Ohio NASS Office Release County Rental Estimates for 2010

By David Marrison, Extension Educator

The Ohio office of the National Agricultural Statistics Service (NASS) released this week the 2010 Cash Rent Estimates for the 88 counties in Ohio. This report provides average cash rents for non-irrigated cropland and pasture for both 2009 and 2010. The average cash rental rates vary from a low of $24 per acre in Noble County to a high of $145 in Darke County. The average rental rate for all counties was $100 per acre. The average pasture rental rates ranged from a low of $18 per acre in Gallia County to a high of $47 per acre in Morrow County. The average rental rate for pasture in Ohio was $35 per acre.

Click here to access the 2010 County Cash Rent Estimates report

Complete county by county statistics for corn, soybeans, winter wheat, hay, oats, all cattle, milk cows, hogs, sheep, and farm numbers can be found on the NASS web site at:
http://www.nass.usda.gov/Statistics_by_State/Ohio/Publications/County_Estimates/index.asp

Marcellus Shale in Ohio

Writer: Martha Filipic
Phone: 614.292.9833
http://commtech.ag.ohio-state.edu

Ohio landowners interested in leasing their land for natural-gas drilling into the rich resources of the Marcellus Shale need to be aware that such leases can carry some financial risk if they’re not cautious. And, potential risks to the environment could
be serious.

The Marcellus Shale formation encompasses about 95,000 square miles from New York to West Virginia, swinging through the southeastern corner of Ohio. The ancient formation, lying 8,000 to 15,000 feet below the surface, is estimated to be capable of producing more than 363 trillion cubic feet of clean-burning natural gas — more than 15 times the natural gas used in the United States each year. The Utica formation, which lies beneath the Marcellus and reaches into parts of central Ohio, appears to have similar reserves.

These rich resources are fueling a “gas rush” in areas where drilling is taking place, but the rise of the new industry has also raised concerns about the possibility of water contamination.

The drilling technology necessary to fracture the shale and release the gas requires millions of gallons of water, sand and chemicals, some hazardous, to be injected into the wells, which sometimes extend horizontally for a mile underground from the well hole on the surface. Potential problems with the disposal and treatment of the liquid waste that results from these drilling practices has also raised questions.

As with any type of drilling arrangement, landowners who are
approached with leasing agreements to allow companies to tap into the Marcellus or Utica shale reserves should take steps to protect themselves, said Clif Little, an educator for Ohio State University Extension based in eastern Ohio.

“Some people jump at the initial offer,” Little said. “I’ve heard of
contracts offering as little as $10 an acre up to some offering $2,000 an acre. It’s not surprising to see variations early in the process — we don’t have a lot of evidence yet on how well Ohio wells will produce. As we get that evidence, offers may change.”

Right now, the stakes are huge. With the possibility of rental
payments, sign-up bonuses and royalties, some landowners could see income of hundreds of thousands of dollars or more.

Little recommends that any landowner considering leasing land for
drilling to work with an attorney before signing anything. Most
landowners are approached with a “standard” oil and gas lease contract that is most likely written in the company’s interests. Many of those terms are negotiable and can be revised to be more in the landowner’s interests, he said.

“Water issues are always a concern, both for livestock and drinking water,” Little said. He suggests that landowners:

— Incorporate language into a contract to protect both the quality and quantity of the land’s water supply.

— Conduct water testing before drilling starts independent of any
water tests the company performs. “Begin documenting now the yield and the quality of your water, so you have a baseline.” Sometimes local health departments have records of water yields from private wells; they could be a good resource for landowners. One such lab capable of providing basic screening of oil and gas contaminants is Penn State’s Agricultural Analytical Services Lab, which offers a special test for water supplies near gas or oil well-drilling activity. The cost is $65; OSU Extension educators often can supply testing kits, or landowners may contact the lab directly at 814-863-0841 or aaslab@psu.edu

— Include in the water protection clause that if water supply is
affected, it will be replaced with water of like quantity and quality
at the company’s expense. Specify which party (the company or the landowner) will be responsible for overseeing the process, and what types of reparation would be acceptable. “I once saw a huge plastic cistern in front of someone’s house that became their new water supply,” Little said. “If instead you want a new (water) well drilled, specify that.”

— Understand that the possibility exists that neighboring landowners’ water could also be affected. Landowners should make sure the lease agreement puts all liability on the company’s shoulders. Landowners within 1,000 feet of any potential drilling activity also should get their water tested: “To use extreme caution, get your water tested if you rely on a private water supply and you’re within a mile of such activity,” Little said. Property owners in these areas need to know that contamination problems resulting from this type of drilling are exempt from the federal Clean Water Act and Safe Drinking Water Act, so extra precautions would be advantageous.

