Farm Transition Workshop to be held in Wayne County in March

What does it take to successfully pass on the farm business to the next generation? It takes a lot of hard work, time and communication and not every farm business succeeds in making the transition.  OSU Extension, Wayne County has scheduled a two part farm transition and succession workshop for Wednesday March11 and Wednesday March 18.  Both days will be held at Fisher Auditorium, 1680 Madison Ave on the OARDC campus in Wooster.  Each day will start at 10:00 am and conclude around 3:00 pm.

The workshop is structured to help farm families develop a transition plan for the future, discover ways to increase family communication, and learn necessary strategies to successfully transfer management skills and the farm’s business assets from one generation to the next.  This workshop will challenge farm families to actively plan for the future of the farm business.  Participants will be expected to do some work and hold some necessary family conversations between the two sessions to help identify planning areas that will need work to accomplish a successful farm business transition.

The workshop will be led by David Marrison, OSU Extension Educator in Ashtabula County.  David is nationally recognized for his work and expertise in farm transition.  Other resource people and presenters at the workshop include Robert Moore, attorney at law with the Wright & Moore Law Co., John Kinkopf, President, Haudenschild Agency and Rory Lewandowski, OSU Extension Educator in Wayne County.   Some of the topics that will be covered over the two days of the workshop include:

  • Key questions to answer when planning for the future of the family farm business
  • Family communication in the farm transition process
  • Providing income for multiple generations
  • Farm succession with multiple offspring and family members: Fair vs. Equal
  • Retirement strategies
  • Strategies to get my farm and family affairs in order
  • Long term health care issues and costs
  • Farm business structures and their role in estate and transition planning
  • Estate and transfer strategies
  • Trusts and life insurance
  • Tax implications of estate and transition planning

Thanks to sponsorships from First National Bank, Farm Credit-Mid America and Wayne Savings Community Bank, the registration cost is only $35/participant which includes refreshments, noon lunch and a resource notebook.  Registration is limited to the first 60 participants and the registration deadline is March 4.  A Farm Transition Workshop brochure and registration form with complete workshop details is available on the Wayne County Extension web site at: http://go.osu.edu/agwayne , or contact the Wayne County Extension office directly at: 330-264-8722.

 

Comparing Indicated State 2014 ARC-CO and PLC Payments by Crop: January 2014

by: Carl Zulauf and Sanghyo Kim, Professor and PhD student, Ohio State University, and Gary Schnitkey, Professor, University of Illinois at Urbana-Champaign

This article compare, for selected crops, state payment indicators for ARC-CO and PLC based on the January 12, 2015 WASDE (World Agricultural Supply and Demand Estimates) mid-price estimate and NASS’s (National Agricultural Statistical Service) crop production annual report.  Crops compared are barley, corn, oats, peanuts, long grain rice, medium (and short) grain rice, sorghum, soybeans, and wheat. The term, payment indicator, is used because the calculations use state yield instead of county yield for ARC-CO and farm payment yield for PLC.  They are not payment estimates for individual FSA farms.  Nevertheless, they help frame perspectives and questions regarding crop program choices.  Other discussions of indicated 2014 crop year payments are contained in the farmdocdaily articles of August 13, September 18, October 14, December 18, 2014, and January 22, 2015.

Calculation of Estimated Payment Indicators: ARC-CO makes a payment if county revenue is below 86% of a county’s benchmark revenue.  Benchmark revenue involves multiplying 5-year Olympic moving averages (removes high and low values) of county yield times U.S. crop year price.  ARC-CO payment is capped at 10% of benchmark revenue.  PLC makes a payment if U.S. crop year average price is below the crop’s reference price.  Reference prices are specified in the 2014 farm bill.

Both programs use yield per planted, not harvested acre.  Yield per planted acre is calculated as production divided by acres planted to the crop, except for corn and sorghum.  For these two crops, acres harvested for silage are subtracted from planted acres.  For oats, yield per harvested acre is used because of the large share of oats acres planted as a cover crop for forage or hay.  Information is not available for all states to make yield per planted acre calculations.

Peanuts are not reported in WASDE.  A price estimate for the 2014 crop year is obtained using the monthly prices reported by NASS for the first 5 months of the peanut crop year, which begins August 1, and regression analysis.  Explanatory power of the regression equation is 85%.  The price estimates used in this analysis are by crop:  barley ($5.25/bushel (bu.)), corn ($3.65/bu.), oats ($3.25/bu.), peanuts ($0.2171/pound), long grain rice ($12.20/100 pounds (cwt.), medium (and short) grain rice ($18.50/cwt.), sorghum ($3.80/bu.), soybeans ($10.20/bu.), and wheat ($6.10/bu.).  Estimated per acre payments are multiplied by 85% to reflect that ARC-CO and PLC make payments on 85%, not 100%, of program base acres (ARC-IC pays on 65% of base acres).

