Determining the Market Year Average Price for Farm Bill Program Payments

By: Chris Bruynis, Assistant Professor and Extension Educator

The 2014 Farm Bill uses a market year average price for calculating the revenue guarantee for both the County Agriculture Risk Coverage (ARC-CO) and Individual (ARC-IC) programs. Additionally, the market year average price is used to determine the actual crop revenue for ARC-CO and the price used in calculating potential PLC payments. Because of the importance of this price in the determination of program payments, it is important that producers understand how this number is derived. In Ohio the primary crops that will be insured are corn, soybeans and wheat. This discussion is limited to these crops although there is data for most crops grown in Ohio. 

The market year average is the national average price received by producers during the 12-month marketing year.  The marketing year is different for each crop.  The marketing year for wheat is June 1 to May 31 while the marketing year for corn and soybean are both September 1 to August 31.   The U.S.D.A. determines the market year average price for each commodity using a National Agricultural Statistics Service survey of commodity buyers. This monthly price survey uses data from more than 2,000 buyers nationwide to determine the monthly average price. These prices are weighted across the United States each month and for the 12 month marketing period for the crop.

More specifically buyers are asked for the total number of bushels purchased of each commodity and the total dollars paid for those bushels. NASS the divides the total dollars paid by the total quantity purchased to determine the average price for the month.  These average prices are then weighted by month to reflect the percent of crop sold that month.  An example would be that if 20% of all corn was delivered in November then the November average price would make up 20% of the market year average price.

Additionally there are some definitions used by NASS that helps understand the calculation of the market year average price. 

  • Point of Sale is when the buyer takes ownership of the grain and payment is made.
  • Commodity quantities are on dry or shrink basis and based on standard moisture.
  • Forward contracts and deferred payment contracts are reported in the month the purchaser takes ownership.
  • Basis, minimum price, and options are reported the month the grain is delivered.
  • Delayed pricing will have the price determined in the month when the price is determined.
  • Pooled grain is reported in the month when the major portion of payment is made.

Let’s examine how the market year average price is used in ARC-CO. The county benchmark revenue is the 5 year Olympic average of the higher of market year average price or the reference price times the 5 year Olympic average of the higher of historical county yield or 70% of the county transitional yield. Basically the market year average price is the price side of the revenue unless it would fall below the reference price which is $3.70 for corn. Secondly the market year average price is used to calculate the current year actual crop revenue. This calculation is the actual average county yield times higher of the market year average price or national loan rate (which is ~1.95 for corn).

For the PLC program the market year average price is compared to the reference price. Soybeans have a reference price of $8.40 and if the market year average is above the reference price, there is no payment.  If the market year average price is below the $8.40 reference price and above the national loan rate, there would be a payment for the difference between those prices on the program acres and program yields.    

Since the market year average price is used in calculating program payments for all three new farm bill programs offered to crop producers, it is critical for producers to understand how it is calculated. Improper assumptions on how this number is calculated can affect estimated program payments and potentially effect program choice.  Having the correct understanding of the market year average price will allow producers to make a better decision on which program choice is best for their farm business.

 

MarketMaker Links Producers and Potential Buyers

By: Brad Bergefurd, Extension Educator

There are nearly 8,000 farmers markets in the U.S., an increase of more than 150 percent since 2000.  Direct-to-consumer agriculture sales produce $1.2 billion in annual revenues. To be successful in your agricultural business an important thing is to have a good marketing plan. The Ohio State University South Centers leads Ohio’s Direct Agricultural Marketing program and has many resources available to assist producers with resources and educational opportunities to assist with their direct agricultural marketing plans.

Launched in 2008, one very important resource is Ohio MarketMaker which currently hosts one of the most extensive collections of searchable food industry-related data in the country. The web based program contains demographic, food consumption, and business data that users can search to find products to buy, or find a place to sell their products.

MarketMaker currently links producers and consumers in 19 states plus the District of Columbia.  As the exclusive licensee, Riverside Research plans to invest in additional research and development to expand MarketMakers capabilities to new markets and regions, both nationally and globally.  States that are currently participating include:  Alabama, Arkansas, Colorado, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Mississippi, Nebraska, New York, Ohio, Pennsylvania, South Carolina, Texas, Washington, D.C. and Wyoming. 

At the beginning of 2014, MarketMaker contained almost 700,000 businesses in categories of AgTourism, Farmers/Ranchers, Fisheries, Farmers Markets, Wineries, Eating & Drinking, Wholesalers, Food Retailers, Food Banks, and Other.  In 2013, users posted 442 advertisements in the Buy & Sell Forum which were viewed over 36,000 times. 