Financial considerations in a leasing agreement also deserve scrutiny, Little said. Those issues are wide-ranging, including:

— Unitization of properties involved in a lease. Unitization allows
the drilling company to form a single unit with adjoining properties. “With unitization, you might be splitting royalties with many other landowners,” The larger the unit, the smaller your percentage of the royalties,” Little said. “You may want the agreement to specify a limit to the acreage the company can unitize.”

— Limiting the depth and length of the drilling permitted under the terms of the lease. “Think of your land as an apartment building, with many floors and long hallways,” Little said. Today’s horizontal drilling techniques allow companies to drill vertically and then branch off horizontally underground, for up to a mile. Landowners may want to limit exploration to a particular formation and retain the rights to other deeper and shallower formations.

— Many standard contracts permit the company to remove any
constituents found in the drilling area. “It might be wise to limit
the lease to oil- and gas-related hydrocarbons. Or, you might specify your percentage if the company finds anything else of value and harvests it from your property.”

— A right-to-assign clause. The company may want an unlimited right to assign (or sublet) all or a portion of the lease. “From a landowner perspective, you may want to know who you’re doing business with, and, if a portion or all of your lease is sold, you would want a share in the profit,” Little said.

— If the agreement includes free natural gas (up to a certain amount) for the landowner, it should also specify what happens if the landowner doesn’t use up the entire allotment. “If you don’t use all the cubic feet of gas entitled to you, then it’s being sold to someone else. You should probably get most of that value, 7/8 of it, back.”

Landowners who agree to a cash amount in lieu of free gas might want to consider adding a clause that the amount increase over time, along with the value of natural gas.

— Compensation for being unable to use the property while drilling is taking place. “A $10,000 to $15,000 spud fee would help compensate for loss of ground for potentially up to three years,” Little said.

— Specify where drilling, roadways, structures and electrical wires will be located on your property. “Get an aerial photo and make where the company is permitted,” Little said. “You don’t want to be surprised later.” Specify the type of fencing required to ensure livestock are protected, and how the company must maintain any structure or infrastructure. “The equipment used can leave some pretty big ruts behind, allowing water to pool and affecting drainage,” Little said. “It may be wise to state in the lease the condition that hull roads and other structures are to be kept and whose opinion will hold sway in case of disagreement.”

— Rights of way given to the company should be a separate agreement, particularly for pipelines needed for transport of the natural gas. “Specify how deep lines need to be buried, especially if you do tillage on the land.”

— Be certain to include a negotiation or arbitration clause. “At some point, there will likely be some sort of disagreement and you’ll need some type of mediation,” Little said. “You should decide in advance if you want to take these matters into a court of law or use a simpler method of arbitration.”

— Specify what needs to be done after production ceases. “If you raise cattle, you’ll want to specify what kind of forage you want for re-seeding, and what sort of soil tests and nutrient tests you’ll want done.”

There are many more issues to take into account when signing over rights to property for gas drilling, Little said. He strongly
recommends that landowners do their homework and work with a lawyer before signing any type of leasing agreement. “There’s a lot to consider besides money,” he said.

For more information, visit the website of Ohio’s Division of Mineral Resources Management by going to the Department of Natural Resources website, http://www.ohiodnr.gov, and clicking on “Mineral Resources.”

In addition, OSU Extension’s “Leasing Farmland for Oil and Gas
Production” fact sheet, written by Little in 2008, may be helpful. The document available free to download on OSU Extension’s Ohioline website, http://ohioline.osu.edu/als-fact/.

Important aspects of an oil & gas lease

By: Clif Little, OSU Extension Educator

Oil and gas exploration may have great economic implications for landowners however; a good lease is not exclusively about money. A good lease is about maximizing economic gains, protecting the land resource and its usability. The terms of a lease like any business deal should be favorable to both parties. For each landowner there will be a different set of goals which influence the terms of a lease. List what is important to you and work with an attorney to incorporate your desires into the lease contract. This factsheet we will discuss how an oil and gas lease may impact landowners.

Storage of gas, brine, oil and other materials
Storage clauses or payment clauses may be utilized to keep a lease in effect regardless of whether oil or gas are found. A property owner should clearly understand all of the different ways their lease can stay in effect. If you do not intend for your property to become a storage unit for oil and gas produced elsewhere, make sure that this is clearly stated in the lease. It may be wise to work with your attorney to create a separate lease agreement for storage if that is your desire.

