and international estimates and projections and is available here: https://www.ers.usda.gov/webdocs/outlooks/103927/whs-22e.pdf?v=1249. The outlook is based on the World Agricultural Supply and Demand Estimate (WASDE) released May 12, 2022.  This article will provide a summary of the estimates for domestic supplies, production, and pricing.

Tight Supplies & Record Prices

The season-average price for wheat in the 2022/2023 marketing year is projected to be $10.75 per bushel.  Drought in several wheat producing regions of the U.S. resulted in lower production in the 2021/2022 marketing year leading to tight stocks.  USDA ERS projects an increase in wheat acres for the 2022/2023 marketing year but still expected to be the lowest in 20 years.

Domestic Outlook

The latest Crop Production Report from USDA National Agricultural Statistics Service indicated that, although acres planted to wheat increased, harvested acres are expected to decline by four percent.  Average yield is expected to decline more than two bushels per acre to an average of 47.9 bushels per acre.

Production of Hard Red Winter wheat is expected to be down 21 percent.  Persistent drought in major production regions (Kansas, Texas, and Oklahoma) is to blame for much of the decline.

Soft Red Winter wheat is expected to decline by approximately two percent from the previous year.  While down, the production is still the largest since the 2015/2016 marketing year.

Production of White Winter wheat, grown primarily in the Pacific Northwest, is projected to be up 38 percent from the prior marketing year.  A total of 230 million bushels is expected.

The outlook projects a total of 555 million bushels of Durum and other Spring wheats.  Arizona and California are significant producers of these classes of wheat.

Winter Wheat Yield Forecast & Conditions

Production in Central and Eastern States is expected to be down compared to last year.  See the figure below.

 

The figure below shows the percent of wheat rated good to excellent, as of May 8, 2022.  The largest reductions in yield are from the major Hard Red Winter wheat producing regions, including Kansas, Oklahoma, and Texas.

According to the May 10 Drought Monitor from USDA, 68 percent of the U.S. winter wheat is in areas experiencing drought.

 

Wheat Pricing

The graph below shows pricing for Hard Red Winter and Hard Red Spring wheat from August 2020 to April 2022.  The most recent OSU Extension Enterprise Wheat Budget for 2023 estimates wheat at $10.65 per bushel.

 

Planning for 2023

Russia and Ukraine account for approximately 30 percent of world wheat exports.  Wheat is receiving greater interest because of the uncertainties of harvest and export potential.  The University of Illinois Farmdoc program published a paper recently analyzing a wheat-double-crop-soybeans rotation and found it to be more profitable that corn or soybeans alone.  The analysis is available here: https://farmdocdaily.illinois.edu/2022/05/production-from-double-crop-soybean-rotations.html.

Planting wheat this year may be an option on your farm.  I encourage you to stay informed of the ever-changing geopolitical environment and its potential impacts on your farm management decisions.  Speak with your agronomist, Extension Educator, and other trusted advisors as you develop plans and evaluate options.

Need More Commodity Storage? Consider a USDA Farm Storage Facility Loan

by: Eric Richer, OSU Extension-Fulton County

For many farmers, on-farm storage is a key part of a comprehensive commodity marketing plan. A unique farm program administered through the Farm Service Agency (FSA) is the Farm Storage Facility Loan (FSFL) program.  FSA is part of the U.S. Department of Agriculture (USDA) which uses this program to provide low-interest financing for producers to store, handle, and/or transport eligible commodities they produce. The list of eligible commodities, facilities, equipment, and upgrades is quite impressive. Generally, they include the following:

  • Acquiring, constructing or upgrading new or used, portable or permanently affixed, on-farm storage and handling facilities.
  • Acquiring new or used storage and handling trucks; and
  • Acquiring new or used permanently affixed storage and handling equipment.

A producer may borrow up to $500,000 per loan, with a minimum down payment of 15 percent. Loan terms are 3 to 12 years, depending on the amount of the loan. The May 2022 interest rate for all term lengths of the FSFL program is 2.625%.  Producers must demonstrate storage needs based on three years of production history. FSA also provides a microloan option that, while available to all eligible farmers and ranchers, also should be of particular interest to new or small producers where there is a need for financing options for loans up to $50,000 at a lower down payment (5 percent) with reduced documentation. There is a nonrefundable $100 application fee per borrower for this program.

