Northeast Small Farmer College to be held this Fall

by David Marrison, OSU Extension Educator

Click here to access the registration form

There is a growing trend in Ohio Agriculture toward the direct marketing of agricultural products featuring locally grown food products. Consumers are becoming more and more aware of the benefits of buying local and buying fresh. As the demand for local food products increases so does the interest in growing and producing a variety of agricultural products for these markets. Perhaps this is something that you have considered for your small acreage but do not know where to begin.

To help land owners decide what to grow or raise on their excess acreage, the Ohio State University Extension offices in Northeast Ohio are pleased to be conducting the Northeast Ohio Small Farmer College for new and aspiring farms. The college will be held on September 12 & 24 and October 3 & 10 from 6:00 to 9:00 p.m. On Saturday, October 12 we will visit two local farms to learn how they have gotten off to a successful start. This college is designed to help landowners increase their profits from their small acreage. This college is open to all new or aspiring farmers, new rural landowners, small farmers, and farm families looking for new ideas.

The small farmer college is split into 5 sessions designed to challenge participants to plan for success. The first session on Thursday, September 12 titled “Getting Started” will help participants build the foundation for their farm business. Some of the session topics will include: developing real-life expectations for your small farm, developing goals and objectives, developing an agricultural business plan, and tax and financial management secrets for small farms. This session will also introduce the local agencies which can help farmers as they start, grow or maintain their business. This class will be held at the Ashtabula County Extension office located at 39 Wall Street in Jefferson, Ohio.

The second session on Tuesday, September 24 titled “Enterprise Selection” will help participants decide what to raise/grow on their farm and how to develop realistic budgets for these enterprises. This session will be tailored-made based on the interests of the group. Learn more about vegetable, greenhouse, fruit, nursery and bio-fuel crops, as well as aquaculture, livestock, hay, traditional and alternative farm enterprises. Let your passions lead you to the right agricultural enterprise to raise or grow. This class will be held at the Ashtabula County Extension office located at 39 Wall Street in Jefferson, Ohio.

The third session on Thursday, October 3 will be a “Work Session” to help the participants get their documents in order. We will work on enterprise budgets, EIN numbers, farm name, mission statements, and farm goals. Each farm will begin building their farm business plan. This class will be held at the Geauga County Extension office located at 14269 Claridon-Troy Road in Burton, Ohio.

The fourth session on Thursday, October 10 titled “Marketing & Resources for Small Farms” will help participants build a marketing direction for their business. Learn how agricultural products are being marketed across northeast Ohio. This class will be held at the Geauga County Extension office located at 14269 Claridon-Troy Road in Burton, Ohio.

The fifth session titled “Learning from the School of Hard Knocks” will be held on Saturday, October 12 from 9:00 a.m. to 12:00 noon at two small farms in Northeast, Ohio. Participants will take tours of each farm to learn about raising, selecting, and marketing agricultural crops. The host farms will be selected based on the interests of the class.

Participants will receive a light meal at sessions 1 through 4; 15 hours of classroom and on-site instruction; resource notebook (1 per family); and connections to resources and people that will help your farm business grow. The registration fee for this college is $99 for the first registrant from each family and $50 for each family registrant thereafter. Call the Ashtabula County OSU Extension office at 440-576-9008 to make your reservations or to receive more information. Reservations are requested by Thursday, September 5, 2013. Space is limited to the first 35 registrants.

Is Your Farm Over or Under Equipped?

Chris Bruynis and Bruce Clevenger, Assistant Professors, OSU Extension

As the profit margins appear to be tightening again for the for grain producers with lower market prices, farmers and lenders are examining balance sheets to determine if there are any strategies that might improve a farm’s financial position. One of the areas that often appear to grow during times of significant cash inflows, similar to what grain farmers have experiences during the past few years, are intermediate assets. Intermediate farm assets have a useful life of more than one but less than 10 years. Examples of assets in this category include tools, vehicles, machinery, equipment and breeding livestock.

