Communication Infrastructure Leasing and Purchase Agreements

by: Mike Estadt, OSU Extension Educator in Pickaway County and Jeffrey Lewis, Research Specialist, OSU Ag and Resource Law Program

The coronavirus pandemic has revealed to rural Ohioans that broadband internet is no longer a luxury but a requirement for work, school, and daily activities.  Recent legislation in the Ohio House of Representatives and policy from many organizations and governmental agencies are calling for the buildout of communications infrastructure to address the discrepancies in broadband technology.

One of the proposed alternatives is increased 5G cellular network coverage. Many current cell towers will be converted, but additional towers may be required to increase the range of this high-speed wireless technology. Landowners in deficient areas may receive inquiries into the purchase of or rental of a parcel of land to construct a tower on.  The questions of how much is my land worth and should I sell it or lease the property will arise.

The benefit to SELLING the tower site is your ability to get all your money now, instead of later. Think of the lottery.  Most people take the cash option because they can get a better return with other investments than they can with the lottery’s annuity payment. It is the expectation of an improved future Return on Investment (ROI) that motivates them more than the ROI itself, which often does not materialize. If the time value of money is a motivation, a conversation with a financial advisor is advised because the flip side is you could be selling something now that could provide you with a more profound benefit later.

The biggest advantages to LEASING the cell tower site is your long-term stability of income and the ability to negotiate lease terms.  Leases will vary upon length and terms.  As the final renewal term comes close to expiration the tenant might be very motivated to negotiate newer terms. It generally will be financially advantageous to keep the same site, since vacating the site would require the cell tower company to remove the tower and remediate the site to its original condition, then buy/lease a new site and install a new tower at the new site.

The downside to leasing the tower site is the site remains a part of the parent tract. If the fee owner of the parent tract tries to get a loan against the property, the tower site could affect the type of financing available. Residential lenders might have concerns with blended-use properties. One might consider subdividing the tower site from the parent tract to mitigate this issue.

General considerations of a cell tower lease include:

  • Value. The lease amounts will always depend upon various factors. The dollar amount will depend on the type of tower, location, and availability of other sites. Some sites may fetch rates of a thousand dollars per year, while others can garner six figures.
  • Legal Description and Access. The lease needs to include a detailed legal description that specifically identifies the tower site and the means of access. Will you be granting the network company an easement to access the tower site? Or is the network company dropping the tower in the back yard next to your pool and using your driveway? If so, you may be damaging the value of your house.
  • Maintenance and Taxes. Who maintains the access driveway, takes care of noxious weeds and pays the real estate taxes? Will your property taxes increase? Will your insurance premium increase? Contact your insurance provider to determine if you may need to increase your liability insurance. Make sure increased operating expenses are either factored into the rent or you can work an expense pass-through into the lease.
  • Duration, renewal options, and escalation clauses:
    • Usually, long-term. Initial term may be as short as 5 years or as long as 15.
    • Renewal terms could be anywhere from 1-10 years in duration. Some leases may contain a series of renewal options that could total the term of 30 years if all renewal options are exercised.
    • Escalation clauses sometimes activate with each renewal. An escalation allows the landowner to increase the rental rate according to a pre-agreed timeline. This escalation could be a negotiated as a percentage every year or an adjustment every 5 years according to Consumer Price Index.
    • If the lessor chooses not to renew the lease, make sure the lease clearly states who is responsible for the removal of the tower and remediation of the property back to its original state.

It goes to say that before entering into any type of lease or purchase agreement, have an attorney review the documents.

 

 

 

 

Corn, Soybean and Wheat Enterprise Budgets – Projected Returns for 2021 Increasing Fertilizer Prices May Force Tough Decisions

by: Barry Ward, Leader, Production Business Management & John Barker, Extension Educator, Agriculture & Amos Innovative Program, Knox County.  College of Food, Agricultural and Environmental Sciences & Ohio State University Extension

The profit margin outlook for corn, soybeans and wheat is relatively positive as planting season approaches. Prices of all three of our main commodity crops have moved higher since last summer and forward prices for this fall are currently at levels high enough to project positive returns for 2021 crop production. Recent increases in fertilizer prices have negatively affected projected returns. Higher crop insurance costs as well as moderately higher energy costs relative to last year will also add to overall costs for 2021.

