Rent for Cropland Susceptible to Runoff in Northwest Ohio: The Role of Tile, Slope & Soil Type

By: Brian Roe, McCormick Professor of Agricultural Marketing and Policy, Ohio State University

Land rent negotiation season is upon us in Ohio, and additional information about the value of different types of cropland can be useful to all parties involved.  In January of 2012 OSU researchers surveyed farmers in Northwest Ohio about their tillage practices as part of the 2012 Buckeye Farm Tillage Survey.  As part of the survey, respondents were asked to identify one field they felt was susceptible to nutrient runoff and to provide detailed information about this field.  The information included the yield they would expect to achieve in a normal year as well as the fair market rent they would expect to receive per acre in the upcoming year which, at the time of the survey, was 2012.  Respondents also described the field’s predominant soil type (clay, loam, silt, etc.), slope, and whether the field featured working tile.  Below I report some findings for those reporting corn or soybean fields.

Please note that these results may differ from other sources and surveys of land rent values as (1) respondents were directed to choose a field they thought to be prone to runoff rather than choosing a representative field and (2) these results reflect the operator’s expectations of yield and expectations of fair market rent rather than actual rent paid.  Indeed, some of the fields surveyed may never be part of the land rental market, so operators’ expectations for fair market rent may be inaccurate. Click here download the entire article “Rent for Cropland Susceptible to Runoff in Northwest Ohio: The Role of Tile, Slope & Soil Type”.

Returns to Farm Drainage

By: Wm. Bruce Clevenger, OSU Extension

Ohio is fortunate to host some of the longest running university research on agricultural drainage.  One of the first Ohio State University (OSU) and Ohio Agricultural Research and Development Center (OARDC) projects began in 1958 in north central Ohio.  Drainage research has been continuous through today with some research factors remaining the same while others evolved with the needs of the agricultural industry.

The major research questions explored by OSU researchers involve the design of surface and subsurface (tile) drainage, tillage systems, crop rotation, water quality, subirrigation, controlled drainage, soil quality, and of course crop yield response.  Economic analyses of benefits over costs have been valuable to determine return on investment and payback periods.

Farmers and farmland owners use OSU’s research findings to make land improvements and improve profitability.  As more farmland is owned by non-farmers or family members 2-3 generations away from the career of farming, the once inherent and common knowledge of drainage value needs to be taught and shared.  Properly designed agricultural drainage can increase crop yields, reduce soil compaction, reduce soil erosion, improve soil quality and can be managed to protect water quality.  Understanding Agricultural Drainage AEX 320 (Brown and Ward, 1997) details the principles of drainage that has shaped some of the most productive soils in the Midwest.

Agricultural drainage reduces the year-to-year variability of crop yields compared to having undrained cropland (1962-1980 data from Professor Glen Schwab, Dept of Ag Engineering, Ohio State University).  Schwab discovered that a combination of both surface and subsurface showed a benefit cost ration of 1.9 compared to undrained cropland.  Based on Schwab’s yield improvement data, the benefit cost analysis indicated that for every dollar put into drainage improvement on this soil, there is a payback of at least $1.20 and $1.90 when growing soybeans and corn, respectively (Brown, 2011 Overholt Drainage School).

More recently, a twenty-five year drainage, tillage and crop rotation study in Northwest Ohio by Ohio State University’s Don Eckert, Randall Reeder and Larry Brown continues today.  Corn and soybeans have been grown over the three factors since 1984 on the Hoytville silty clay soil.  Crop yields increased because of subsurface drainage by 24%-39% for corn and 13%-46% for soybeans.  Crop yields increased because of crop rotation by 11%-23% for corn and 9%-29% for soybeans.  Conservation tillage systems are better than plowing and no-till appears to be the best single tillage option.  Does drainage pay? Overall, for 25 years, average corn and soybean yield increase due to drainage was 30% (Reeder, 2011, Conservation Tillage Conference, Ada, OH).  A 30% corn yield increase equates to taking a 135 bu/acre farm to 175 bu/acre farm.  At $7.00 per bushel of corn, that is a $280 gain in gross revenue per year.

Benefit-cost analysis for subsurface drainage by rotation and tillage system for Hoytville silty clay soil (1984-1995) range from 1.7 to 2.2 for corn and 1.3 to 3.1 for soybeans (Brown, 2011 Overholt Drainage School).  With today’s corn and soybean prices and an estimated $800 cost per acre of a new drainage system, the benefit:cost ratio is around 4:1 for corn and 3:1 for soybean.

OSU and OARDC are committed to drainage water management research.  The demand for food and energy continues to look at the agriculture industry for productive and responsible systems.  Ag drainage systems help productivity rise to the current level and will be essential for future advancements.

