Test Your Drinking Water Source Workshop

by:  Sarah Cross, Ag & NR Extension Educator (740-942-8823)

What’s in your water?  Over 15 million U.S. households obtain their drinking water from private wells, which are not covered by US EPA regulations that protect public drinking water systems. So who is responsible for ensuring that private well water is safe from contaminants?  The water well owner.

Learn how to test your drinking water at a workshop entitled, “Shale Gas and Your Drinking Water Supply,” starting at 6pm on April 17, 2014 at the Puskarich Public Library in Cadiz, OH.  The event will be co-sponsored by The Ohio State University Extension and the Ohio Farm Bureaus of Jefferson and Harrison Counties.

The US EPA recommends that private water wells be checked every year for the presence of coliform bacteria, nitrates, and any other contaminants of local concern.  “The need for safe drinking water applies to everyone.  If you have a private water drinking supply and haven’t had it tested within the last year, then this event is relevant to you and your family,” says Sarah Cross, OSU Extension Agriculture and Natural Resources Educator.

Many people do not realize water wells can become contaminated through naturally occurring processes.  For example, arsenic is an element that occurs naturally in many minerals.  When groundwater flows through bedrock, it can easily dissolve hazardous substances, such as arsenic, that occur in the soil. Sources of drinking water can also become contaminated through local land use practices, such as the improper application of chemicals, or by a malfunctioning wastewater treatment system.

In addition, gas well drilling can occasionally impact groundwater sources, including private wells and springs.  Although it has not been a common occurrence over the past few decades, contamination may occur from older gas wells with corroded castings.  On the newer gas wells, contamination could originate from flooded or leaking waste fluid holding pits or spills at a drilling site.

Consequently, the state of Ohio has approved a piece of legislation that mandates the industry to do some water testing.  Based on Ohio Revised Code 1509.06 (A)(8), a company must submit baseline water sampling results for water wells within 1500 feet of a proposed horizontal well.  When it comes to oil and gas activity, a baseline water sample is one that is taken before gas drilling occurs.  Therefore, if there is a proposed well pad going in near a private water source, the oil and gas company may be mandated to sample the water before drilling activity.

However, unless negotiations have been made in a lease agreement, the company is not required to test private water well sources after drilling has occurred.  The owner is left with the responsibility of the “post drill” sample.  That being said, both “pre” and “post” drill samples are necessary to determine if water quality has changed due to drilling.

So who is responsible for ensuring that private well water is safe from contaminants?  The water well owner.

At the April 17th workshop entitled, “Shale Gas and Your Drinking Water Supply,” participants will find out how to sample their own private water source appropriately, locate a credible water sampling company, and read analytical lab results.  All program participants will receive a free drinking water sample kit.  The event will be held at the Puskarich Public Library (Cadiz, OH) from 6pm to 8 p.m.  Program speakers will include two Ohio State University Extension Agriculture and Natural Resources educators.  Dan Lima, with Belmont County Extension, will be giving a brief oil and gas development update for eastern Ohio.  This will be followed by a water sampling presentation by Sarah Cross, OSU Extension, Jefferson and Harrison Counties.

The event cost is $5 and RSVPs are required by April 14, 2014. The Jefferson and Harrison County Farm Bureaus will pay one $5 fee per membership.  Register by calling the Harrison County office of OSU Extension in Cadiz at 740-942-8823 or email cross.421@osu.edu. Registration forms and other details can be downloaded at http://www.go.osu.edu/harrisonprograms.

 

 

Pipeline Right-of-Way Workshop to be held in Cadiz, Ohio on April 8

by Sarah Cross, Extension Educator

Farmland owners and local residents are being asked to sign right-of-way agreements on a regular basis. Like an oil and gas lease, there are many items of importance for the landowner to consider prior to signing or renewing a right-of-way agreement.

The Ohio State University Extension and the Ohio Farm Bureaus of Jefferson and Harrison Counties will be hosting an educational meeting starting at 6pm on April 8th, 2014 at Puskarich Public Library (Cadiz, OH).  This workshop, entitled “Pipeline Easement and Right-of-Way Agreements,” will cover important lease considerations for landowners.