Valuing Assets
A value is placed on assets on the day the balance sheet, also called the net worth statement, is created. Assets can be valued either on a cost basis or market basis on the balance sheet. The market value is the most common approach and the method preferred by most lenders. The cost approach is a more sophisticated method but is useful for farmers and lender to distinguish between changes in net worth due to profits verses external economic forces that either grow or decline the market value of assets. Both methods may be used in the same statement showing two different estimates of net worth. This article will focus only on the market value method.

Some useful guidelines using the market approach to valuing assets include: using well-established markets to determine asset values; be realistic with price expectations (just because you paid $100,000 does not make it worth $100,000 when you want to sell it); don’t forget to subtract selling/marketing costs associated with the assets; and for depreciable assets, such as equipment, review their book value in your farm records to avoid overvaluing their market price.

Once intermediate assets have been accurately valued using the market value approach, farmers and bankers can benchmark these numbers to other farms of similar size. One source of data to use as a benchmark comes from the University of Minnesota FINBIN program. The table below is a comparison of 1,793 grain farms with the data being compiled from the years 2006 through 2008. The data is presented as a group as well as divided by farm size. This data is collected from Extension and farm management professionals working with farmers using the FINPACK software.

For this discussion, focus your attention in the table below to the total amount of intermediate assets in this data set and compare that to your intermediate farm assets. Another item to examine is the amount of intermediate liabilities compared to intermediate assets. This data set indicates that on the average for every $100,000 of intermediate assets, grain farmers have $23,000 dollar of intermediate debt with very little variation across farm size. From the table below; Average of All Farms: $620,461 intermediate assets and $138,491 intermediate liabilities; $138,491/6.20=$22,300 per $100,000 of intermediate assets.

How does your farm compare? Is your intermediate asset market valuation similar to your peers across the Midwest? Do you need to disinvest in intermediate assets, restructure debt, or change your operation in some other way? Contact your local OSU Extension Educator for assistance with these issues or to schedule a FINPACK analysis of your farm business.

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The Affordable Care Act Requires Every Individual To Have Health Care Coverage

by Larry Gearhardt, OSU Extension Field Specialist, Taxation

In March 2010, President Obama signed into law new health care reform. One part of the legislation is known as the Patient Protection and Affordable Care Act. Many of the provisions contained in the law become effective in 2013 and the law will be active beginning in 2014.

While the primary purpose of this reform is to mandate that all U.S. residents obtain health insurance coverage, the law creates a host of tax credits and penalties on taxpayers and employers for failure to do so. In addition, there are several new rules that were created to raise the necessary funds to do so.

In two previous articles, we discussed the impact of the Affordable Care Act on “applicable large employers” (Ohio Ag Manager 6/25/13) and small employers (7/15/13). However, the goal of the Affordable Care Act is to ensure that every individual has health care coverage. So even if an individual is not covered under a health care plan provided by an employer, an individual is required to obtain health care coverage, unless exempted under the law, or pay a penalty.
The focus of this article is on the Affordable Care Act’s requirements for individuals not covered by an employer’s plan.

Can I Be Exempted From Obtaining Health Care Coverage?
The Affordable Care Act requires every individual U.S. citizen and legal resident to have qualifying health coverage. Those individuals without qualifying health care coverage will be required to pay a penalty. However, the law provides the following exemptions:
• Financial hardship
• Religious exemptions
• American Indians
• Those without coverage for less than three months
• Undocumented immigrants
• Incarcerated individuals
• Those for whom the lowest cost plan option exceeds 8% of the individual’s income
• Those with incomes below the filing threshold (currently $9,350 individual and
• $18,700 for family)

What Is The Penalty For No Coverage?
Those individuals without coverage and who are not exempt pay a tax penalty of the greater of $695, up to a maximum of three times that amount ($2,085) per family, OR 2.5% of household income.

The penalty will be phased in according to the following schedule: $95 in 2014, $325 in 2015, and $695 in 2016 for the flat fee, or 1% of taxable income in 2014, 2% of taxable income in 2015, and 2.5% of taxable income in 2016. After 2016, the penalty will be increased annually by the cost of living adjustment. NOTE: paying a penalty does not provide health coverage; an individual will still be responsible for 100% of the cost of their medical care.