References:

Brown, L.C., Overholt Drainage School – Annual land improvement and drainage contractor training school. Presentations, field practical, training exercises, and reference materials provided to participants.  Ohio State University, Department of Food, Ag and Biological Engineering, Columbus, OH. Miscellaneous Bulletin OAWMGWP No. 1-1/2009. 2011.

Brown, L. C., B. M. Schmitz, M. T. Batte, C. Eppley, G. O. Schwab, R. C. Reeder, and D. J. Eckert. “Historic Drainage, Tillage, Crop Rotation, and Yield Studies on Clay Soils in Ohio.” pp. 456-464 in Drainage in the 21st Century: Food Production and Environment. Proc. 7th International Drainage Symposium. Brown, L. C., ed. Vol. 7:02-98. St. Joseph, MI: ASAE, 1998.

Brown, L.C., A.D. Ward. “Understanding Agricultural Drainage.” OSU Extension Factsheet AEX-320-97. Ohio State University Extension. 1997.

Reeder, R.C., L.C. Brown, E. Ghane. “Twenty-five years of drainage, tillage, crop rotation, and yield studies in northwest Ohio.” Oral presentation at the 2011 Conservation Tillage and Technology Conference. Ada, OH. 2011

Taxpayer Relief Act of 2012- What does it mean to Ohio Farmers?

By David Marrison, OSU Extension Associate Professor & Chris Bruynis, OSU Extension Assistant Professor

The United States Congress worked overtime over the New Year’s Holiday to pass the American Taxpayer Relief Act of 2012 and was signed into law by President Obama.  There are many provisions which are allowing members of the agricultural community to breathe a sigh of relief as they head into 2013 and some provisions, such as the farm bill, will cause much debate in the upcoming months.  This article provides a summary of some of the provisions passed with this legislation, as well as a few provisions that were not addressed, which will impact agriculture.

Farm Bill Extended and No Cows went over the Cliff, Yet

The Taxpayer Relief Act includes a nine-month partial farm bill extension.  With consumers up in arms over milk prices rising to $7 to $8 per gallon because the milk subsidy program would revert back to an antiquated parity-based price support formula that was implemented in 1949 and would  have increased milk prices to close to $40 per hundredweight, more than double the current milk price. This extension of the current subsidy program through December 31, 2013 will keep milk prices stable.  Basically, Congress kicked the can down the road on the Farm Bill and making any corrections to the milk pricing system.

This extension also extends $5 billion worth of government subsidies for commodities such as corn and soybeans. Other programs including conservation, organic growing, fruit and vegetable, and beginning farmer and rancher programs were also extended but at lower funded levels. It should be noted that the direct payments were targeted for elimination during the farm bill discussions this past year. The Senate passed a farm bill extension in June but the House never voted on its own version, leading to a stalemate which ended with the partial extension. Congress will now have until October 1 when the new fiscal year begins to pass a more typical five-year extension.  Many expect the key components of last year’s farm bill proposals — an end to direct payments, new crop insurance programs and cuts in nutrition initiatives — to be included in the new legislation. At any rate, it will make for an interesting farm bill negotiation in 2013.

The bill also extends supplemental disaster assistance programs by amending the federal crop insurance act to include 2013. This raises questions for which answers are not known at this time. The first is the option for farmers wanting to exit from the average crop revenue protection program (ACRE).  Since the original rule was farm signed into ACRE must stay enrolled in ACRE, does this extension force farmers to stay enrolled through 2013?  Also the supplemental revenue assistance payments (SURE) status is unclear at this time for 2012 and 2013.

Individual and Capital Tax Rates

The bill permanently retains the 10%, 15%, 25%, 28%, and 33% income tax brackets. The 35% tax bracket ends at $400,000 for single filers and $450,000 married filing jointly. Above this threshold, there’s a new 39.6% tax bracket. Likewise the bill permanently retains the 0% and 15% tax rates on qualified dividends and long-term capital gains, and adds a new 20% tax rate that would apply to taxpayers who fall within the new 39.6% tax bracket. Which capital gains tax rate will apply depends on what tax bracket a person is in. The new capital gains tax rates for 2013 and future years will be

  • 0% applies to capital gains income if a person is in the 10% and 15% tax brackets,
  • 15% applies to capital gains income if a person is in the 25%, 28%, 33%, or 35% tax brackets
  • 20% applies to capital gain income if a person is in the 39.6% tax bracket.