Strata, pipelines
There may be some advantages to the landowner in leasing to a drilling company only the formations that the company intends to develop. This may free the landowner to lease deeper or shallower formations to another company. In addition, leasing a specific formation to the drilling company may limit the arbitrary assignment or sale of other strata.

Consider the following statements regarding what is being leased: does hereby lease and let unto the Lessee, for the purpose of drilling, operating for, producing and removing oil and gas thereof, and of storing and holding in storage, and removing (sometimes herein referred to as gas storage purposes, storage shall only pertain to oil, gas and brine produced from this leased premise.), including gas lying thereunder, by pumping through wells or bore hole, in and from the marcellus shale formation lying thereunder, and of placing tanks, equipment and structures thereon to procure and operate for the said products, and of laying pipe lines thereover to transport the same from the leased premises and “from other premises” on, over and across the leased premises. Lessor reserves all non-producing formations. Lessor reserves the right-of-way on all lands. Tanks, compressor stations, gas and oil lines shall be treated in this lease the same as the oil and gas well. These items may not be assigned; easements and/or right-of ways shall not be created without written consent of landowner. This lease only pertains to oil, natural gas, natural gas liquids and related hydrocarbons, (referred to in this document as constituents and/or product from which royalty is derived). All other minerals are retained by the Lessor.

Referring to the underlined areas above, the writer has attempted to narrow the scope of the lease to oil, gas, related hydrocarbons of a particular formation. The landowner has attempted to retain all other formations so that these may be leased in the future. Likewise, the landowner has taken precautions so as not to create right-of-ways. In addition, the landowner mentions assignments, attempting to retain the right of consent. If a landowner agrees to assignment of all or part of a lease it might be wise to share in the profit each time the lease is assigned. I can not say if the above terms are written well from a legal standpoint but it is clear in this case what is important to the landowner. For each landowner the above mentioned factors are important and should be individually prioritized and potentially negotiated with the leasing company.

Resolving Disputes
Disagreements between landowners and oil and gas lessees are inevitable. Landowner need to work with their attorney to insert phrases or clauses which will aid in swift, cost effective resolution. One possible method of dispute resolution is to utilize three disinterested persons, one appointed by the lessor, one by the lessee, and the third by the two so appointed, and the award of such three persons shall be final and conclusive. Leases often state issues are not binding unless they have been ruled so in a court of law. This is redundant, since of course, this is always an option. However, most landowners will not take a matter to court because of concern for cost.

Water Protection
While it is unlikely, it is possible your ground or surface water could be impacted from oil and gas exploration or development. Landowners would be wise to document flow rate and quality for all water sources prior to hydrocarbon exploration and or drilling. Many laboratories can perform basic screening of oil and gas contaminants. One such lab is the Penn. State Agriculture Analytical Laboratory. The cost is currently $65 and is subject to change. Kits may be available through your local OSU Extension office. Penn. State may be contacted at 1-814-863-0841.
It would be prudent for landowners to have the lessee test, at their expense and at a lab of lessor choice, for drilling contaminates and related constituents prior to exploration and/or drilling, and following well production. If lessor determines there has been water contamination as a result of lessee’s activities, lessee agrees to provide lessor potable water (provided in like measure quantity/quality as to lessor judgment) and at no expense. Work with your attorney to protect your water source.

Pooling & unitizing
Pooling allows the drilling company to pool or form a drilling unit with adjoining property owners. Unless you have very few acres, exercise caution in granting a company unrestricted pooling/unitization or consolidation. If your land is unitized as part of a drilling unit, you will likely split the royalty with the other contributing landowners. The percentage of the royalty you receive is based on your acreage contribution to the drilling unit. When unitized if the producing well is not on your property you will most likely not receive the free gas payment. This particular area of a lease can be used to bind large tracts of land and tie up a formation. Pooling/unitizing is beneficial to the drilling company allowing them to treat the pooled land as a single lease. Wells drilled anywhere on the pooled acreage may keep the lease in effect. Some states have limited the amount of acreage drillers can pool into one unit. So how many pooled acres is required for a driller to efficiently develop the resource? That is difficult to answer. However, from a large acreage landowner perspective; it would be beneficial to limit the pooled acreage to 640-1280 acres.

In closing, the opportunity to negotiate an oil and gas lease on your farm does not come along often. The terms agreed upon in your lease have the potential to affect the future operations of the farm and the real-estate value. Changes to the lease are usually addressed in an exhibit or addendum. Take time to understand the lease document and seek out an experienced oil and gas attorney for advice. Weigh the factors in a lease, decide what is most important to you and understand what elements you can give up and what elements of the lease you will negotiate.