Share of States with Payments, 2014 Crop Year:  Because PLC is a U.S. price payment program, in a given year all states either receive a payment or do not receive a payment (see Figure 1).  Level of payment differs only by farm program yields.  In contrast, it is common for ARC-CO to make payments for some but not all states, such as is currently indicated for these program crops for the 2014 crop year.  The reason is that, as a revenue program, yield helps determine if payments occur.   It is unusual for all states in the U.S. to uniformly experience good or bad yields, where good and bad is defined relative to the state’s yield benchmark for the most recent 5 years.  Hence, ARC-CO will likely make a payment for some but not all states unless U.S. crop year price is far above or far below the price benchmark for the most recent 5 years.  In short, PLC and ARC-CO have different, often notably different, payout structures.

Figure 1 also presents the share of states for which no payment is indicated for both ARC-CO and PLC for 2014.  Lack of an indicated payment by both programs implies 2014 will have little influence on the choice of program.  Conversely, 2014 may influence the decision if payments are indicated for one or both programs.  For only two crops, corn and sorghum, does the program paying more vary across states.  ARC-CO generally makes more payments than PLC for corn with the opposite occurring for sorghum.  Nevertheless, for 24% of states with corn, indicated payments are higher for PLC.  For 36% of states with sorghum, indicated payments are higher for ARC-CO.

Indicated per Acre Payment, 2014 Crop Year:  Figure 2 presents 3 averages:  per acre average PLC payment and average ARC-CO payment for all states, as well as per acre average ARC-CO payment only for states with an indicated ARC-CO payment.  Average payment for all states is highest for PLC peanuts and PLC long grain rice.  ARC-CO payments can be large for individual states.  For example, ARC-CO has an indicated payment of $94 per acre for Texas medium grain rice (only medium grain rice state with a payment).  This potential for large individual state payments by ARC-CO is also implied by the difference between the average ARC-CO payment only for states making ARC-CO payments vs. the average for all states.  This difference commonly exceeds 300%.

Summary Observations

►  ARC-CO and PLC have different payment structures.  All areas either receive or do not receive a PLC payment because payments are based on U.S. average price being less than a U.S. reference price.  ARC-CO payments vary more widely by area.  As a revenue program, ARC-CO payments depend on yield as well as price variation.  Yield rarely is uniform across the U.S.  Some areas have higher than normal yields; other areas have lower than normal yields.

►  Also illustrating the important role of yield, despite ARC-CO’s high indicated average payment per acre for corn, PLC currently is indicated to make higher payments than ARC-CO for some states.

►  Corn is the key to program cost for the 2014 crop year.  It will have the highest base acres, and for many areas, indicated ARC-CO payment per acre is close to its maximum.  However, it is not clear how many farms will elect ARC-CO for corn.

►  During debate on the 2104 farm bill, Congress selected PLC reference prices for long grain rice and peanuts that were closer to market prices over the 2008-2012 period than for other crops.  A commonly cited reason for this decision for long grain rice was to use PLC to provide payments that would replace the roughly $95/acre direct payment rice gave up.  At least for 2014, Congress appears to have accomplished this objective as indicated payments by PLC is $90/acre.  It is less clear what the policy drivers were in regard to peanuts, but, in the context of only the 2014 crop year, present indications are that peanuts is likely to be the biggest beneficiary of the 2014 farm bill replacing the 2008 farm bill.  It gave up roughly $45/acre in direct payments and, at least for 2014, has indicated payments of $128/acre in PLC payments.  Again, within the narrow confines of the 2014 crop year, corn is the second most favored crop.  It gave up average direct payments of roughly $25/acre vs. current indications of average state ARC-CO payments of $40/acre, although not every area has more indicated ARC-CO payments than direct payments.    The other crops currently have lower indicated average ARC-CO and PLC payments than the direct payments they gave up.  Note, these conclusions may change over the life of the 2014 farm bill.

►  CAVEAT:  Considerable uncertainty remains over 2014 crop year payments by ARC and PLC.  A key reason is that considerable uncertainty remains over the 2014 crop year average price.  For a more extensive discussion of this topic, see the January 8, 2015 farmdoc article, “2014 Crop Program Decision:  March WASDE Price Uncertainty,” by Carl Zulauf and Andrea Hershey.

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The Case for Considering the Diversification of Crop Program Choice for a Crop

by: Carl Zulauf, Professor, Ohio State University, February 2015

Also available at  http://aede.osu.edu/research/crop-program-decisions

This article highlights 3 key features of the crop program decision: (1) the programs differ, (2) uncertainty abounds, and (3) long-run probabilities can differ from short-run outcomes.  Implications are then drawn.

Different Programs:  Both ARC (Agriculture Risk Coverage) and PLC (Price Loss Coverage) are multiple year risk programs that include U.S. crop year price in setting their risk benchmark and pay on historical base acres.  On most other program attributes they differ because they focus on different risks.  ARC’s focus is multiple years of shallow revenue loss, where loss is defined by market revenue of the last 5 years.  PLC’s focus is multiple years of low prices, where low price is defined as a reference price Congress sets.  In short, ARC and PLC will differ, often dramatically, in the timing and size of payments.