The most important item for a landowner to do prior to signing any contract is to consult with an attorney. Next, find out what type of line is being considered: is it a gathering line, collection line, intrastate or interstate transportation line. Each system has different regulatory standards and agencies responsible for oversight. Below are additional points of consideration:

• What is the proposed location of the line?

• Are state or soil and water standards for installation being followed for construction?

• What are the width of the temporary work easement and the width of the final easement?

• Can apparatuses be placed on the right-of-way? Will these items create noise? Increase your level of burden?

• What if springs, tiles, or water drainage is impacted?

• How will things be reseeded?

• What if timber is damaged or removed?

• Is the landowner held harmless in case of accidents?

• When are payments due, and the consequences of nonpayment?

• Do you have a contact person indicated in the agreement?

The above mentioned questions in regards to right-of-way agreements are just a few of the important items for landowners to consider. At the April 8th “Pipeline Easement and Right-of-Way Agreements Workshop” being held at the Puskarich Public Library, we will discuss these items in more detail.  The program runs from 6pm to 8 p.m., and program speakers will include:  Peggy Hall, Agriculture and Natural Resources Law, OSU Extension, and Dale Arnold, Director of Energy Services, Ohio Farm Bureau.

The event cost is $5 and RSVPs are required. The Jefferson and Harrison County Farm Bureaus will pay one $5 fee per membership.  Register by calling or visiting the Harrison County office of OSU Extension in Cadiz, 740-942-8823. Registration forms with the office’s address and other details can be downloaded at http://www.go.osu.edu/harrisonprograms.  Here you will also find information on another upcoming program, entitled “Shale Gas Development and Your Drinking Water Supply,” scheduled for the evening of April 17, 2014 at the Puskarich Public Library.

 

 

ARC-PLC Decision: Importance of the Price Path – The Case of Corn

by:  Carl Zulauf, Professor, Ohio State University and Gary Schnitkey, Professor,  University of Illinois, March 2014

Click here to read entire paper (with tables)

Overview:  Farms will have to decide between the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs.  The decision covers the 2014 through 2018 crop years.  Because the decision covers all 5 years, can only be made once, and is irrevocable; a key consideration will be the expected path of prices through 2018.  This post will illustrate the importance of this consideration using 3 distinct 5-year time paths for U.S. corn.  Each time path has occurred in the last 20 years.

PLC- ARC Overview:  PLC makes payments if U.S. average price for the crop year is below the crop’s reference price.  The reference price for corn is $3.70/bushel.  ARC has 2 program versions.  One, called ARC-county, makes payments for a crop if actual revenue for the farm’s county is less than the county’s ARC revenue guarantee.  The other, called ARC-individual, makes payments when the entire farm’s average revenue for all its program crops is below the farm’s ARC revenue guarantee.  For both versions of ARC, coverage level is 86% and coverage is capped at 10%.  Thus, coverage is between 76% and 86% of the ARC revenue guarantee.  The yield and price components of the ARC revenue guarantee are calculated using an Olympic average (removes high and low values) of the 5 preceding crop years.  However, when calculating the Olympic average, a crop year’s price cannot be less than the PLC reference price.  For example, if the U.S. average crop year price for 2014 is $3, calculation of the Olympic average price for 2015 corn will use $3.70 for 2014, not $3.  Thus, a floor exists on the price component of the ARC revenue guarantee.  In essence, it cannot be less than $3.18 (86% times $3.70).  Both ARC-county and PLC makes payments on 85% of base acres.  ARC-individual pays on 65% of base acres.

