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

Farm Management School Teaches Small, Beginning Producers Farm Finances

 

GREENVILLE, Ohio – Producers new to farming or those who operate small farms and ranches can learn how to create a business plan and develop a balance sheet from farm management experts with the College of Food, Agricultural, and Environmental Sciences at The Ohio State University.

The 2016 Farm Management School, a five-session workshop series, will focus on the financial education that goes along with operating a successful farming operation, said Sam Custer, an Ohio State University Extension educator who is organizing the the program.

OSU Extension is CFAES’s outreach arm.

Although the farm management school targets those who are new to agricultural fields, any farmer, producer or agriculture-related industry person is welcome to attend, Custer said.

The goal of the program, he said, is to help young and beginning farmers learn how to become financially savvy and how to make their agricultural operations successful.

“The future of agriculture depends on the financial success of young and beginning producers, and the diversity of the agricultural products we enjoy depends in part on the financial success of small producers,” Custer said. “As baby boomers retire from farming, this is a good opportunity for the next generation to begin talking with their families.”

With lower commodity prices and rising input costs, many young or beginning farmers along with some small farmers find it very difficult to budget a profit, he said.

“We’ll work with producers to help them with their balance sheets and enterprise financial planning to help them determine which parts of their enterprise is profitable to expand in their business plan and which isn’t profitable,” Custer said. “Based on that, they can decide if the enterprise is something they want to continue to do or if they’d need to reduce or end the enterprise that isn’t profitable.”

The farm management school, which runs Jan. 7, 14, 21, 28 and Feb. 4 for two hours each night, is taught by OSU Extension educators and specialists. The workshop will be held at Andersons Marathon Ethanol, 5728 Sebring Warner Road in Greenville, Ohio.

Topics will include:

Jan. 7:

  • What Is the Mission of Your Farming Operation?
  • Making Record Keeping Do More Than the Tax Return

Jan. 14:·

  • Developing Your Balance Sheet
  • Basics of Finance

Jan. 21

  • Developing Your Business Plan

Jan. 28

  • Farm Transition Planning

Feb. 4

  • Ag Law 101

The farm management school is sponsored by Farm Credit Mid-America.

Registration for the workshop series is $50 and includes the program, handouts and refreshments. Contact Custer at 937-548-5215 for more information or a registration form. The deadline to register is Dec. 21. Payment can be sent to OSU Extension, Darke County, 603 Wagner Ave., Greenville, Ohio 45331.

 

Writer(s):

Tracy Turner
614-688-1067
turner.490@osu.edu

Source(s):

Sam Custer
937-548-5215
custer.2@osu.edu

EPA Proposes Changes to the Certification and Training of Pesticide Applicators

by: Sarah Noggle, OSU Extension Paulding County

The Environmental Protection Agency (EPA) has proposed a minimum age (18) and stricter standards for certifying applicators of restricted use pesticides (RUPs). For commercial applicators in Ohio, there is no distinction between RUP and non-RUP users, hence these new proposals potentially affect the certification and recertification of all licensed commercial pesticide applicators in Ohio whether or not they actually use restricted use pesticides. Private applicators are only required to be licensed in Ohio if they use RUPs. Much of what is proposed for the stricter federal standard is already required by Ohio Law; for example, Ohio pesticide applicators already take closed book exams, must recertify on a three-year schedule, and keep pesticide records.

The proposed changes would however significantly increase the recertification requirements for Ohio pesticide applicators. The EPA has proposed that all applicators will be required to take six units (50 minutes) of core plus three (private) or six (commercial) units per category every three years. An Ohio commercial applicator licensed in one category who is now required to take five hours of recertification would have to attend twelve 50-minute sessions every three years.

An Ohio private applicator licensed in one category who now needs 3 hours of training to recertify would have to attend nine 50-minute sessions every three years. Applicators would be required to present identification at exams and recertification programs. For private applicators, the fumigation category would be split into soil and non-soil fumigation categories. There also would be an annual training requirement and minimum age of 18 for trained service persons, who under current Ohio law only require a single, verified training prior to occupational exposure to pesticides.

The public may comment on the EPA’s proposal through December 23, 2015; there have been formal requests for an extension to the deadline. Comments may be submitted to the EPA at http://www.regulations.gov in docket number EPA-HQ-OPP-2011-0183. Learn more about the proposal and certification for pesticide applicators: http://www2.epa.gov/pesticide-worker-safety/epa-proposes-stronger-standards-people-applying-riskiest-pesticides .

Farm Financial Webinar Offered

Recently there have been several articles in the media discussing the lack of projected income for corn and soybean farmers due to low prices and input costs remaining stable at higher prices. This scenario can result in farming losses and financial stress for farm families. OSU Extension is offering a Farm Business and Finance Webinar Series aimed at helping farm families improve financial management knowledge.