Where Do I Obtain Health Coverage?
First, Medicaid will be expanded to all non-Medicare eligible individuals under age 65 with incomes up to 133% of the Federal Poverty Limit based on modified adjusted gross income. All newly eligible adults will be guaranteed a benchmark benefit package that meets the essential health benefits available through the Exchanges.
The 2012 poverty levels according to the U.S. Department of Health and Human Services are as follows:
Persons in family unit Poverty level in 48 contiguous states
1 $11,170
2 $15,130
3 $19,090
4 $23,050
5 $27,010
6 $30,970
7 $34,930
8 $38,890
Each additional person adds $3,960

Second, individuals can obtain health coverage through state-based American Health Benefit Exchanges which are required to be created by the new law. Ohio has opted not to create its own program, instead choosing to participate in the federal exchange. Separate Exchanges will be created where small businesses can purchase coverage.
Some key dates to remember are:
• October 1, 2013 – open enrollment starts
• January 1, 2014 – coverage under the plan starts
• March 31, 2014 – open enrollment ends

After open enrollment ends on March 31, 2014, an individual will not be able to obtain health coverage through the Exchange until the next enrollment period, unless they have a qualifying life event. In Ohio, an individual should go to HealthCare.gov to research coverage.

What If I Can’t Afford Coverage?
The new health care law provides for a premium tax credit and cost-sharing subsidies through the Exchange for U.S. Citizens and legal immigrants who meet income limits. Employees who are offered coverage by an employer are not eligible for a premium tax credit unless the employer plan does not have an actuarial value of at least 60% of the cost of essential minimum coverage, or if the employee’s share of the premium exceeds 9.5% of his income. Recall from a previous article that an “applicable large employer” must pay a penalty of $3,000 per employee if the health coverage being offered is less than 60% of the affordable health coverage. Legal immigrants who are barred from enrolling in Medicaid during their first five years in the U.S. will be eligible for the premium tax credit.

Premium Tax Credit
A premium tax credit is available for eligible individuals and families with incomes between 100 to 400% of the Federal Poverty Level (FPL) to purchase insurance through the Exchanges. This credit is both refundable and can be advanced, meaning that the eligibility and amount of the credit is determined before enrolling and the money is forwarded directly to the insurer to pay the premium. However, an individual can elect to pay the premium out-of-pocket and apply to the IRS for the credit at the end of the year.

The premium tax credit will be set on a sliding scale such that the premium contributions are limited to the following percentages of income for specified income levels:
• Up to 133% FPL – 2% of income
• 133 to 150% FPL – 3 to 4% of income
• 150 to 200% FPL – 4 to 6.3% of income
• 200 to 250% FPL – 6.3 to 8.05% of income
• 250 to 300% FPL – 8.05 to 9.5% of income
• 300 to 400% FPL – 9.5% of income

To claim the credit, married taxpayers must file a joint return. The credit will not be allowed to anyone who can be claimed as a dependent on another tax return, whether or not the other taxpayer actually claims the dependent. And in any event, the credit will be limited to the amount of the actual premium paid.

Cost-Sharing Subsidies
The second tool provided to help low-income individuals afford health coverage is cost-sharing subsidies. Starting in 2014, cost-sharing subsidies will be available to reduce the annual out-of-pocket expenses for health care. The subsidies are available in only the months in which an individual receives a premium tax credit. Putting it another way, if you are not eligible for a premium tax credit, you will not be eligible for cost-sharing subsidies.
The term “cost-sharing” includes deductibles, co-insurance, co-payments, or similar charges, as well as any other expenditure required of an insured individual which is a qualified medical expense with respect to essential health benefits covered under the plan. “Cost-sharing” does not include premiums, balance billing amounts for non-network providers, or spending for non-covered services.

The cost-sharing subsidy is available only to those individuals with incomes between 100 to 400% of the Federal Poverty Level (FPL). The cost-sharing subsidies reduce the cost-sharing amounts and annual cost-sharing limits. This has the effect of increasing the actuarial value of the basic benefit plan to the following percentages of the full value of the plan for the specified income level:
• 100 to 150% FPL – 94%
• 150 to 200% FPL – 87%
• 200 to 250% FPL – 73%
• 250 to 400% FPL – 70%

Conclusion
Beginning October 1, 2013, individuals and small employers with fewer than 100 employees will have an opportunity to enroll in a state-based American Health Benefit Exchange and Small Business Health Options Programs. These Exchanges can be administered by a government agency or non-profit organization, through which individuals and small businesses can purchase qualified coverage. The expansion of Medicaid and the premium tax credit, coupled with the cost-sharing subsidies, will help low-income individuals and families afford health coverage. In theory, this will meet the goal of the Affordable Care Act that every U.S. citizen have health coverage.