Who is eligible?

An eligible borrower is any person who is a landowner, landlord, leaseholder, tenant or sharecropper. Eligible borrowers must be able to show repayment ability and meet other requirements to qualify for a loan. Contact an FSA office for more details. Eligible storage structures and handling equipment, having a useful life for the entire term of the loan, may be permanently affixed or portable. Facilities built for commercial purposes and not for the sole use of the borrower(s) are not eligible for financing.

Eligible Commodities

The following commodities are eligible:

  • Corn, grain sorghum, rice, soybeans, oats, peanuts, wheat, barley, or minor oilseeds harvested as whole grain;
  • Corn, grain sorghum, wheat, oats or barley harvested as other-than-whole grain and malted small grains
  • Other grains (triticale, rye, speltz, and buckwheat) and pulse crops (lentils, chickpeas and dry peas);
  • Hay, honey, hops, hemp;
  • Renewable biomass;
  • Floriculture;
  • Fruits (includes nuts) and vegetables – cold storage facilities;
  • Maple sap and syrup;
  • Milk, cheese, butter, yogurt;
  • Eggs and meat/poultry (unprocessed);
  • Aquaculture;
  • Seed cotton;
  • Wool

 Eligible Facilities, Equipment and Upgrades

The following types of new/used facilities and upgrades are eligible and must have a useful life for at least the term of the loan:

  • Conventional cribs or bins;
  • Oxygen-limiting structures and remanufactured oxygen-limiting structures;
  • Flat-type storage structures;
  • Electrical equipment and handling equipment, excluding the installation of electrical service to the electrical meter;
  • Safety equipment, such as interior and exterior ladders and lighting;
  • Equipment to improve, maintain or monitor the quality of stored grain;
  • Concrete foundations, aprons, pits and pads, including site preparation, off-farm labor and material, essential to the proper operation of the grain storage and handling equipment;
  • Renovation of existing farm storage facilities, under certain circumstances, if the renovation is for maintaining or replacing items;
  • Concrete foundations, aprons, pits and pads, including site preparation, off-farm labor and material, essential to the proper operation of the grain storage and handling equipment;
  • Renovation of existing farm storage facilities, under certain circumstances, if the renovation is for maintaining or replacing items;
  • Grain handling and grain drying equipment determined by the Commodity Credit Corporation to be needed and essential to the proper operation of a grain storage system (with or without a loan for the storage facility);
  • Structures that are bunker-type, horizontal or open silo structures, with at least two concrete walls and a concrete floor;
  • Structures suitable for storing hay built according to acceptable design guidelines;
  • Structures suitable for storing renewable biomass;
  • Bulk tanks for storing milk or maple sap;
  • Cold storage buildings, including prefabricated buildings that are suitable for eligible commodities. May also include cooling, circulating and monitoring equipment and electrical equipment, including labor and materials for installation of lights, motors and wiring integral to the proper operation of a cold storage facility; and
  • Storage and handling trucks, including refrigerated trucks.
  • Other equipment options are eligible, please consult with your local FSA office.

 Environmental Evaluation, Financial Review and Crop Insurance

Before a FSFL is approved, the building site must have a comprehensive environmental evaluation. FSA will request a review of the applicant’s farm finances, similar to that your lending institution; if approved, FSA will hold the first lien on the property purchased.

FSA will also require the applicant/farm to carry a minimum level of crop insurance for the eligible commodity(s) in question.

Finally, these loans must be approved by the local FSA state or county committee before any site preparation and/or construction can be started.

Locating Your FSA Office

If you are unsure which FSA office services your county, please visit: the https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa

 

Source: United States Department of Agriculture, Farm Storage Facility Loan Fact Sheet. January 2021.