Federal Estate Tax

This legislation permanently maintains the federal exemption for gifts and estates estate tax exemption at $5 million instead of dropping to $1 million. This amount will also be indexed for inflation and includes the transfer of the unused exemption of a deceased spouse to the surviving spouse.  It should be noted that this legislation included the word “permanent.”  This is significant as many fiscal agreements made by Congress since 2001 have contained a phase out date.  The top rate to tax amounts in excess has increased from 35% to 40%.  But for many this was an acceptable compromise since it was scheduled to drop to $1 million with the excess taxed at 55% in 2013.  This portion of the legislation should allow many farm families to sleep easier as they make plans to transition their farm businesses to future generations.

Section 179 Increased & Extended

Internal Revenue Code Section 179 allows farms and other businesses to write off small amounts of annual investments in capital assets, such as machinery, in the year of purchase in lieu of depreciating the investment over a number of years.  The 179 deduction was reverted (increased) back to the old 2010/2011 level of $500,000 for 2012 and 2013. This is a huge incentive given that up until this legislation was passed the 2012 limit was $139,000 and it would have dropped to $25,000 in 2013.  Since this bill was not passed until the final hours, the increase to $500,000 for 2012 will most likely not help farmers unless they had purchased equipment in excess of $139,000 and had planned on just putting it on a regular deprecation schedule.  It should be noted that this deduction will revert back to $25,000 beginning in 2014.  However, as always, time will tell.

Bonus Depreciation Extended

This legislation also extended the special 50% special depreciation allowance, also known as bonus depreciation, through the end of 2013.  The bonus depreciation provision generally enables businesses to deduct half the cost of qualifying property in the year it is placed in service. Bonus Depreciation is now scheduled to be eliminated for the 2014 tax year.

Payroll Taxes

In 2011, Congress had lowered the FICA payroll tax rate from 6.2% to 4.2% to put more money in the pockets of Americans. This adjustment expired at the end of 2012.  This will result in a payroll tax increase for workers.  For example, a farm employee earning $30,000 a year will take home $50 less per month.

Conservation Easement Donations

The special break for conservation easement donations was extended through 2013.

Additional Medicare Tax

As part of the plan for funding the federal health care, several new taxes were put into place that this most recent bill did not address. These included a tax on investment income and an additional Medicare tax for those people earning higher incomes. Both of these new taxes impact individuals making more than $200,000 a year or couples with $250,000 or more. These taxpayers must pay the new 3.8% tax levied on investment income such as cash rent received for farmland starting in 2013.  Additionally, these same high-earners must pay an additional .9% Medicare payroll tax on wages above $200,000 for individuals and $250,000 for couples. This increases the current 2.9% Medicare payroll tax to 3.8% for those dollars earned above the designated earning levels.

Want to learn more?

The complete American Taxpayer Relief Act of 2012 can be accessed at:

http://www.govtrack.us/congress/bills/112/hr8/text

References:

http://www.govtrack.us/congress/bills/112/hr8/text

http://www.cbsnews.com/8301-34222_162-57561587-10391739/milk-cliff-averted-too/

http://www.stltoday.com/business/local/failed-fiscal-cliff-deal-means-no-farm-bill-for-now/article_734da1cb-45d8-521e-ac6b-ecc16a66b790.html

http://www.politico.com/story/2013/01/fiscal-cliff-deal-include-farm-bill-extension-85641.html?hp=r8

http://www.usatoday.com/story/news/politics/2013/01/02/farm-bill-extension-agriculture/1805341/

http://www.forbes.com/sites/gracemarieturner/2013/01/02/as-2013-begins-get-ready-for-an-obamacare-tax-onslaught/

Crop Input Outlook 2013

Barry Ward, Leader, Production Business Management
OSU Extension, Department of Agricultural, Environmental and Development Economics

Crop profitability prospects for 2013 are positive for the three major row crops in Ohio. Input costs have increased from last year but high crop futures prices for 2013 crops will allow producers to plan for positive margins next year. OSU Extension Enterprise Budget projections show positive returns for corn, soybeans and wheat in 2013. These budgets are available online at: http://aede.osu.edu/programs/farmmanagement

OSU Extension Budgets show projected variable (cash) costs for corn, soybean, and wheat production to be 4%, 6% and 2.5% higher, respectively in 2013 versus 2012. Higher commodity prices and higher costs point to another risky production year as the cash investment in an acre of corn will top $400 (excluding land, machinery and labor costs) and in some production scenarios be closer to $450 per acre. The cash investment in an acre of soybeans or wheat will be in the $200-$260 range.

Fuel
The Energy Information Administration (EIA) estimates the average price for Brent Crude Oil at $103.75 per barrel for 2013 which is a 7.3% decrease from 2012. This is due to slightly lower oil consumption growth projections for 2013. The EIA projects natural gas prices to increase 3 percent in 2013. Expected tightness in the market is the reasoning, but this projection is harder to reconcile with the increased production capabilities in the U.S.