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Farm Policy Background: Income of U.S. Farm vs. Nonfarm Population

by: Carl Zulauf, Professor, and Nick Rettig, Undergraduate Student
Ohio State University, July 2013

Overview:
This post is the first in a series that will examine big picture issues that frame U.S. farm safety net policy. Impetus for the series is the recent rejection by the U.S. House of Representatives of the proposed 2013 Farm Bill. While spending on food nutrition programs was a key issue, both the proposed spending and structure of the farm safety net impacted at least some, maybe many, votes. Thus, the decision by the House of Representatives suggests the U.S. is now fully engaged in a major debate about the future of its farm safety net. These types of debates are more about the big policy picture than about specific policy parameters, such as the level of target prices. This post specifically examines the issue of farm income relative to the income for the rest of the U.S.

Historical Perspective:
Average income of U.S. farm households has exceeded average income of all U.S. households every year since 1996, a full decade before the start of the recent farm prosperity (see Figure 1). Moreover, since 1972, income of farm households has exceeded income of all households in 67% of the years. The major exception is 1979 through 1984, a period that overlaps with the farm financial crisis. Note that farm household income is calculated using net farm income. For a more detailed discussion comparing U.S. farm household and all U.S. household income see the U.S. Department of Agriculture (USDA), Economic Research Service (ERS) website:
http://www.ers.usda.gov/topics/farm-economy/farm-household-well-being/farm-household-income.aspx

Average household incomes can be compared back to 1960. In 1960, average farm household income was 65% of average U.S. household income. Thus, over the last half century, farm household income has increased substantially relative to income of U.S. households.

To obtain a longer historical perspective, two data series need to be spliced. Specifically, USDA, ERS published a comparison of per capita (per person) personal income from 1934 through 1983. This data also is presented in Figure 1. It is from the Economic Indicators of the Farm Sector: Income and Balance Sheet Statistics, 1983 (http://search.library.wisc.edu/catalog/ocm07565652). Specifically, Figure 1 contains per person disposal personal income. Disposable income is total personal income minus personal current taxes. In 1934, per person disposable income of farms was 39% of U.S. per person disposable income. By 1983, the ratio was 69%. The ratio of farm household income to all U.S. household income usually exceeds the ratio of per person disposable income because farm households are larger on average than nonfarm households. Again, per capita farm income is calculated using net farm income.

Caution is always in order when conducting a comparison over time and when comparing across different data sets. Nevertheless, the trend is so strong that it is difficult to argue that farm income is not substantially higher relative to nonfarm income now than when farm programs began in 1933. This historical perspective is relevant for the current debate because farm programs were adopted in part as a response to the poverty of the U.S. farm population, which was 25% of U.S. population in 1930. Critics of farm policy commonly mention this historical change in relative economic status.

Role of Nonfarm Income:
The increase in farm income relative to nonfarm income is the result of many factors, but two stand out. One is the increasing size of the farm production unit, which in turn is partially driven by technology. The second is the increasing role of nonfarm income (also referred to as off-farm income). Figure 2 is a companion to Figure 1, specifically presenting the ratio of the income of the farm population (or households) that comes from farm sources. Nonfarm income comes from varied sources. The majority are wages and salaries from off-farm jobs, followed by transfers, such as Social Security, and income from nonfarm businesses. Farm income provided over 60% of per capita income of the U.S. farm population in the 1940s and 1950s. In contrast, farm income has provided less than 15% of all income of farm households in recent years, even including the farm prosperity years since 2005.