Price Paths:  The first price path is the largest 5-year price decrease since 1974.  It occurred over the 1996-2000 corn crop years.  Average U.S. corn price was 43% lower in 2000 than in 1995, the year before the decline began.  This price path implies prices at $3.76 in 2014, $3.38 in 2015, $2.69 in 2016, $2.53 in 2017, and $2.57 in 2018. The second price path is the largest 5-year price increase since 1974.  It occurred over the 2006-2010 crop years.  Average price of corn was 159% higher in 2010 than in 2005, the year before the increase began. This would imply a price path of $6.84 in 2014, $9.45 in 2015, $9.14 in 2016, $7.99 in 2017, and $11.66 in 2018.  The third is the path of prices over the last 5 crop years of 2009-2013.  This results in prices of $3.93 in 2014, $5.74 in 2015, $6.89 in 2016, $7.64 in 2017, and $4.99 in 2018.  Figure 1 presents the price paths that result.   Each is distinct and ends with notably different prices.

Price Component Comparison:  Figure 2 compares the PLC reference price with the ARC implied price component.  The latter is 86% of the Olympic average for the preceding 5 crop years, including using the PLC reference price for the crop year if the reference price is higher than the crop year average price.  Under the 1996-2000 price scenario, the ARC implied price component goes below the PLC reference price.  For the other two price paths, the PLC reference price is less than the ARC implied price component.

Payments: For the price paths shown in Figure 1 and 2, PLC would only make payments under the first scenario where prices are $3.76 in 2014, $3.38 in 2015, $2.69 in 2016, $2.53 in 2017, and $2.57 in 2018.  This price path is high unlikely, and represents a “disaster” type scenario for corn prices. To provide an indication of PLC and ARC-County payments under this scenario, per acre payments are calculated using U.S. yields for PLC and ARC.  In a sense, this makes ARC a U.S. program.  This calculation understates payments by ARC-county because county yields are more variable than U.S. yields.  ARC is a revenue, not price program; and thus can make payments when yields are low as well as when prices are low.

Figure 3 shows payments under PLC and ARC. ARC would make a payment in 2014 of $21 per acre while PLC would not make a payment.  This occurs because the 2014 MYA prices is $3.78, which is above the $3.70 reference price.  The $3.38 price in 2015 results in ARC payments of $68 per acre compared to $46 under PLC. In later years, PLC payments exceed ARC payments.  In 2018, for example, PLC would make a $126 per acre payment while ARC would make a $56 payment.  Under very low corn prices, PLC will make larger payments than ARC-County, particularly in later years of the horizon.

Summary Observations:

►  This post underscores the critical importance of (1) whether price in 2013 is above or below the reference price and (2) the path that prices take over the next few years in deciding which program, PLC or ARC, will provide the most risk protection.

►  While the decision will rest upon more factors than expectations about future price paths, this analysis clearly demonstrates that it is clearly desirable to have more information about price.

►  The preceding point implies that it will be useful to wait until the near the end of the sign up period to see where prices for the 2014 crop year are heading.

This publication is also available at http://aede.osu.edu/publications

 

 

ARC-PLC Decision: Why It Differs from the ACRE-DCP Decision

by: Carl Zulauf, Professor, Ohio State University and Gary Schnitkey, Professor,  University of Illinois, March 2014

Overview:  Both the recently passed 2014 farm bill and its predecessor, the 2008 farm bill, contained a choice between two types of crop safety net programs.  While similarities exist between the two sets of choices in the two most recent farm bills, notable differences also exist.  This post discusses both the similarities and the differences.

Decision Similarities:

►   The Agricultural Risk Coverage (ARC) program in the 2014 farm bill is a modified version of the Average Crop Revenue Election (ACRE) program in the 2008 farm bill.

●    Both ARC and ACRE establish revenue, not price, targets.

●    The revenue target for both ARC and ACRE is based on multiplying an average of yields and U.S. crop year average prices.  A five-year Olympic average is used for yields (removes high and low) of the five past years under ARC and ACRE.  ARC uses a five-year average Olympic average for price while ACRE uses a two-year average.  Thus, the revenue target moves with the market — increasing when market revenue is increasing and decreasing when market revenue is decreasing.

●    Both ARC and ACRE are shallow loss programs that cover only part of the revenue target:  The coverage range is between 86% and 76% for ARC, compared with 90% to 67.5% (90% minus 25% times 90%) for ACRE.

►   The Price Loss Coverage (PLC) program in the 2014 farm bill is a modified version of the price countercyclical (PC) program in the 2008 farm bill.