Export Policies and Russia’s Invasion of Ukraine: What Might it Mean for Ohio Soybean Farmers?  

by: Ian Sheldon, Professor and Andersons Chair of Agricultural Marketing, Trade, and Policy, Agricultural, Environmental, and Development Economics, Ohio State University and Chris Zoller, Associate Professor and Extension Educator, Agriculture & Natural Resources, Ohio State University Extension – Tuscarawas County

Use of Commodity Export Policies

With Russia and Ukraine alone accounting for 12 percent of total calories traded (IFPRI, April 13, 2022), continuation of the war has intensified the vulnerability of developing countries to food insecurity, the G7 countries recently predicting 43 million people were being pushed towards famine (The Guardian, May 14, 2022).  The impact of Russia’s invasion of Ukraine on exports from the Black Sea region of staple foods such as wheat, corn, and vegetable oils, has had a significant impact on world food prices, adding to the impact of supply chain disruption due to the pandemic, and drought-reduced yields in 2021.  The UN Food and Agriculture Organization (FAO) reports that its food price index stood at 158 points this April, 30 percent higher than in April 2021, and its highest level since 1990, (UN/FAO, April 2022).

Like past food price crises, notably the grain price spikes in 2007-2008 and 2010-2011, many countries are responding to higher food prices and shortages with restrictions on exports of key commodities.  As of April 2022, 16 countries had imposed export restrictions, including Ukraine, Russia, Indonesia, Argentina, Turkey, Kyrgyzstan, and Kazakhstan, affecting about 17 percent of total calories traded, the key commodities being wheat, palm oil, corn, sunflower oil, and soybean oil, affecting 36, 55, 17, 78, and 6 percent of their exports respectively (IFPRI, April 13, 2022).  As is already the case with the announcement of proposed ban on all Indian wheat exports (Bloomberg, May 13, 2022), more countries are likely to respond to increasing food prices in this way.  Unfortunately, this has the potential of creating a “collective action” problem, i.e., countries have a unilateral incentive to reduce domestic food prices by using export restrictions, but if enough countries implement such policies, it simply exacerbates the rise in global food prices.  At the same time, the World Trade Organization (WTO) lacks an effective means to discipline use of such “beggar thy neighbor” policies.

The Case of Vegetable Oils

Prior to Russia’s invasion of Ukraine, between them the two countries accounted for 73 percent of global exports of sunflower oil.  By late-April, there had been a 25 percent reduction in traded sunflower oil, and there is also uncertainty about how much sunflower seed has been planted in Ukraine this spring (New York Times, April 30, 2022).  Even though sunflower oil accounts for only 9 and 12 percent of global vegetable oils production and consumption respectively (USDA, April 12, 2022), the global price of vegetable oils has already risen to an all-time high this year (Financial Times, May 9, 2022), with canola, palm oil, sunflower oil, and soybean oil prices rising by 72, 61, 44, and 41 percent respectively in the past year (Wall Street Journal, April 7, 2022).  Not surprisingly, with limited stocks and rising prices, vegetable oils are even being rationed to consumers by major grocery retail chains in developed countries such as Belgium, Spain, and the United Kingdom (New York Times, April 30, 2022).

The rise in vegetable oil prices has also been exacerbated by Indonesia recently banning exports of palm oil to protect its domestic consumers (Reuters, April 22).  The expected global impact of the ban is not surprising given Indonesia accounts for 59 percent of global palm oil production, palm oil accounting for 35 and 33 percent of global vegetable oil production and consumption respectively (USDA, April 12, 2022).  Add to this the fact that substitutes such as soybean oil and canola are not readily available due to recent drought conditions in Argentina, Brazil, and Canada (Reuters, April 23, 2022), which is putting further pressure on vegetable oil prices.  For example, soybean oil prices on the Chicago Board of Trade had risen by almost 50 percent by end of April this year (Reuters, April 22, 2022).

Implications for U.S. and Ohio Soybean Farmers

The Russian invasion of Ukraine has driven home a fact we have always known – agriculture operates in a global environment.  Access to export markets is critical to U.S. agriculture, especially for soybeans, the number one export for U.S. agriculture.  According to the USDA Foreign Agriculture Service (FAS), in 2020, U.S. soybean exports to the world reached a record $25.7 billion in value.