Production costs for Ohio field crops are forecast to be modestly higher compared to last year with higher fertilizer, fuel and crop insurance expenses. Variable costs for corn in Ohio for 2021 are projected to range from $386 to $470 per acre depending on land productivity. Variable costs for 2021 Ohio soybeans are projected to range from $216 to $242 per acre. Wheat variable expenses for 2021 are projected to range from $166 to $198 per acre.

Returns (excluding government payments) will likely be higher for many producers depending on price movement throughout the rest of the growing year. Grain prices currently used as assumptions in the 2021 crop enterprise budgets are $4.30/bushel for corn, $11.55/bushel for soybeans and $6.25/bushel for wheat. Projected returns above variable costs (contribution margin) range from $216 to $434 per acre for corn and $284 to $509 per acre for soybeans. Projected returns above variable costs for wheat range from $193 to $342 per acre. As a reminder, fixed costs (overhead) must be paid from these returns above variable costs. Fixed costs include machinery ownership costs, land costs including rent and payment for owner operator labor and management including other unpaid family labor.

Fertilizer prices continue to increase.  If you have not checked fertilizer prices lately, be prepared for some sticker shock. Producers with some fertilizer purchased and stored or pre-priced prior to recent price increases will likely see a healthier bottom line this upcoming crop year.

Those with little or no fertilizer pre-purchased and stored or pre-priced may want to consider using P and K buildup to furnish crop needs this year in anticipation of possibly lower prices in the future.  Now may be a good time review your fertilizer plans as you are considering how to best utilize your financial resources in 2021.

Use realistic yield goals.  Yield goals vary by field.  Each field has unique characteristics that can impact yield.

Utilize crop removal rates to determine crop nutrient needs.  Crop removal rates can be found in the new Tri-State Fertilizer Recommendations for Corn, Soybeans, Wheat, and Alfalfa (Tables 15 and 16), available at your local Extension Office.

Start with a recent soil test.  If your soil test levels are in the maintenance range or higher, 2021 may be a good year to “borrow” from your soil nutrient bank.

As an example, a 150-bushel corn crop will remove about 55 pounds of P2O5 per acre in the harvested grain.  This would result in a reduction in the soil test level of approximately 3 ppm.

Current budget analyses indicates favorable returns for soybeans compared to corn 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 2021 have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets

 

 

 

 

 

 

USDA Agricultural Projections to 2030

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

Click here for PDF version–easier to view Figures

The United States Department of Agriculture (USDA) recently released the interagency report: USDA Agricultural Projections to 2030.  These long-term projections include several assumptions related to the Farm Bill, macroeconomic conditions, farm policy, and trade agreements.  While long-term projections are based on assumptions and many unknowns, they do provide a glimpse of how U.S. farm commodity prices may perform over the next several years.  Anyone interested in reading specific details is encouraged to see the report available here: https://www.ers.usda.gov/webdocs/outlooks/100526/oce-2021-1.pdf?v=3513.2.

This article briefly summarizes selected selections of the 102-page report, including U.S. crop prices, milk production, U.S. farm income, and government payments.  Figures from the report are included to accompany the text.

U.S. Crop Prices

Rising global demand for diversified diets and protein will continue to stimulate import demand for grains. Increased demand for these crops is accompanied by rising competition for market share from countries such as Brazil, Argentina, the EU, and the Black Sea region. The United States also faces challenges related to ongoing tensions with trade partners and a relatively strong U.S. dollar. Although strong trade competition continues, U.S. commodities remain generally competitive in global agricultural markets, with U.S. corn and soybean exports projected at record highs by 2030/31. Nominal prices for wheat, cotton, and rice are expected to rise modestly between 2021/22 and 2030/31.

 

Milk Production

Milk production is projected to rise at a compound annual growth rate of 1.1 percent over the next 10 years, reaching 248 billion pounds in 2030. With slow growth in domestic demand as the economy recovers from the pandemic, the dairy herd will remain relatively flat in the middle of the decade but grow in the latter years. In 2030, milk cows are projected to number 9.43 million head. Economies of scale trends are expected to continue, leading to further farm consolidation. Technological and genetic developments will contribute to increasing yields. In 2030, milk production per cow is projected to average 26,295 pounds.