Uncertainty:  As farmdoc daily articles of August 7, 2014 and February 4, 2015 document, ability to predict future price is limited.  Little is known about the 2016-2018 crop years beyond long-run historical probabilities of price, revenue, and yield.  Some year-specific information may exist about 2015 by the March 31, 2015 decision deadline.  The acreage intension report is released on that day and winter wheat is planted.  More year-specific information exists about 2014, but even it is limited as the farmdoc daily article of January 8, 2015 documents.  Program choice will thus be made under considerable uncertainty. Only in October 2019 will it be known which type of risk occurs most often, i.e., what program pays the most.

Long Run Probabilities vs. Short Run Outcome:  All program calculators estimate payments based on long run probabilities for price, yield, and revenue derived from observations over a historical period of time.  This approach reflects the notion that a reasonable starting point for estimating the future is past experiences.  However, long-run probabilities may not apply over a short period of time.  Low probability events can drive actual outcomes over a short time period.  For example, a 2012 style drought in the U.S. in 2016 has a low probability but will notably alter the profile of risk for the 2016-2018 crop years.  This point reinforces the previous point that program choice involves considerable uncertainty.

Implications

►   When managing situations with considerable uncertainty, 2 strategies emerge: (1) diversification and (2) appropriate use of factors about which more is known.

►   Diversification in this article focuses on electing different programs for the same crop across FSA farms.  Diversification can also involve electing different programs for different crops on the same FSA farm.  Much more has been written about selecting different programs for different crops.

►   More is known about 2 relationships: (1) reference price vs. recent U.S. crop year prices and (2) program vs. county vs. FSA farm yields.  These relationships can help with decisions in some, not all, situations.

■    The ratio of reference to recent crop year price ranges from roughly 70% (corn, oats, soybeans) to roughly 105% (peanuts, long grain rice) (see Figure 1).  The higher is this ratio, the more likely will PLC make higher payments.  Given that 2014 is a low price year, the lower is this ratio, the more likely ARC may make a payment in some, perhaps many, situations in 2014 (see farmdoc daily article of February 5, 2015).  However, diversification remains a consideration.  For example, for peanuts and long grain rice, shallow losses just might emerge as their key risk factor due to drought.

■    Consider PLC for FSA farms with a high ratio of program to county yield; ARC-CO for FSA farms with a high county-to-program yield ratio; and ARC-IC for an FSA farm if yield is 30% or so above the county yield or highly variable from year to year, especially if only 1 crop is grown on the farm.  A high relative yield that favors a program means that its payments are likely to be higher if the risk occurs.

►   Diversification does not mean putting equal number of FSA farms in each program.  The share in each program can be varied based upon personal preference, consideration of the relationship between yields and between reference price and recent crop year prices, or other factors.

►   Diversification works better the more FSA farms an operator has.  If FSA farms are 1 or a few, consider that ARC is actually a hybrid program because the PLC reference price is its minimum price component.  Thus, ARC provides assistance against multiple year shallow losses and some assistance, but not as much as and perhaps much less than PLC, against multiple years of prices below the reference price.

►   Consider using any program payments for the 2014 crop year to design a risk strategy for prices below the reference price, particularly if only ARC is elected, or for multiple year shallow losses, particularly if only PLC is elected.  Such strategies can involve cash reserves, options, insurance, etc.

►   Diversification will not maximize program payments.  It is a strategy for managing uncertain outcomes across different risk management instruments, in this case crop programs.

►   Program choice involves many factors, some unique to each situation.  The decision must consider them. This article does not propose a decision; it raises factors to consider, hence the repeated use of this word.

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Join the Ohio Women in Agriculture Learning Network

by: Gigi Neal, OSU Extension Educator, Agriculture and Natural Resources- Clermont County

According to the 2012 Census of Agriculture, 30% of operators are women on the national level. In Ohio, 28% of operators are female: 31,413 women of 113,624 total operators. Ohio’s largest concentration of female farm operators is in its 10 eastern counties, which boast more than 500 women farm operators per county.

The goal of the Ohio Women in Agriculture Learning Network (OWIALN) is to help women in agriculture improve their quality of life by providing them with resources to make better business decisions, while maintaining a balance with family and personal obligations.

This national initiative is developing a new portal for education, technical assistance and support of women farmers, ranchers and producers. The OWIALN shares the same goals and collaborates on programs with the eXtension Women in Agriculture Community of Practice at extension.org/womeninag.

Join us for educational workshops, eNewsletters, webinars and more. To join the Ohio Women in Agriculture Learning Network, contact coordinators Gigi Neal at 513-732-7070 or neal.331@osu.edu or Heather Neikirk at 330-830-7700 or neikirk.2@osu.edu. Visit our website at clermont.osu.edu or like us at Ohio Women in Agriculture Learning Network on Facebook.