●    Both PLC and PC have target prices set by Congress for the length of the farm bill.

●    Both PLC and PC make payments when the U.S. crop year average price is below the target price.

●    Both PLC and PC make payments on historical base acres, although the distribution of base acres by crop may differ.  The 2014 farm bill allows farms to update the distribution of base acres to reflect the average acres planted to individual crops for the 2009 through 2012 crop.  Total base acres on the farm, however, are the same for both bills.

►   Both decisions are framed by a period of farm prosperity, but with widespread concern that the prosperity may end abruptly and badly for the farm sector.

Decision Differences:

►   The 2008 farm bill reduced direct payment by 20% if a farm chose ACRE.  Farms that elected ACRE were thus required to give up a known payment for an uncertain payment.  The 2014 farm bill has no similar requirement since direct payments have been eliminated.

►   The 2008 farm bill had no floor on the ACRE price component.  It could thus decline as low as the market price declined.  In contrast, the 2014 farm bill has a floor exists for the ARC price component.  The ARC price component can never be less than the PLC reference price, but it can be higher.

►   The 2008 farm bill used yield for the state in which the farm was located to determine the ACRE revenue target.  The 2014 farm bill uses yield for the county in which the farm is located or the farm’s yield itself to determine the ARC revenue target.  ARC thus provides more protection against low yield (individual farm yields are more closely related to its county yield than its state yield).

►   The 2008 farm bill reduced a crop’s loan rate by 30% for farms that elected ACRE.  This reduction was a significant consideration for farms, especially large farms, which use nonrecourse loans to cash flow post-harvest expense payments or manage taxes.  The 2014 farm bill has no similar provision, meaning farms electing ARC will have the same loan rates as farms electing PLC.

►   Under the 2008 farm bill, an asymmetric decision existed.  Once a farm elected ACRE, the decision was irrevocable through the 2012 crop year.  However, if ACRE was not elected, the decision could be revisited the next crop year.  The net result was an incentive to not choose ACRE unless a payment by ACRE was highly likely.  No similar asymmetric decision exists under the 2014 farm bill.  Farms must choose between ARC and PLC for all crop years from 2014 through 2018.  Once made, the ARC or PLC election is irrevocable for both programs through the 2018 crop year.

►   ACRE had to be elected for all covered crops on the farm.  In contrast, ARC at the county level and PLC is elected by individual covered crop, unless ARC-Individual is selected, in which case the option applies to all crops.  Thus, a farm may choose ARC for some covered crops on the farm and PLC for other covered crops on the farm.

►   Under the 2008 farm bill, the traditional direct and countercyclical program (DCP) was the default option.  Thus, ACRE had to be elected.  In other words, if a farm did not report a decision to the Farm Service Agency, it was deemed to have elected DCP.  The 2014 farm bill does not contain a default program option.  It does say that, if all producers on a farm do not have the same election, no payment is made for the 2014 crop year and the farm is defaulted to PLC for all covered crops for the 2015 through 2018 crop years.

►   ACRE’s revenue target could not increase by more than 10% or decrease by more than 10% from the ACRE revenue target for the previous crop year.  No cup and cap exist on the annual change in the ARC revenue target, although as noted above the ARC price component can never be less than the PLC reference price.

Summary Observations:

►   Both the 2008 and 2014 farm bills gave crop farms a choice between a revenue program whose target can move up and down with the market and a price program whose target is fixed for the farm bill.

►   For a variety of reasons the decision between price and revenue programs is more balanced in the 2014 farm bill.  Included among the reasons is that the election of the 2014 revenue program results in no difference in direct payments, a floor on the price component of the revenue target, use of county instead of state yield, and the same loan rate as the price program.

►   The revenue program enhancements can be viewed as being paid for, at least in part, by a more narrow revenue coverage range.

►   Farmers need to appreciate the differences between the 2008 farm bill revenue-price program decision and the 2014 farm bill revenue-price program decision and to adjust their decision making framework accordingly.

This publication is also available at http://aede.osu.edu/publications