If you don’t have an online profile, you can set one up in less than 10 minutes at  www.ohiomarketmaker.com. There is no fee to register; it is totally free to both consumers and producers.  Your profile is easy to maintain and manage, and allows you to connect with local, state and national customers and buyers.  Some of the features available are: indicating which farmers’ markets you’ll be participating in, which restaurants you sell to, which grocery stores carry your products and your affiliation with local food organizations.

MarketMaker has many unique features that allow the consumers and producers to present themselves to other MarketMaker users.  Using the business connection feature, market managers, consumers and producers can link with one another and other organizations that have also developed MarketMaker profiles, including grocery stores, restaurants, and schools. The link serves the mutual benefit of identifying users of local food sources. Businesses you connect with on MarketMaker appear on your business’s detail page to let users know more about your operation. You may want to connect with a variety of businesses, including: retailers or farmers’ markets that carry your product, businesses where you source product, and other local food businesses.

Another unique feature is the connection of industry affiliations.  Buyers and sellers can select their current affiliations.  These affiliations help to build credibility with customers.  Some of these could include: Ohio Proud, CIFT, Ohio Grocers Association, and others.

In today’s world, social networking plays a huge factor in marketing.  MarketMaker also has the feature of connecting your Facebook and Twitter social links to your profile.  Connecting your profile to these sites helps to build your audience and customer base while networking with others in the industry.

Farmers markets may also create a profile in MarketMaker.  Farmers market managers can easily create profiles with location, web site, contact information and produce available. The advanced directional mapping tools allows customers to easily find the market and view the types of products that the market has for sale.  This feature brings buyers to the market, and saves the buyers time on locating the products they need.  

MarketMaker is supported by several state and national sponsors.  These sponsors are the USDA, Farm Credit, Ohio Wines, Ohio Farm Bureau, the Agricultural Marketing Resource Center, and the Ohio State University.

For further information on Ohio MarketMaker or Direct Agricultural Marketing visit the following Ohio State University Direct Marketing web site at http://southcenters.osu.edu/marketing/overview-programs/marketmaker.  If you would like to be added to the Ohio Direct Marketing list serve to receive direct marketing updates and educational opportunities contact Interim OSU Direct Marketing Team leader Brad Bergefurd, Bergefurd.1@osu.edu or Ohio MarketMaker Program Coordinator Charissa McGlothin mcglothin.4@osu.edu or call the OSU South Centers 1-800-860-7232 or 740-289-3727 extension #132.

Should I Give my Tenant Power of Attorney for 2014 Farm Bill Decisions?

By: Chris Bruynis, Assistant Professor and Extension Educator

There are multiple decisions that need to be made in regards to the 2014 Farm Bill. Some of the decisions have been designated as the land owner’s responsibility and other have been designated the farmer’s/tenant’s responsibility. This division of decision responsibilities adds another level of confusion and leads to the question on the validity of previously signed power of attorney documents on file with FSA.

Specifically the yield update and the base acre reallocation decisions are the land owner’s decision to make. When the land owner is not the farmer, there may be a disconnect between the person charged with making the decision and the person who has the information needed to make the decision.  Landowners have several choices at this point. 

First, they can choose not to update their farm yields and/or reallocate their farm’s base acres. It is estimated that updating yield will increase the program yield for approximately 80 to 85 percent of the farms in Ohio. While the updated yields are only important for the Price Loss Coverage (PLC) program election, there is speculation the higher yield might be useful in future farm bill legislation. Base acre reallocation is less straight forward but some people who have studied the potential program payments believe that corn, wheat, and then beans are the value order of the base acres.

Secondly, land owners can work with their farmers to retrieve the necessary information in order to make these decisions. This could require a significant amount of time and multiple visits to make sure the information is accurate. Even though the documentation is not necessary at the time of updating yields  and base acres, if spot checked, the person verifying the information would need to produce sound evidence of the updated yields and planted acres for the appropriate time periods.

Finally land owners might consider signing a power of attorney to allow their tenant to handle all the 2014 Farm Bill program decisions. Allowing the tenant farmer to make the decision may provide for the most accurate and defensible information.  The program choice decision, ARC – IC, ARC –CO, or PLC, are by legislation already designated to the person who has risk in growing the crops.  In a cash rent situation, this person is the tenant.

Questions have been asked at meetings about the validity of an existing Power of Attorney, signed by the land owner which are on file with Farm Service Agency.  FSA personnel have indicated the current FSA-211, Power of Attorney, is valid for the ARC/PLC program if Section A and B are marked as follows: Section A, item 2, “All current and ALL future programs” and Section B, item 1, “All Actions.”  Tenants should check with their local FSA office to make sure the FSA-211 is current before making decisions. Regardless if  the power of attorney is current or not, this would be a good opportunity to have a discussion between the land owner and the tenant on what would be the proper way of handling the farm bill decision for the farm.