  • Commercial use of dairy products is expected to rise faster than the growth in the U.S. population over the next decade.
  • Global demand for U.S. dairy products is expected to continue to grow over the next 10 years, with the largest increases being in exports of products with high skim-solids content such as dry skim milk products (nonfat dry milk and skim milk powder), whey products, and lactose.
  • The all-milk price in 2021 is expected to be lower than 2020 as milk production increases significantly. Feed prices are expected to increase from 2020 to 2021. Milk production in 2022 is projected to grow at a rate slower than in 2020 and 2021 because of lagged supply response to relatively low milk prices and relatively high feed prices in 2021. With slow milk production growth in 2022 and an increase in demand as the economy is recovering from the pandemic, the all-milk price is projected to increase in 2022. As the industry adjusts, the all milk price dips to lower levels in 2023-25. The all milk price then increases in nominal terms later in the decade.

 

U.S. Farm Income

Net farm income and net cash income are projected to decrease in 2021. Net farm income is projected to decrease $19.5 billion in 2020 to $100.1 billion in 2021. Net cash farm income is projected to decrease 16.7 percent in 2020 to $111.7 billion for 2021. The projected decline in net farm income for 2021 is primarily because of lower government payments relative to 2020. Farmers received an estimated $24.3 billion in direct payments from the Coronavirus Food Assistance Programs 1 and 2 during 2020. The 2021 farm income value does not include payments made under the Consolidated Appropriations Act 2021 that was passed after the projections were tabulated.

Government Payments

After falling $35 billion in 2021 to $11.5 billion, direct government payments are projected to decline again in 2022 as market prices are expected to improve and ad hoc payment programs expire. Government payments are then expected to climb before decreasing after 2024 through 2030. The Conservation Reserve Program (CRP), ARC and PLC payments collectively account for the largest share of direct government payments to the agricultural sector over 2021-30. These projections also assume no government payments from potential new farm sector programs.

 

Moving Forward

Again, many things can/will happen between now and 2030 to alter these projections.  However, they are one source of information to use for long-term planning.  Based on these projected production levels and prices, will you be competitive in the long-term?  If not, what changes are necessary to make you successful?  If so, what can you do to be even more successful?  I encourage you to talk to your Extension Educator and other advisors as you complete farm business planning.

Ohio Legislation on the Move

By: Peggy Kirk Hall, OSU Ag and Resource Law Program

Originally published on February 15- https://farmoffice.osu.edu/blog/mon-02152021-1154am/ohio-legislation-move

The Ohio General Assembly is off and running in its new session.  Many bills that affect agriculture in Ohio are already on the move.   Here’s a summary of those that are gaining the most momentum or attention.

Tax Conformity Bill – S.B. 18 and H.B. 48.  The Senate has already passed its version of this bill, which conforms our state tax code with recent changes to the Internal Revenue Code made in the latest COVID-19 stimulus provisions of the Consolidated Appropriations Act.  Both the Senate and the House will also exempt forgiven Paycheck Protection Program second-draw loan proceeds from the Commercial Activity Tax.  The Senate version additionally exempts Bureau of Workers Compensation dividend rebates from the Commercial Activity Tax beginning in 2020, but the House bill does not.  Both bills include “emergency” language that would make the provisions effective in time for 2020 tax returns.

Beginning farmers tax credits  H.B. 95.  A slightly different version of this bill is returning after not passing in the last legislative session.  The bi-partisan bill aims to assist beginning farmers through several temporary income tax credits:

  • Businesses that sell or rent agricultural assets such as land, animals, facilities or equipment to certified beginning farmers can receive a 5% income tax credit for sales, a 10% of gross rental income credit for cash rents, and 15% of gross rental income for share rents.
  • Certified beginning farmers can receive an income tax credit equal to the cost of participating in a certified financial management program.

Beginning farmers, among other requirements, are those in or seeking entry into farming in Ohio within the last ten years who are not a partner, member or shareholder with the owner of the agricultural assets and who have a net worth of less than $800,000 in 2021, which adjusts for inflation in subsequent years.  Beginning farmers must be certified by the Ohio Department of Agriculture or a land grant institution.  The House Agriculture and Conservation Committee will discuss the bill at its meeting on February 16.