WASDE Report

The May 2022 World Agricultural Supply and Demand Estimate (WASDE), available here: https://www.usda.gov/oce/commodity/wasde/wasde0522.pdf changed its soybean outlook, including raising the 2022/2023 average price from $13.25 per bushel to $14.40 per bushel.  A projected increase in U.S. soybean production will result in an increase of 6.1 million tons of oilseed production compared to 2021/2022.  WASDE also forecast global soybean production to increase, with Brazil representing more than one-half of the increase.  The Brazilian soybean crop is expected to be a record 149 million tons, with Argentina adding another 51 million tons.  As is the case in the U.S., weather can have a significant impact on soybean production in South America.

Double-Crop Possibility

It is difficult to think about planning the 2023 crop when we are behind schedule getting this year’s seeds in the ground, and much can and will change between now and the 2023 planting season.  However, you may want to consider an analysis conducted by the University of Illinois examining production and profitability from double-crop soybeans.  The article is available here: https://farmdocdaily.illinois.edu/wp-content/uploads/2022/05/fdd051722.pdf.  We provide a summary below.

The authors of the article evaluate a wheat-double-crop-soybean rotation for 2023 and find this production practice to be more profitable than growing either corn or soybeans, especially in southern Illinois.  The authors note that in the long-run, yield increases are necessary before there will be widespread adoption of this production practice.  Much of the projected profitability is related to higher prices because of the war in Ukraine.  In addition, more acres planted to wheat would likely drive down its price.

The authors note that these technological advances may be useful:

  • Development of wheat varieties that could be harvested earlier.
  • Higher yielding wheat varieties.
  • Double-crop soybean varieties with higher yield potential.

If interested in reading more of the specifics of this analysis, click the link above.

Moving Forward

There are several uncertainties related to soybean prices, including how long the war continues, weather, production, demand, fertilizer price, etc., that are out of your control.  We encourage you to manage what you can control and consider the following:

  • How might global events impact your business
  • Know your cost of production.
  • Develop budget scenarios. As of this writing, soybean futures for November 2023 closed at just over $14.00 per bushel.
  • Utilize OSU Extension Crop Enterprise Budgets: https://farmoffice.osu.edu/farm-management/enterprise-budgets#2022
  • Talk with your agronomist, Extension Educator, lender, and other advisors.

 

 

 

Farm Service Agency Loans for Socially Disadvantaged Farmers

by: Chris Zoller, Extension Educator, ANR in Tuscarawas County

The Farm Service Agency (FSA) is a part of the U.S. Department of Agriculture (USDA) that makes and guarantees loans to eligible socially disadvantaged (SDA) farmers to purchase and operate family farms. Each fiscal year, FSA allocates a portion of its direct and guaranteed farm ownership and operating loan funds to SDA farmers.

A socially disadvantaged farmer is one whose members have been subject to racial, ethnic, or gender prejudice because of their identity as members of a group without regard to their individual qualities. These groups consist of American Indians or Alaskan Natives, Asians, Blacks or African Americans, Native Hawaiians or other Pacific Islanders, Hispanics, and women.

Types of Loans and Uses of Loan Funds

Direct farm ownership and operating loans are made by FSA to eligible farmers. Guaranteed farm ownership and operating loans are made by lending institutions subject to federal or state supervision (banks, savings and loans, units of the Farm Credit System) and guaranteed by FSA. Typically, FSA guarantees 90% of any loss the lender might experience if the loan fails.  Farm ownership loans may be used for several purposes, including purchasing, or enlarging a farm, purchasing easements or rights of way needed to operate the farm, erecting, or improving buildings, implementing soil and water conservation practices, and paying closing costs.  Guaranteed farm ownership loans may also be used to refinance debt.

Operating loan funds may be used to purchase a variety of items, including livestock, poultry, farm equipment, feed, seed, fuel, fertilizer, chemicals, insurance, and other operating expenses.  Funds may also be used for training costs, closing costs, and refinance or reorganize debt.