Rural Energy for America Program (REAP)

Rural Development is currently accepting applications for the Fiscal Year 2011 Rural Energy for America Program. This program is designed to provide grants and loan guarantees to farmers and rural small for-profit businesses who wish to install energy efficiency improvements or to install renewable energy systems. Renewable energy systems can include solar electric, solar thermal, wind, geothermal, biomass and anaerobic digestion systems. Energy efficiency improvement systems can include lighting improvements, insulation, electric motor replacements and other energy efficiency improvement projects as outlined in the energy audit.

A new type of renewable energy system has been added to the listing of eligible projects this year. The installation of blender pumps at retail gasoline stations and convenience stores will be considered an eligible project. This new project type was added in an effort to further promote the use of ethanol in the rural areas of the country.

For Fiscal Year 2011, additional emphasis is being placed on projects which are requesting less than $20,000. Congress has authorized a specific budget allocation to fund these smaller projects which provide energy efficiencies or can produce renewable energy for the applicant. If you are considering a small project with a grant request of less than $20,000, now would be the time to apply.

Grain dryer replacement projects which have been a major beneficiary of the program in previous years, are receiving less emphasis in Fiscal Year 2011. Since only dryers of similar size can be funded through this program, an application with a proposed increase in dryer capacity may result in a reduction in the grant request and award. These reviews will be completed once an application for grant and/or loan guarantee assistance is received.

If you are interested in pursuing a grant or loan guarantee for the Rural Energy for America Program, please submit an application to the address listed below at your earliest opportunity. Grant requests received early in the fiscal year have generally fared better than other applications.

Randy Monhemius, Business Program Specialist
USDA, Rural Development
200 North High Street, Room 507
Columbus, OH 43215
Phone 614-255-2424
Fax 614-255-2562
Randy.Monhemius@oh.usda.gov
www.rurdev.usda.gov

Do I need Livestock Gross Margin Insurance?

Cameron S. Thraen
The Ohio State University Extension
State Specialist Dairy Markets and Policy
Department of Agricultural, Environmental and Development Economics
The Ohio State University

This eight page summary was written to be used as a guide for Ohio Dairy producers as they decide to purchase Livestock gross margin insurance as a profit management tool for their dairy business. This articles addresses the following questions that dairy farmers may have:

1. How do I determine risk exposure?
2. How in adequate of a margin can you withstand?
3. What is your maximum reduction in equity allowable?
4. What steps should I use in evaluating my situation?

Click here to access the 8 page LGM Dairy Evaluation Guide

Producers can also access Dr. Thraen’s LGM website at:
http://aede.osu.edu/programs/ohiodairy/LGM_Dairy.htm

Livestock Gross Margin Insurance for Dairy Farms What is it? Do I need it? What will it cost?

Cameron S. Thraen
The Ohio State University Extension
State Specialist Dairy Markets and Policy
Department of Agricultural, Environmental and Development Economics
The Ohio State University

By now you may have heard of a newly available insurance product available to dairy producers, termed ‘Livestock Gross Margin Insurance’, or LGM-Dairy. This article explore this product and help dairy producers decide if this is a product they may be interested using in their profit and risk management tool-kit. Simply put, LGM-Dairy is an insurance product which, in exchange for a premium paid by the buyer, provides a payment in the event that actual gross margin is less than anticipated gross margin at the end of the insurance contract period. Gross margin is calculated as the difference between expected gross revenue and expected purchased feed cost.

Click here to access the LGM Dairy Basics 10 Page Summary

Click here to access Dr. Thraen’s LGM website at
http://aede.osu.edu/programs/ohiodairy/LGM_Dairy.htm

Grain Market Lecture Series Breaks Down Commodity Reports

Writer: Audrie Koester

Agricultural economists at Ohio State University are holding a series of free, monthly online workshops that will cover grain forecasts, policy, futures markets, supply and demand, and long-term analysis.

The goal of the webinars is to help those interested in the grain market understand how world events and world grain supplies affect local markets, said Stan Ernst, Ohio State University Extension program leader in the Department of Agricultural, Environmental, and Development Economics.

“Basically, what we are doing every month is looking at the World Agricultural Supply and Demand Estimates report in-depth and seeing where the markets may be going,” he said.

Carl Zulauf, senior economist and Ohio State agricultural economics professor, will present the webinars and challenge producers’ traditional thinking about grain markets.
“Hopefully, the listeners will get an idea for marketing opportunities and do some planning as they look ahead into planting season,” Ernst said.

The webinars are scheduled for March 16, April 12, May 12, June 13 and July 13 at 9 a.m. Ernst recommends viewers have access to a high-speed Internet connection. Participants can ask questions throughout the presentation through telephone calls and online chat.