Wind and solar facilities – S.B. 52.  In addition to revising setback and safety specifications for wind turbines, this proposal would amend Ohio township zoning law to establish a referendum process for large wind and solar facility certificates.  The bill would require a person applying for a certificate for a large wind or solar facility to notify the township trustees and share details of the proposed facility.  That notification sets up opportunities for the township trustees or residents of the township to object to the application and submit the proposed application to a vote of township residents.  A certificate would not take effect unless approved by a majority of the voters.  A first hearing on S.B. 52 will be held on Tuesday, February 16 before the Senate Energy and Public Utilities Committee.

Grants for broadband services  H.B. 2 and S.B. 8.  The Senate passed its version of this bill last week, which sets up a $20 million competitive grant program for broadband providers to extend broadband services throughout the state.  The proposal would also allow broadband providers to use electric cooperative easements and poles, subject to procedures and restrictions.  The bill had its second hearing before the House Finance Committee last week.

Eminent domain – H.B. 63.   Based on a similar bill that didn’t pass last session, this bill changes eminent domain law in regard to property taken for the use of recreational trails, which include public trails used for hiking, bicycling, horseback riding, ski touring, canoeing and other non-motorized recreational travel.  H.B. 63 would allow a landowner to submit a written request asking a municipality or township to veto the use of eminent domain for a recreational trail within its borders.   The bill would also allow a landowner to object to a use of eminent domain for any purpose at any time prior to a court order for the taking, rather than limiting that time period to ten days as in current law.   The bill had its first hearing before the House Civil Justice Committee last week.

Minimum wage increases.  S. B. 51 and H.B. 69 Bills on each side of the General Assembly propose gradually increasing the state minimum wage to $15, but have different paths for reaching that amount.  S.B. 51 proposes increasing the wage to $12/hour in 2022, followed by $1/hour increases each year and reaching $15 by 2025, which is when a federal bill proposes to establish the $15 minimum wage.  H.B. 69 begins at $10/hour in 2022 with $1/hour increases annually, reaching $15 in 2027.  S.B. 51 was referred last week to the Workforce and Higher Education Committee and H.B. 69 was referred to the Commerce and Labor Committee.

Considerations of a Flexible Lease Arrangement

by: Chris Zoller, Extension Educator, ANR, Tuscarawas County, Barry Ward, Leader, Production Business Economics, Ohio State University Extension &  Mike Estadt, Extension Educator, ANR, Pickaway County

Thousands of Ohio crop acres are rented from landowners by farmers.  While the most common is likely a cash agreement, the flexible lease may be worthy of consideration for some farmers.  This article will provide a broad overview of the flexible lease option, including advantages, disadvantages, and structure.

The information provided here is only a summary from the Fixed and Flexible Cash Rental Arrangements for Your Farm published by the North Central Extension Farm Management Committee.  Anyone interested in learning more about flexible leasing arrangements is encouraged to read more about this topic at this site: https://aglease101.org/wp-content/uploads/2020/10/NCFMEC-01.pdf.

What is a Flexible Lease?

Because of uncertainties with prices, yields, and input costs, some farmers and landowners are apprehensive about entering into a fixed long-term cash rental arrangement.  From the perspective of the farmer, the concerns include poor yields, commodity price declines, or sharp increases to input prices might impact cash flow if there is a long-term fixed arrangement.  In times like we are experiencing now, landowners want to capitalize on high commodity prices or high yields.

Therefore, the operator and landowner may turn to the use of a flexible cash rent of one kind or another. The idea of a flexible cash rent usually pertains only to the rent charged for cropland.

Advantage of Flexible Leases

  • Flexible cash rent enables the landowner to share in the additional income that results from unexpected increases in the prices of crops considered in the rent-adjustment clause. If the cash rent also is flexed for changes in yields, the landowner will benefit from above-normal yields regardless of the cause.
  • For the operator, risk is reduced. Cash-rent expense is lower if crop prices or yields are less than normal.
  • Calculating flexible cash rent requires more communication from both parties.

Disadvantages of Flexible Leases

  • For the landowner, flexible cash rent increases risk.
  • Windfall profits that may be realized by the operator from unexpected price increases are reduced.
  • If cash rent is flexed according to yield, the landowner becomes more concerned with the level of crop yields as well as the accuracy of reported yields. Yields must be verifiable and segregated for each land unit in the lease.
  • If cash rent is flexed according to yield, the operator may give up part of the benefits from higher yields resulting from managerial input, thus possibly reducing incentives to maximize profits.
  • Calculating flexible cash rent requires more management from both parties. There must be agreement on how to verify the factors that are used to set the rent each year.