Terms and Interest Rates

Repayment terms for directing operating loans are based on the collateral securing the loan and generally run from one to seven years. For farm ownership loans, the repayment terms vary, but the repayment period never exceeds 40 years.

Direct loan interest rates are set periodically and are subject to change. Guaranteed loan terms are established by the lender, as are interest rates.

Down Payment Program

FSA has a loan program to assist SDA and beginning farmers interested in purchasing a farm.  In addition, retiring farmers may use this program to transfer their land to others. Please see below about what is necessary to qualify:

  • Cash down of at least 5% of the purchase price by the applicant.
  • Maximum loan amount cannot exceed 45% of the least of the purchase price of the farm to be acquired, appraised value of the farm, or $667,000 (the maximum loan amount is $300,150).
  • The loan term is 20 years and the interest rate is 4% below the direct farm ownership loan rate, but not lower than 1.5%.
  • The balance of the purchase price not covered by the FSA down payment loan and applicant down payment may be financed by a commercial, cooperative, or private lender, including the seller.  Financing provided by eligible commercial or cooperative lenders may be guaranteed by FSA up to 95%.
  • The non-Agency financing must have an amortization period of at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.

Land Contract Guarantees

Certain financial guarantees are available to the seller if property is sold to a beginning or SDA farmer. The seller has the option to request either of the following:

  • Prompt Payment Guarantee: A guarantee up to the amount of three amortized annual installments plus the cost of real estate taxes and insurance.
  • Standard Guarantee: A guarantee of 90% of the outstanding balance under the land contract.

The farm purchase price cannot exceed $500,000 or the market value of the property. The buyer is required to provide a minimum down payment of 5% of the purchase price of the farm.  The interest rate is fixed at a rate not to exceed the direct farm ownership loan interest rate in effect at the time the guarantee is issued, plus three percentage points. The guarantee period is 10 years.  Contract payments must be amortized a minimum of 20 years.

Sale of Inventory Farmland

FSA advertises within 15 days of receipt all inventory property. Eligible SDA and beginning farmers have priority to purchase these properties at the appraised market value. If one or more eligible SDA or beginning farmer offers to purchase the same property in the first 135 days, the buyer is chosen randomly.

How to Apply

Direct loans are available through your local Farm Service Agency office. For guaranteed loans, you must apply with a commercial lender who participated in the Guaranteed Loan Program.  Your local FSA office can provide a list of participating institutions.

Locating Your FSA Office

If you are unsure which FSA office services your county, please visit: the https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa

The Impact of U.S. Agricultural Exports on Jobs

by: Chris Zoller, Extension Educator, ANR, Tuscarawas County

We are aware that agriculture is a competitive business that operated in a global environment.  We understand the importance of global trade to market U.S. produced agricultural commodities.  Have you ever considered how important exports of agricultural good produced in the U.S. are to maintaining jobs?

A recent USDA Economic Research Service (ERS) recently analyzed the importance of agricultural exports as it relates to jobs in 2020.  The full report is available here: https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=103827&cpid=email.

In 2020, U.S. agricultural exports were valued at more than $150 billion and every $1 billion of exports is estimated to create 7,550 jobs.  Crop and livestock production account for the majority, supporting a total of 439,500 jobs.  Jobs in this segment included labor provided by farm owners and family members, hired employees, and contract labor.

U.S. agricultural exports also supported 423,900 off-farm jobs in service, trade, and transportation of agricultural goods.  Exports supported 162,100 food-processing jobs and 107,000 jobs in packaging, canning, and bottling.

The graphic from USDA ERS further describes the importance of U.S. agricultural exports in creating and supporting jobs.

Farm Service Agency Loans Available for Beginning Farmers

by: Chris Zoller, Extension Educator, ANR in Tuscarawas County

Building and managing a successful farm is a significant financial investment and can be especially challenging for those just beginning, especially those unable to obtain financing through commercial lenders.  The United States Department of Agriculture (USDA) Farm Service Agency (FSA) makes and guarantees loans to beginning farmers.

