Presentation Objectives - Iowa State University · 2014. 8. 29. · 2 Iowa Nutrient Management...

1

Steven D. JohnsonFarm & Ag Business Management Specialist

(515) [email protected]

www.extension.iastate.edu/polk/farm-management

August 2014

Presentation Objectives• Highlight: What’s New in Iowa Farmland Leasing?

– Nutrient Reduction Management Strategy, Beginning

Farmer Tax Credit, 2014 Farm Bill (ARC PLC)

– Farmland Value Surveys

– 2014 Cash Rental Rate Survey

• Discuss the Trends in Iowa Farmland Leases

• Highlight the Performance of Various Farm

Leases, Writing and Terminating a Lease

• Discuss Flexible Cash Farm Leases, 2015 Crop

Cost Forecasts & the New Farm Programs

• Provide ISU Extension Farmland Leasing

Resources & 5 Websites

http://www.extension.iastate.edu/polk/farm-management

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Iowa Nutrient Management Strategy►In 2013, $20 M of new state appropriations over

the next 2 years.

► Administered by Iowa Department Agriculture &

Land Stewardship (IDALS) and the Iowa Department of

Natural Resources (IDNR), research by Iowa State

University. Contact is your local Soil and Water

Conservation District Office.

► A total of $1.4 M in cost-share funds were

available for Fall 2014:

Cover Crops - $25/A

Adopt no-till or strip-till - $10/A

Use of Nitrification Inhibitors on fall applied

anhydrous ammonia - $3/A.

Pg. 26-29, Farm Leasing Arrangements, July 2014

Beginning Farmer Tax Credit Programs

• 2013 Legislature expanded the program that

provides Iowa income tax credits to landlords.

• Landlord can receive an annual state tax credit

for leasing farmland to a beginning farmer

– 7% of gross income for a fixed lease

• cannot include the bonus portion of

Flexible Cash Lease

– 17% of gross income for a crop share lease

– 7% for new custom hire work on farmland

• Requires a minimum of a 2-year lease and up

to 5-years, then reapplication is possible.

3

Iowa Farmland Value Surveys1. ISU Extension Economics

– conducted annually around November 1st, released mid-December

– mailed survey sent to 1,100 licensed real estate brokers

– Iowa land increased 5.1% from Nov. 2012 to Nov. 2013

– www.extension.iastate.edu/landvalue

2. Realtors Land Institute– semi-annual survey (March and September)

– compares land classification by corn production

– includes pasture and timber land

– Iowa land decreased 5.4% from Sept. 2013 to March 2014

– www.rlifarmandranch.com/news_trends.aspx

2013 Iowa Farmland Average Values

$8,716 per Acre

Average, new

record high

5.1% Increase

Increased 9 out

10 years

Fewer Overall

Farmland

Sales


http://www.extension.iastate.edu/landvalue

4


Investors 18%

Existing

Farmers

77%

New Farmers

3%

Others

2%

Who Purchased Iowa Farmland?


5

56%

37%

24%

15% 14%13%

11%

0%

10%

20%

30%

40%

50%

60%

Positive Factors affecting Land Values


76%

21%

13%11% 10% 10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Low

commodity

prices

Weather Poor yields Govt

programs

Uncertainty Long term

interest

rates

Negative Factors affecting Land Values


6

Other Iowa Farmland Value Surveys

3. Federal Reserve Bank of Chicago Survey– Quarterly survey of ag lenders by state

– Iowa “good” farmland decreased 1% from July 1, 2013 to July 1, 2014

– Increased 1% for Iowa “good” farmland for latest quarter (values from April 1, 2014 to July 1, 2014)

– www.chicagofed.org/digital_assets/publications/agletter/2010_2014/august_2014.pdf

4. USDA Land Value Survey – Annual survey collected in June, released in early August

– Reflects all cropland (including hay ground)