Fertilizer
Fertilizer continues to be the most volatile of the crop input costs and cost management of this important input may be the difference in being a low cost or high cost producer in 2013. Fertilizer products have seen prices slightly higher to slightly lower compared to last year.

Increases over last year and likely will continue to increase due to higher crop commodity prices and positive profitability prospects for 2012. Healthier farmer balance sheets and continued positive crop profit prospects have signaled the global marketplace to increase acreage (if possible) and maintain or increase fertilizer rates and led to strong global demand driven markets. On the flipside, the E.U. and U.S. sovereign debt issues and potential economic slowdowns are factors, if unresolved, may lead to a slowdown in fertilizer demand and flat to lower prices.

Nitrogen (N)
The retail price in November/December in Ohio was $845-925/ton for anhydrous ammonia (5% increase over year ago) and $388-460/ton for UAN (28%) (7% increase over year ago).

Factors that may lead to N price increases include:
+ High crop prices and crop profitability
+ Large corn acreage prospects for the U.S. again
+ Strong farm balance sheet
+ Mississippi barge traffic may be delayed due to low water levels

Factors that may lead to N price decreases include:
– Slow world economy
– Low domestic natural gas price
– More domestic N production coming online Giesmer, La; Donaldsville, La; Augusta, Ga; etc.
– More domestic N production to be built – approximately 9.3m tons (present capacity 13m t)

Nitrogen fertilizer manufacturers are presently operating at profitable levels due to higher N prices and relatively low natural gas prices, but this fact hasn’t led to supply outstripping demand as the entire supply chain has been more cautious in getting caught in a repeat of the 2008 upside-down fertilizer market.
With the high correlation of nitrogen price to corn price, future movements in nitrogen prices will more than likely take their cues from movements in price of corn. There may continue to be a disconnect between foreign/domestic port prices and Midwest prices as the low Mississippi river levels continue to restrict fright up and down the river.

Phosphorous (P2O5)
Di-ammonium Phosphate (DAP) in November/December in Ohio was $634-690/ton (9% decrease over year ago) while mono-ammonium phosphate (MAP) was $644-700/ton (9% decrease over year ago).

Factors that may lead to P price increases include:
+ High crop prices and crop profitability
+ Strong farm balance sheet
+ Mississippi barge traffic may be delayed due to low water levels

Factors that may lead to P price decreases include:
– Slow world economy
– Residual soil P (due to drought) may dampen demand

Potassium (K20)
The retail price of potash in December in Ohio was $555-640/ton (7% decrease from year ago).
The potash industry essentially operates as a duopoly (two firms, in this case, two consortiums, with dominant control of the market) with Canpotex (Canadian Potash Exporters) and Bellarussian Potash Co. controlling much of the global potash supply.

Factors that may lead to K price increases include:
+ High crop prices and crop profitability
+ Strong farm balance sheet
+ Potash Producers have begun to curtail production

Factors that may lead to K price decreases include:
– Slow world economy
– Residual soil K (due to drought) may dampen demand


Seed and Crop Protection Chemicals
Company price data and industry sources indicate seed prices for 2013 to be 5-10% higher.
Crop protection chemical prices will see similar increases except glyphoste, which has seen a 50% increase in price for many of the different glyphosate products.

For more information on AEDE/OSU Extension Policy and Outlook offerings:
http://aede.osu.edu/programs-and-research/agricultural-policy-and-outlook-conferences

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.

2013 Agricultural Policy and Outlook Conference Preview Meeting – December 3, 2012

Barry Ward, Leader, Production Business Management
OSU Extension, Department of Agricultural, Environmental and Development Economics

On Monday, December 3, 2012, Ohio State University’s College of Food, Agricultural, and Environmental Sciences kicked off its 2013 Agricultural Policy and Outlook Conference Series with a special preview meeting hosted by Bruce A. McPheron, Vice President for Agricultural Administration and Dean of the College.

The preview meeting, which included over 125 attendees from the State of Ohio, was held at Ohio State’s 4-H Center. The event featured presentations and Q and A with experts from AEDE, who discussed issues the food and agricultural community should expect in 2013. The event focused on policy changes, as well as market behavior with respect to farm, food, energy resources and the environment.

The full schedule of event speakers, including topic overview briefs, presentation files, and presentations can be found online at:
http://aede.osu.edu/programs-and-research/agricultural-policy-and-outlook-conferences

The Dean’s preview event kicks off a series of county meetings to be held statewide in early 2013. More information on these meetings can be found here: http://aede.osu.edu/programs-and-research/agricultural-policy-and-outlook-conferences/county-meetings

If you would like more information, or if you have any questions on the Agricultural Policy and Outlook Conference Series, please contact Dr. Matthew C. Roberts at roberts.628@osu.edu or 614-688-8686.