Methods of Flexible Leasing Arrangements

Crop Price Only

Rents that flex only on price increase risk substantially for operators. A short crop that leads to higher prices and higher rent may leave the operator with less ability to pay.

Yield Only

With some commodities crop yields are highly uncertain. In other cases, the crop that is grown may only be fed to livestock, so no relevant market price exists. In such cases producers may prefer to negotiate a flexible lease agreement that bases the annual rent solely on the actual yield achieved.

Flex for Price and Yield

This method requires the operator and landowner to agree on a base cash rent tied to a base yield (average or expected yield) and a base expected price for each crop being considered. If only one crop is grown, this is the only crop considered. If several crops are grown and all are considered equally important, all crops may be considered in determining the current year’s cash rent.

Flex for Change in Cost of Inputs

The cost of variable inputs can change significantly from year to year and cause large swings in profitability. Incorporating a factor that reflects a ratio of the base year’s cost of inputs divided by the current year’s cost of inputs will help stabilize the bottom line for operators.

Put the Agreement in Writing

If it is decided to use some form of flexible cash rent (or any form of rental agreement), the details of how the rent will be determined should be clearly specified in a written lease agreement.

Additional information about written farmland leases is available from Ohio State University Extension at: https://farmoffice.osu.edu/sites/aglaw/files/site-library/Farm%20Lease%20Checklist%20law%20bulletin.pdf

Sources

Fixed and Flexible Cash Rental Arrangements for Your Farm, North Central Farm Management Extension Committee, https://aglease101.org/wp-content/uploads/2020/10/NCFMEC-01.pdf

What’s in Your Farmland Lease?  Ohio State University Extension Law Bulletin, https://farmoffice.osu.edu/sites/aglaw/files/site-library/Farm%20Lease%20Checklist%20law%20bulletin.pdf

Crop Insurance and Farm Bill Decision

By: Chris Bruynis, Extension Educator, OSU Extension

Crop Insurance and Farm Bill Decision

The 2021 decision for making the crop insurance and farm bill decisions is all about risk management. With the recent increased crop prices and the volatility in the markets, crop insurance is expected to increase by about 50%-60% this year compared to last year. So, with crop insurance more expensive and the choice between Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) unclear, the strategy to protect risk exposure becomes more interesting. In this article different strategies are outlined looking at ARC/PLC with Revenue Protection (RP), Supplemental Crop Option (SCO) and Enhanced Coverage Option (ECO).

To illustrate the different decisions several corn scenarios from an example farm in Clermont County Ohio will be used for this article. Here is some background information pertinent to the examples.

  • Revenue Protection pays against the actual farm revenue using either the December futures for the month of February or the higher of the spring price or the harvest price depending on the product selected. If you believe the spring price is the higher of the two, then some insurance premiums could be saved by not electing the harvest price. Levels of RP range from 50% to 85% in 5% increments. RP can be paired with any of the Farm Bill programs. To read more on RP go to https://www.extension.iastate.edu/agdm/crops/html/a1-54.html
  • Supplemental Crop Insurance coverage starts at the level of RP and covers up to 86% of the revenue. SCO can provide additional protection above their individual policy at a cheaper premium rate. SCO does not protect against the actual farm revenue but instead uses a county yield times the spring/harvest price. So, if your farm’s production history is significantly different than the county yield, this might not be the correct product for your farm. SCO can only be used with the PLC program.
  • Enhanced Coverage Option covers county revenue like SCO but starts at 86% and can go to either 90% or 95%. ECO can be paired with any of the Farm Bill programs. To read more on SCO/ECO go to https://www.extension.iastate.edu/agdm/crops/html/a1-44.html
  • Agricultural Risk Coverage-County makes a payment when the market year average (MYA) price times the county yield falls below the county guarantee, which is calculated at 86% of the 5-year Olympic Average of prices and yields. Unlike RP, which uses growing season prices, MYA are the prices received for crops between the start of harvest this year until the start of harvest next year. Also, unlike RP, ARC-CO payments are paid against 85% of the base acres, not planted acres.
  • Price Loss Coverage pays when the MYA price falls below the reference price. For corn this price is $3.70 per bushel. PLC payments are based on base yields, which typically are 25% to 35% lower than actual yields for most farms, times 85% of the base acres, which may not reflect actual acres planted.