What is a Fair Rental Price for Farm Buildings?

by David Marrison

Farm buildings and livestock facilities often outlast their owner’s need for them, but can still provide usable service. Other farmers in the community may wish to use these buildings instead of investing in new facilities. Both parties can benefit from a leasing arrangement. However, they must agree on the amount of the rental payment and the use and care of the property.  However, information about common rental rates for farm buildings is not easily obtainable.  To help provide information for farmers, a survey was recently conducted by the North Central Farm Management Extension Committee.  The survey was conducted across the Midwest and was completed by farm operators, farm owners, professional farm managers and rural appraisers.

The survey assumed that building tenants would provide labor and management and pay the cost of utilities and minor upkeep. Owners would generally be responsible for major repairs and insurance coverage. Individual rental rates will vary according to the age, condition, size, location and efficiency of the particular building being rented. The results of the survey:

 

 

Type of Building

Number of Responses Unit on Which Rent is Paid Average Rent Paid Range of Rents Paid Average Capacity of Building
Beef          
Finishing, open lot & shed 9 $/head/day $.12 $.03 – .33 282 head
Dairy          
Milking parlor and cow housing

Heifer housing

–no labor, no feed

9

 

 

3

$/cow/mo.

 

 

$/head/day

$12.16

 

 

$.31

$6.25 – 16.67

 

 

$.27 – .33

177 stalls
–with labor, no feed 3 $/head/day $.67 $.56 – .85  
–with labor and feed 3 $/head/day $2.28 $2.15 – 2.40  
Swine          
Farrowing 5 $/crate/year $360 $165 – 660 30 crates
Nursery 7 $/pig through $4.09 $1.33 – 6.00 1,350 spaces
Finishing 16 $/ pig finished $12.93 $6.00 – 19.00 1,334 spaces
Machinery Storage          
Machine shed, all 75 $/sq. foot/year $.45 $.02 – 1.65 3,845 sq. ft.
–with concrete floor 26 $/sq. foot/year $.53 $.06 – 1.65 3,927 sq. ft.
–without concrete floor 36 $/sq. foot/year $.40 $.08 – 1.50 3,445 sq. ft.
–with high doors 35 $/sq. foot/year $.52 $.10 – 1.65 4,474 sq. ft.
–without high doors 27 $/sq. foot/year $.40 $.06 – 1.50 2,513 sq. ft.
–over 10 years old 60 $/sq. foot/year $.43 $.02 – 1.65 3,928 sq. ft.
Grain Storage          
Grain bin, all 11 $/bushel/month $.027 $.015 – .05 30,635 bu.
Grain bin, all 78 $/bushel/year $.14 $.05 – .25 26,919 bu.
Up to 10,000 bu. 43 $/bushel/year $.13 $.05 – .25 8,005 bu.
Over 10,000 bu. 34 $/bushel/year $.16 $.07 – .25 25,000 bu.
Hay Storage          
Small square bales 4 $/bale $.12 $.07 – .25 4,825 bales
Large square bales 5 $/bale $2.81 $1.50 – 3.50 225 bales
Large round bales 3 $/bale $5.24 $5.00 – 5.71 423 bales
Rural Housing          
House on farm, all 110 $/month $568 $100 – 1,300  
–1 to 50 years old 24 $/month $598 $300 – 1,000  
–more than 50 years old 56 $/month $509 $100 – 1,200  
–2 bedrooms 12 $/month $435 $100 – 700  
–3 bedrooms 40 $/month $499 $150 – 850  
–4 or more bedrooms 22 $/month $626 $200 – 1,200  

 

A printable version of the building rental survey results can be found at: http://aglease101.org/DocLib/docs/NCFMEC-07.pdf.

For more information about determining rental rates and terms, farmers can access a 17 page publication titled “Rental Agreements for Farm Buildings and Livestock Facilities (NCFMEC-04) at: http://aglease101.org/DocLib/docs/NCFMEC-04.pdf. This publication examines the major considerations in developing rental agreements for crop and livestock buildings and facilities from both the owner’s and operator’s points of view.  Three different approaches to determining a cash rental rate will be presented. Finally, several other important considerations for developing a lease agreement will be discussed. A sample lease is also included in this publication.  A sample building lease form is available (NCFMEC-04A, “Farm Building or Livestock Facility Lease.”) at: http://aglease101.org/DocLib/docs/NCFMEC-04A.pdf

More information about agricultural leases can be found at: http://AgLease101.org