This free educational 4-session webinar series is funded by the North Central Extension Risk Management Education Grant titled: Ready, Set, Go: Preparing Farms to Successfully Manage Risk. The webinars will be held on Mondays from 11:30 am to 1:30 pm starting November 16, 2015 through December 7, 2015. Participants can login from their home or office computer to access the webinar. The sessions will cover the following topics:

Session 1 – Farm Business Planning and Systems Management

  • Is the operation large enough and profitable enough to provide family living draw?
  • Is the business plan built on economic considerations?
  • Is there an adequate system for obtaining management information and monitoring business performance?

Session 2 – Introduction to Financial Statement

  • Balance sheet – a summary of all the assets and liability of the business at one point in time.
  • Income statement – reflects the profitability over a period of time.
  • Statement of cash flows – reconciles the beginning and ending cash on the balance sheet.
  • Statement of owner equity – reconciles beginning and ending owner equity on the balance sheet.
  • Projected cash flow budget – lists anticipated cash flow in and out of the business.

Session 3 – Financial Ratios – Legal 21

  • Liquidity – what are options to correct liquidity concerns?
  • Solvency –what options does a farm owner have in correcting this?
  • Profitability – rate of return on farm assets…can I really affect this?
  • Repayment Capacity – do I have the ability to repay the loan on the next farm?
  • Financial Efficiency – am I using my money to its fullest potential?

Session 4 – Using Financial Data to Drive Decisions

  • Determining risk capacity of the business
  • Capital improvement plan (short and long term)
  • Individual enterprise analysis to determine profitable enterprises
  • Decision time using case farms

Farm business owners, interested in this free webinar, can register by clicking http://go.osu.edu/farmwebsurvey. For additional information contact Chris Bruynis at bruynis.1@osu.edu or by calling 740-702-3200.

Those registered by Thursday, November 12th will receive the login information and course material on Friday November 13th by email.

Develop Written Farmland Lease Agreements

by Rory Lewandowski, Extension Educator Wayne County

One piece of business that can be taken care of in the fall after harvest is completed is securing a cropland lease or rental agreement for the 2016 season. The purpose of this article is not to talk about what that rental price is, but rather the format of that agreement and lease/rental conditions included in that agreement.

A surprising number of cropland rental or lease agreements are nothing more than a verbal agreement. If you ask any agricultural law attorney they will tell you that lease agreements should be put in writing. According to Ohio’s “Statute of Frauds” a lease needs to be in writing and signed to be enforceable in a court of law. Of course very few, if any, persons enter a lease agreement intending to end up in court and many verbal agreements do work to the satisfaction of both parties. There are good reasons to put lease agreements in writing beyond the question of legal enforceability.

A written agreement reduces risk and supplies certainty. The rental price per acre is just one part of a lease agreement. A written agreement should also lay out other important provisions such as the duration of the lease, when and how a lease is renewed, termination notice, payment provisions, conservation practices, can the tenant apply fall inputs, property maintenance, and dealing with improvements such as tiling. Some other questions that can be considered in a written lease include:

  • Does property transfer terminate the lease?
  • Does the death of either party terminate the lease?
  • Can a tenant recoup expenses for tillage, nutrients, seed, cover crops or even a portion of a hay crop if those expenses were incurred before the landowner terminates the lease?

Some of these questions are not easy questions to ask or to consider, but they are questions developed from real life examples that caused disputes, and in some cases, legal action. It is easier to ask these questions and work through terms in a written agreement beforehand than relying upon good will and cooler heads to prevail when these situations arise.

The basic components of a legal, written lease agreement include a legal description, address and acreage of the land parcel, signature of all landowners and the tenant, any lease over 3 years must be acknowledged, preferably with a notary or official to certify signatures, and finally, the lease must be recorded in the county where the land exists. Ohio law does allow lease parties to file a shortened, “memorandum of lease” that only requires the names and addresses of the agreement parties, a legal description of the land, lease period and rights of renewal without having to reveal any other details or provisions of the lease.

Written lease agreements protect both the landowner and the tenant, remove the burden of trusting our memories, clarify terms and conditions and may prevent legal and relationship problems from arising. Resources and examples of written farm leases can be found on the North Central Farm Management Extension web site at: http://aglease101.org/ . For more information about cropland leases contact a member of the OSU Extension Ag Manager team; a team directory can be found on the web site at: http://ohioagmanager.osu.edu/ .

 

References used in this article:

Protecting Interests in a Verbal Farm Lease Situation, Peggy Hall, OSU Extension Agricultural and Resource Law, Law Bulletin January 2014 (http://aglaw.osu.edu/our-library/farm-leasing-law)

Creating an Enforceable Farm Lease, Peggy Hall, OSU Extension Agricultural and Resource Law, Law Bulletin January 2014 (http://aglaw.osu.edu/our-library/farm-leasing-law)