Before deciding about crop insurance or farm bill elections, think about your farm’s production history. Is it relatively consistent from year to year or is it highly variable? Does it yield similar to the county or is it significantly different? Are you growing crops that mirror the base acres on this farm, so the Farm Bill payments track with your risk exposure? It is also important to think about what risk you are comfortable assuming. If you can survive with less insurance in the event of a low revenue year, although not pleasant, do you want to “self-insure” to a greater level.

A. This sample farm has an APH corn yield of 203 bu/A. The county’s five year average is 180 bu/A and trend with each other accordingly. Preliminary estimates have the spring crop insurance price at $4.48 and at the 85% coverage level the coverage per acre would be $773 and cost $51 per acre. Fall prices will not be discussed for example simplicity.

B. What happens to coverage if 50% RP is selected and then SCO is added for this farm? The RP coverage per acre, which is based on actual farm production, becomes $454 and the SCO based on county revenue, would increase the coverage to $696. The cost for this option becomes $24 per acre.

C. A third scenario is to purchase RP for 75% and then ECO for 95% leaving a coverage gap between 75% to 86% but still having 84% coverage level. Under this example RP coverage would be $682 per acre based on actual farm revenue and then ECO would add an additional $82 per acre based on county revenue.  The cost of this combination is $17 for RP plus $29 for ECO for a total of $46 per acre.

Let’s examine how these three scenarios would perform under different revenue examples. The amount displayed is the net from the transaction (estimated payments less estimated costs).

 

Scenario A

85% RP

Scenario B

50% RP

86% SCO

Scenario C

75% RP

95% ECO

Farm Yield 200 bu/a

County Yield 180 bu/a

Harvest Price $4.00

-$51.00 -$24.00 $3.00
Farm Yield 150 bu/a

County Yield 180 bu/a

Harvest Price $4.00

$122.00

-$24.00 $85.00
Farm Yield 180 bu/a

County Yield 135 bu/a

Harvest Price $4.00

$2.00 $132.00 $27.00
Farm Yield 220 bu/a

County Yield 200 bu/a

Harvest Price $3.50

-$51.00 -$24.00 $27.00

Farm Yield 100 bu/a

County Yield 90 bu/a

Harvest Price $5.50

$348.00 $339.00

$330.00

 

A few conclusions can be drawn from examination of these three scenarios with different yield and price assumptions. First, ECO will make payments on smaller losses since it starts after a 5% county revenue loss. It is limited and will max out at $4.00 corn with a payment of $73.00 per acre.

Secondly there are potential differences between RP and SCO/ECO if a farm yields significantly differently than the county yields since these programs protect against county-based losses. Under certain situations, like a widespread drought event, all the combinations provide similar risk protection.

Continuing the example to include possible outcomes under the ARC/PLC election for this same example farm provides insight to another risk management decision that needs to be made. Using the same yield and prices, the following chart contains potential farm bill payments. Note that if electing SCO insurance, ARC-CO is not available on those farms.

 

Scenario A Scenario B Scenario C
Farm Yield 200 bu/a

County Yield 180 bu/a

Harvest Price $4.00

PLC – $0.00          ARC-CO – $0.00 PLC – $0.00         ARC-CO – N/A PLC – $0.00          ARC-CO – $0.00
Farm Yield 150 bu/a

County Yield 180 bu/a

Harvest Price $4.00

PLC – $0.00       ARC-CO – $0.00 PLC – $0.00           ARC-CO – N/A PLC – $0.00       ARC-CO – $0.00
Farm Yield 180 bu/a

County Yield 135 bu/a

Harvest Price $4.00

PLC – $0.00      ARC-CO – $0.00 PLC – $0.00          ARC-CO – N/A PLC – $0.00      ARC-CO – $0.00
Farm Yield 220 bu/a

County Yield 200 bu/a

Harvest Price $3.50

PLC – $26.00    ARC-CO – $0.00 PLC – $26.00         ARC-CO – N/A PLC – $26.00    ARC-CO – $0.00
Farm Yield 100 bu/a

County Yield 90 bu/a

Harvest Price $5.50

PLC – $0.00         ARC-CO – $73.00 PLC – $0.00         ARC-CO – N/A

PLC – $0.00         ARC-CO – $73.00

Unless there are unexpected low prices or low revenue, these programs provide very little cash flow relative to crop insurance. Also, these payments are not on planted acres or farm/county yields but are on base acres and base yields.  Additionally, the price is based on the MYA price and not the higher of the spring or harvest price.  The real questions are “How much risk can you afford to assume?” and “Do I use SCO with PLC to reduce crop insurance costs exposing the farm to additional risk if it yields significantly less than the county average?”