Each year money is allocated to FSA for farm ownership and farm operating loans for beginning farmers.  These loan programs are important as beginning farmers have historically experienced more difficulty obtaining financial assistance.

What is a Beginning Farmer?

A beginning farmer is an individual or entity who:

  • Has not operated a farm for more than 10 years
  • Substantially participates in the operation
  • For farm ownership loans, the applicant cannot own a farm greater than 30 percent of the average size farm in the county, at the time of application
  • If the applicant is an entity, all members must be related by blood or marriage, and all members must be eligible beginning farmers

Additionally, beginning farmers must meet the loan eligibility requirements for the program.

Maximum Loan Amounts

The Farm Service Agency makes available a variety of loans, each with a different maximum loan amount.  The loan types and maximum allowable amounts are provided below:

  • Direct farm ownership: $600,000
  • Direct operating loan: $400,000
  • Microloan: $50,000 each for operating and farm ownership
  • Guaranteed farm ownership or operating loan: $1,825,000
  • EZ Guarantee: $100,000 ($50,000 if the lender is a micro lender)

Down Payment Program

FSA has a special loan program to assist beginning farmers purchase a farm.  Retiring farmers may use this program to transfer their land to future generations.  Requirements are listed here:

  • Cash down payment of at least 5% of the purchase price
  • Loan amount limited to 45% of the least of:
    • Purchase price of the farm
    • Appraised value of the farm or
  • $ 667,000 ($300,150) maximum
  • 20 year loan term
  • Interest rate is 4% below the direct farm ownership rate, but no lower than 1.5%

The remaining balance may be obtained from a commercial lender or private party.  FSA can guarantee up to 95% of the loan if financing is obtained from a commercial lender.  Participating lenders do not have to pay a loan guarantee fee.

If financing is secured from participating lenders, the amortization period must be at least 30 years and cannot have a balloon payment due within the first 20 years of the loan.

Additional Options to Access Capital

Beginning farmers may be interested in participating in a joint financing arrangement.  FSA will lend up to 50% of the amount financed and another lender provides the remaining percentage.  These funds can be used for any authorized farm ownership purpose.  The interest rate is two percent less than the direct ownership rate but not lower than 2.5%.  The term of the loan will not exceed 40 years or the useful life of the security.

Land Contract Guarantees

FSA does provide financial guarantees for land sales to beginning farmers.  The seller may request either of the following:

  • Prompt Payment Guarantee: A guarantee up to the amount of three amortized annual installments plus the cost of any related real estate taxes and insurance.
  • Standard Guarantee: A guarantee of 90% of the outstanding principal balance under the land contract.

The farm purchase price cannot exceed $500,000 or the market value of the property.  The buyer is required to provide a minimum down payment of 5% of the purchase price of the farm.  The interest rate is fixed at a rate not to exceed the direct farm ownership loan interest rate in effect at the time the guarantee is issued, plus three percentage points.  The guarantee period is 10 years.  Contract payments must be amortized a minimum of 20 years.

How to Apply

Direct loans are available through your local Farm Service Agency office.  For guaranteed loans, you must apply with a commercial lender who participated in the Guaranteed Loan Program.  Your local FSA office can provide a list of participating institutions.

Locating Your FSA Office

If you are unsure which FSA office services your county, please visit: https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa

Expiring CRP Contracts Eligible for the Transition Incentives Program -Help a Beginning, Veteran or Socially Disadvantaged Farmer

By: David Marrison, OSU Extension Educator-Coshocton County

Are you a landowner that has land enrolled in the Conservation Reserve Program (CRP)?  Does your CRP expire in the next year? Would you like to help a beginning, veteran, or socially disadvantaged farmer get a head start in farming and in return receive an incentive to do so?  If so, you may be interested in the CRP Transition Incentives Program available through the Farm Service Agency.

What is the Conservation Reserve Program?

The Conservation Reserve Program was authorized by the Food Security Act of 1985 and was reauthorized by the Agricultural Improvement Act of 2018. The goal of CRP is to voluntarily contract with agricultural producers to not farm environmentally-sensitive land but instead utilize it for conservation benefits.