Supporters of farm programs are quick to point out that the role of nonfarm income is smaller on larger farms, which produce the majority of U.S. farm output. Figure 3 presents the household income figures for farms with gross sales of $250,000 or more in 2011. These farms accounted for 82% of the value of U.S. farm production in 2011. The data are from the USDA, ERS website, http://www.ers.usda.gov/topics/farm-economy/farm-household-well-being/farm-household-income.aspx. While nonfarm sources accounted for only 25% of the household income of these farms, their total household income averaged $205,215 or 194% more than average U.S. household income for 2011. Thus, it is not clear that focusing on larger U.S. farms necessarily strengthens the argument for a U.S. farm safety net policy.

It is worth noting that, while nonfarm income is a smaller share of household income on larger farms, it is not small on average. Off-farm income of farms with over $250,000 in farm sales in 2011 exceeded $50,000, which is 72% of U.S. average household income in 2011. While not commonly discussed, it appears that an important prerequisite for farming in the 21st Century in the U.S. is to have a second (or more) source of income not from the farm. Nonfarm income not only increases total household income but also is an important risk management strategy.

Farm Size Consideration:
It is commonly pointed out that an increasingly small share of the U.S. population has any tie to farming, including through grandparents and friends. A related issue is the ability of the nonfarm population to relate to the size of a modern farm. Figures 4 and 5 are an attempt to illustrate how this consideration has changed over the last half century. It is the comparison of these two figures, not the individual figures that matter.

Total gross farm sales for the median size farm that raised the 5 largest value farm commodities included in the farm safety net is calculated. The commodities are corn, cotton, soybeans, wheat, and dairy. The calculation uses data from the 2007 and 1964 Census of Agriculture (http://www.agcensus.usda.gov/index.php). The median size farm is the farm for which 50% of the farms raising the commodity had fewer acres of the commodity (fewer milk cows) and the farm for which 50% of the farms raising the commodity had more acres of the commodity (more milk cows). To illustrate, in the 2007 Census, the corn farm with 50% of all farms growing corn having less acres of corn and 50% of all farms growing corn having more acres of corn had gross farm sales from all farm commodities of $132,216. The reason for using total farm sales, not sales from corn only, is that the concern in this article is comparing farm households with the nonfarm household. The median size farm is arrived at using the arithmetic technique of interpolation.

In 2007, total farm sales of the median size farm raising corn, soybeans, wheat, dairy, and cotton was at least 95% higher than average U.S. farm household income (see Figure 4). Obviously this comparison is not valid because gross sales include expenses. However, contrast the picture of 2007 with the picture from the 1964 Census (see Figure 5). In 1964, average U.S. household income was $7,336, which exceeded the gross sales of the median size cotton, dairy, and corn farm. Even gross sales for the median size farm raising soybeans was only 41% greater than average U.S. household income in 1964. Taken together, Figures 4 and 5 illustrate that it is increasing harder for U.S. households to relate to the size of current farms.

Summary Observations:
There is nothing novel in this discussion. Farm household income has increased relative to nonfarm household income. Key reasons for this increase are the increasing role of nonfarm income and the increasing size of farms. Non-farmers have an increasingly hard time relating to the larger size of farms. Each of these considerations influences the willingness of the non-farm population to support the farm safety net. However, these trends are not new. Thus, it appears that, either individually or in combination, they have not been a compelling set of reasons to substantially reduce or eliminate spending on the U.S. farm safety net.

However, their influence may be changing. The U.S. is currently engaged in updating its safety net. The key update is the extension of access to medical care to the general U.S. citizenry. This decision, which culminates a long run trend toward increasing access to medical care, is an expensive government program. There are 3 options for paying for it: increased government revenues, reducing the cost of existing medical services, and reducing spending on other government items. The answer will likely be a combination of all three. The size of the redistribution of spending from other government items to medical care will depend on the growth rate of the U.S. economy and the cost savings achieved in existing medical services.

Given the current state of the relationship between farm and nonfarm household income and the current size of farms, it will be hard for the U.S. farm safety net to avoid continuing cuts. Lower spending on the farm safety net will make it difficult to reach agreement because each farm actor wants to protect their part of the farm safety net. It would be easier to craft a new farm bill if projected baseline spending in the future was higher, but that means farm income would have to decline. Higher government spending on the farm safety net as a result of lower farm income may not be a desirable situation for the U.S. farm sector.

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