Lady Landowners Leaving a Legacy Series 

by: Amanda Douridas and Amanda Bennett, OSU Extension

Land is an expensive and important investment that is often handed down through generations. As such, it should be cared for and maintained to remain profitable for future generations.

Almost half of landowners in Ohio are women. OSU Extension in Champaign and Miami Counties are offering a series designed to help female landowners understand critical conservation and farm management issues related to owning land. It will provide participants with the knowledge, skills and confidence to talk with tenants about farming and conservation practices used on their land. The farm management portion will provide an understanding of passing land on to the next generation and help establish fair rental rates by looking at current farm budgets.

The series runs every Friday, February 26 through March 26 from 9:00-11:30 a.m. and will be a blend of in-person and virtual sessions. It is $50 for the series. If you are only able to attend a couple of session, it is $10 per session but there is a lot of value in getting to know other participants in the series and talking with them each week. Registration can be found at go.osu.edu/legacy2021. For more information, please contact Amanda Douridas at Douridas.9@osu.edu or 937-772-6012. Registration deadline is February 24. The detailed agenda can be found at

https://miami.osu.edu/events/lady-landowners-leaving-legacy.

 

Whole Farm Planning – Take Time to Plan Your Work and Work Your Plan

By David Marrison, OSU Extension Educator

We have all heard the saying “Plan Your Work and Work Your Plan.”  Planning is one of the most important aspects of managing any business. This is especially true for farms and agribusinesses due to their complexity and the inherent uncertainties associated with agriculture.

OSU Extension encourages farm families to adopt a whole farm planning approach as they develop strategies for the future success of their business. The whole farm approach allows families to examine the internal structure of their business and then develop business, retirement, transition, estate, and investment plans that work in harmony.

The Farm Business– At the center of most farms and agricultural businesses is the family unit. Each family, individually and collectively, has its own history, values, and goals. It is valuable for the business to begin the planning process by reflecting on family and farm history. Valuable lessons can be learned by all the generations involved by examining past successes and disappointments. The underlying values and goals of the family unit and each individual should also be determined. While these values and goals oftentimes remain unspoken, they have a large impact on how family members treat each other and employees and make business decisions.

An analysis of the current state of the farm should also be conducted to determine the physical, fiscal and personnel status of the business. This analysis should also examine the operation’s efficiency and identify any available resources that are not currently being utilized. The farm’s profitability, business structure, operating procedures and employee management should also be examined. It is also helpful for the management team to identify the external influences that could impact the business in the future. These influences could include any governmental, political, economic, environmental, social or technological elements.

Developing the Five Essential Plans – Once a family has completed its internal analysis, family members can continue the planning process by developing business, retirement, transition, estate, and investment plans. A description of each planning area is given in the following paragraphs. It should be noted that each of these planning areas does not stand alone. Like spokes in a wheel, all will need to work in harmony to ensure the long-term viability of the business. Each area can positively or negatively affect the performance of the others. One example of this would be if investment planning has gone well, more assets will be available to help fund business operations or retirement needs. As plans are developed for each of the five areas, it is essential that the management team examine the effects that each has or could potentially have on the other plans.

 

 

Business Plan– A business must be profitable in the long run in order to exist. On most farms, the major planning that occurs is for the farm’s production practices. An example of this is deciding what variety of corn to plant or deciding what sires to use for breeding cows. However, planning for the success of the farm business should include much more.

A comprehensive business plan should be developed. This plan not only helps the family develop a plan of action for production and operation practices, but also helps develop plans for the financial, marketing, personnel and risk-management sectors of the business. One recommended method of evaluating the farm business is to conduct a SWOT analysis. This analysis examines the Strengths, Weaknesses, Opportunities and Threats in each of these areas. In short, the agricultural business plan presents a picture of the agricultural business or farm, where the business is going, and how it will get there.