CRP participants plant long-term, resource-conserving plant species, such as approved grasses or trees (known as “covers”) to control soil erosion, improve water quality and develop wildlife habitat. In return, participants receive rental payments and cost-share assistance as well as are eligible for climate-smart practice incentives. The contract duration is between 10 and 15 years.  The CRP suite of programs include General CRP, Continuous CRP, Grassland CRP, Conservation Reserve Enhancement Program (CREP), Clean Lakes, Estuaries, and Rivers Initiative (CLEAR30) and State Acres for Wildlife Enhancement (SAFE). CRP protects more than 20 million acres of American farmland.

What is the Transition Incentives Program (TIP)?

The Transition Incentives Program (TIP) was authorized under 2018 Farm Bill to encourage the voluntary transition of land enrolled under an expiring CRP contract to a veteran, beginning, or socially disadvantaged (SDA) farmer who will return the land to sustainable grazing or crop production. The Agricultural Improvement Act of 2018 (2018 Farm Bill) authorized $50 million for TIP for the fiscal years 2019 through 2023.

TIP provides landowners and operators with an incentive to return land to production on an expiring CRP Contract in a way that preserves established conservation practices. It also provides an opportunity for beginning and socially disadvantaged farmers and ranchers to purchase their own land or rent land.

Table 1: Definitions of Farm Operator for the Transition Incentives Program

Type of Farm Operator Means a person, or for entities has at least 50 percent interest in that entity, who:
Beginning Farmer Has not been a farm or ranch operator for more than 10 years
Veteran Farmer or Rancher Has served in the Armed Forces and who has:

• Obtained status as a veteran during the most recent 10-year period, or

• Operated a farm or ranch for no more than 10 years.
Socially Disadvantaged Farmer Is a member of a socially disadvantaged group whose members have been subjected to racial or ethnic prejudice because of their identity as members of a group without regard to their individual qualities. Gender is not included.

TIP provides landowners or operators with up to two additional annual rental payments on existing CRP land which is set to expire, on the condition they sell or rent this land to a beginning farmer, veteran or to a socially disadvantaged group who is not a family member. The new landowners or renters must return the land to production using sustainable grazing or farming methods. Key provisions of TIP include:

  • Beginning, veteran, and SDA farmers and CRP participants may enroll two years before the scheduled date of CRP contract expiration, or until the $50 million limit is reached.
  • Only land enrolled in an expiring CRP contract is eligible. TIP enrollment is on a continuous basis.
  • The owner or operator must agree to sell, or have a contract to sell, or agree to lease long-term (at least 5 years) the land enrolled in an expiring CRP contract to a beginning, veteran, or SDA farmer who is not a family member.
  • Owner or operator must agree to permit the beginning, veteran, or SDA farmer to make conservation and land improvements according to an approved conservation plan.
  • Beginning, veteran, or SDA farmers participating in TIP may re-enroll eligible land under CRP.
  • Beginning, veteran, or SDA farmers must materially and substantially participate in the operation of the farm involved in CRP contract modification.

More information:

More information about the Conservation Reserve Program Transition Incentives Program can also be found at:

https://www.fsa.usda.gov/programs-and-services/conservation-programs/transition-incentives/index

If you are interested in learning more about this or other Farm Service Agency programs, contact your local FSA office.  Not sure which FSA serves your county?  Use this link: https://offices.sc.egov.usda.gov/locator/app?state=oh&agency=fsa  to locate your nearest FSA office.

Resources

Conservation Reserve Program- Transition Incentives Program.  Accessible at: https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/FactSheets/2019/crp_transition_incentive_program-fact_sheet.pdf

Conservation Reserve Program-Overview. Accessible at:

https://www.fsa.usda.gov/Assets/USDA-FSA-Public/usdafiles/FactSheets/2019/conservation-reserve_program-fact_sheet.pdf

About the Conservation Reserve Program.  Accessible at:

https://www.fsa.usda.gov/programs-and-services/conservation-programs/conservation-reserve-program/index

OSU Extension is thankful the support of USDA through the Outreach Education and Technical Assistance for Farm Service Agency Programs grant.