The program is open to the public, and Ohio State will continue the webinar series after July if there is enough demand.
“We generate a lot of interest from bankers, educators, agribusinesses and elevator operators,” Ernst said. “This is available for anyone trying to keep up-to-date with grain markets.”

Participants can register at http://aede.osu.edu/programs/outlook/.

For more information, e-mail econograms@osu.edu. Additional information may be available from county offices of OSU Extension.

Get up-close and personal with your 2010 costs of production….participate in the National Farm Benchmarking Project

By: Dianne Shoemaker, Extension Dairy Specialist, Ag Educator

Total cost of production per cwt, feed cost per cwt, net farm income per cow. Direct costs, total costs, and net returns per acre, per bushel, per ton of crops grown. These are important numbers for every farm as they monitor profitability, develop and monitor risk management plans, and look for opportunities. These are also numbers that allow one farm to compare their production and financial management with similar farms.

How does your farm stack up against all of your competition? against all farms your size? against the top 20% (based on return to assets) of both groups? These are not difficult questions to answer if you become involved in the National Farm Benchmarking project this year.

Ohio is participating in this project led by the Center for Farm Financial Management at the University of Minnesota. While Ohio regularly contributes some farm data to the national database, we have the opportunity to expand the number of farms participating in financial analysis this year.

Through grant funding from the National Farm Benchmarking project, we are able to offer a full 2010 financial analysis, including enterprise analysis to 100 farms. Field crop, dairy, livestock, poultry and horticultural crop farms are welcome to participate. Analyses will be completed by either Extension or Farm Business Planning and Analysis (FBPA) personnel.

Participants in the project will work with their Extension or FBPA consultant to complete their farm’s analysis by June 2011. Maintaining each farm’s confidentiality is critical and farm analyses are coded before submission to the database where data is only shared as group data where individual farms are not identifiable.

In July, Ohio’s farms are invited to participate in a meeting to review Ohio’s farm business summary and learn how to use an individual farm’s analysis, Ohio’s data and the national database to enhance their farm’s financial and risk management.

We invite and encourage you to participate in Ohio’s dairy summary for 2010. This is a prime opportunity with the benchmarking grant covering the $600 per farm cost of analysis. Questions? Contact Dianne Shoemaker at (330) 257-3377 to discuss this opportunity.

Extension and FBPA consultants who can help you with this project include:

Dianne Shoemaker- Wayne County Extension, 330-264-8722 or shoemaker.3@osu.edu

Thomas Weygandt- FBPA, Buckeye Career Center, 330-465-8019 or tweyg@embarqmail.com

Tom Ackerman- FBPA, Wilmington, 937-382-4760 or tackerman32@gmail.com

Glen Arnold- Putnam County Extension, 419-523-6294 or arnold.2@osu.edu

Luke Baker- FBPA, Henry County, 419-966-7330 or klbaker@henry-net.com

Chris Bruynis- Wyandot County Extension, 419-294-4931 or bruynis.1@osu.edu

Bruce Clevenger- Defiance County Extension, 419-782-4771 or clevenger.10@osu.edu

Ann Gano McCleary-FBPA, Buckeye Career Center, 330-339-7511 or agano@bright.net

Don Garrett- FBPA, Miami Valley, 937-286-047 or don@agdatasolutions.com

Wes Haun- Logan County Extension, 937-599-4227or haun.17@osu.edu

Jeff McCutcheon- Morrow County Extension, 419-947-1070 or mccutcheon.30@osu.edu

Heather Neikirk- Portage County Extension, 330-296-6432 or neikirk.2@osu.edu

Julia Woodruff- Erie County Extension, 419-627-7631 or woodruff.94@osu.edu

Crop Insurance Premium Calculators

Now that half of February is over, base prices and volatilities can be more accurately estimated, leading to fairly accurate estimates of crop insurance premium.

The Crop Insurance section of Farmdoc has online 2011 Crop Insurance Premium Calculators. Also available for download is the 2011 Crop Insurance Decision FAST Tool, a Microsoft Excel spreadsheet useful in premium estimation and crop insurance evaluation.

The 2011 iFarm Crop Insurance Payment Simulator returns estimates of premiums, frequency of payments, average payments, net costs, and risk reductions associated with alternative crop insurance products and election levels.

On Demand Webinars are also available describing the new COMBO product. Don’t miss the presentation entitled “Crop Insurance and Risk Managements Strategies for 2011” which gives suggestions for choices of crop insurance products.

All of these farmdoc Crop Insurance resources are available at:
http://www.farmdoc.illinois.edu/cropins/index.asp