Retirement Plan– No one expects to work forever. A strategy to help each business member meet his or her expected retirement needs should be developed. The two main retirement questions that should be addressed are how much money does each family member need for retirement and what will the farm’s obligation be to retirees? A variety of factors such as age at retirement, retirement housing and other retirement accounts held by the family will affect retirement needs. It is essential that retirement plans are established early for all members of the business. It is also important that the profitability of the farm be such that a family member can retire and not adversely affect the financial position of the business.

Transition Plan– The goal of transition planning is to ensure that the business has the resources to continue for many generations. Transition planning helps the family analyze its current situation, examine the future, and then develop a plan to transfer the business to the next generation. This includes planning not only for the transfer of assets but also managerial control. Members of the primary generation should invest time in transferring their knowledge to the next generation.

Estate Plan– Farm estate planning is determining how the farm assets, such as land, buildings, livestock, crops, investments, machinery, feed, savings, life insurance, personal possessions, and debts owed to or by the farm, will be distributed upon the death of the principal operator(s). The estate plan, in concert with the transition plan, helps to address how the off-farm heirs can be fairly treated without jeopardizing the future of the farming heir.

Investment Plan– The primary investments made by farm families are usually in land, machinery, and livestock. Farm operations may, however, wish to invest in such off-farm investments as stocks, bonds, mutual funds, real estate, life insurance, retirement homes, precious metals or disability insurance. These investments allow farm families to save for future education or retirement needs and allow for investment diversification. Factors that farmers will need to consider during investment planning include the rate of return, personal risk tolerance levels, tax considerations and the time horizon available for investing.

More Information- More information about the whole farm planning model can be found in a factsheet accessible at: https://ohioline.osu.edu/factsheet/anr-52

Farm families are encouraged to use this and other OSU Extension farm management resources, along with a competent attorney and accountant, to develop their plans.

Check out the Farm Office Website at http://farmoffice.osu.edu/ for additional farm management resources.

U.S. Farm Profits Projected to Fall in 2021

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

The United States Department of Agriculture Economic Research Service (USDA-ERS) on February 5th released their projection for U.S. farm income in 2021.  Farm income is projected to fall this year primarily because government payments received by farmers are expected to decline $21.8 billion (46.3%) after increasing $24 billion (104%) in 2020 (see Figure 1).

 

Figure 1.  U.S. Net Farm Income and Net Cash Farm Income, 2000 – 2021 Forecast

Net cash farm income (NCFI) is calculated by subtracting cash expenses from gross income.  This figure is expected to grow 23.7% in 2020 but drop $10.4 billion (7.5%) in 2021.  Net Farm Income (NFI) is considered a broader measure of profitability that includes changes in inventories, depreciation, and gross imputed rental income.  Like NCFI, the U.S. NFI is expected to increase in 2020 and decline 9.7% to $111.4 billion in 2021.  If this happens, it will be the first time since 2016 that NFI has fallen.  However, NCFI and NFI would remain above their respective averages during the 2000 – 2019 period.  A bright spot from the USDA-ERS report is that farm commodity cash receipts are expected to increase 3.6% in 2021.

Planning

Based on these projections, budgeting is going to be very important for 2021.  Ohio State University Extension has corn, soybean, and wheat budgets available here: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets.  I encourage you to use your financials and these budgets as a planning tool.  Scheduling an appointment with your lender, accountant, and Extension Educator to discuss options will be time well spent.

 

 

 

 

Farm Office Live Returns on February 10 & 12

by: Peggy Kirk Hall, Associate Professor, Agricultural & Resource Law

Wondering what’s happening with CFAP, the Paycheck Protection Program, and Executive Orders?  So is the Farm Office team, and we’re ready to provide you with updates.  Join us this month for Farm Office Live on Wednesday, February 10 from 7–8:30 p.m. and again on Friday, February 12 from 10–11:30 a.m., when we’ll cover economic and legal issues affecting Ohio agriculture, including:

Status of the Coronavirus Food Assistance Program (CFAP)

Update on the Paycheck Protection Program (PPP).

Tax credits information

Executive Orders that may impact agriculture

Legal update on small refinery exemptions

Farm Business Analysis program results

Legislative update

Your questions

To register for the free event, visit this link:  go.osu.edu/farmofficelive