– Respondents are operators randomly selected

– In 2014, Iowa cropland values up 9.4% from 2013

– Average value of $8,750 per acre, new record– http://usda.mannlib.cornell.edu/usda/current/AgriLandVa/AgriLandVa-08-01-2014.pdf

Iowa Land Value & Cash Rental Rate Trends

Source: Duffy & Edwards, ISU Extension Econ, December 2013, May 2014

Most Recent Averages

2014 Cash Rent: $260/A

2013 Land Value: $8716/A

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Iowa Cash Rental Rate Survey

• Mailed 6,000 questionnaires annually in March

• Over 1,674 respondents in 2014

• 50% farmers, 25% landlords, 15% ag lenders,

7% professional farm managers & 2% other

• Summary released annually in May by Crop

Reporting District (CRD) & County

• In 2014, Iowa average cash rent dropped

$10/A on average statewide

• Purpose: provide information to tenants &

landlords as a starting point for estimating

a fair cash rental rate.

Pg. 37, Farm Leasing Arrangements, July 2014

$270$270 $277

$288 $284 $273

$249 $202 $229

Average Cash Rental Rates for Cropland

Pg. 38, Farm Leasing Arrangements, July 2014

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Rent per Bushel, CSR2 Index Point

Crop Reporting

District

Rent per bushel of corn yield*

Rent per bushel of soybean yield* Rent per CSR index

point**

NW $1.51 $5.38 $3.10

NC $1.60 $5.69 $3.22

NE $1.62 $5.49 $3.44

WC $1.74 $6.00 $3.65

C $1.73 $5.72 $3.30

EC $1.65 $5.26 $3.34

SW $1.64 $5.37 $3.12

SC $1.74 $4.93 $2.58

SE $1.70 $4.96 $2.85

*Based on 5-year average county yields, NASS **new CSR2 values


Oats, Hay, Hunting Rights Average Rents

Crop Reporting

District Alfalfa Grass Hay OatsHunting Rights

NW $219 $163 $223 $27

NC $208 $138 $197 NA

NE $265 $202 $235 $8

WC $222 $172 $214 $12

C $186 $138 $167 $11

EC $213 $167 $170 $13

SW $134 $111 $108 $18

SC $111 $ 83 $118 $13

SE $161 $112 $141 $13


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Pasture, Corn Stalk Grazing Average Rents

Crop Reporting

DistrictImproved Pasture

Unimproved Pasture

Pasture per AUM

Corn stalk Grazing

NW $82 $57 NA $11

NC $71 $50 NA NA

NE $75 $47 $16 $9

WC $84 $57 NA $7

C $71 $53 NA $20

EC $83 $56 $24 $9

SW $86 $61 $20 $18

SC $71 $47 $25 $10

SE $74 $42 NA $18


Distribution of Leased Farmland by Type of Lease


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Leased Farmland: Importance of Various Tenant Characteristics


5 Things a Landlord Should Know about their Farmland

1. Farmland value estimated for tillable crop acres ($ per Acre)

2. Tillable Acres (Landlord will be receiving letter from USDA FSA with 5-yr. planting history)

3. Corn Suitability Rating (CSR) found at County Assessor's Office or NRCS Soil Survey

4. Drainage Issues and Irregular Shapes of Fields (Soil Type, Tile and Terrace Maps, Aerial & Satellite Photos)

5. Most recent 5-Year Actual Yields on that Farm (Corn & Soybeans). Request from the tenant operator on cash rented farmland.

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Putting a Farm Lease Together• Determine the goals for each party

– Think “win-win”

– Landlords rarely want the highest cash rent

– Tenants typically like to negotiate cash rents, it’s likely their largest fixed costs (way to manage risk)

– Trend for more cash rents to be paid “up front” in March, rather than ½ before planting, ½ after harvest (risk of non-payment for full cash rent)

• Changes to 2015 leases can be negotiated now

• Either party can terminate the existing lease (verbal or written), preferably in writing on or before September 1.


Crop Share/Cash Lease Considerations

• Determine how the lease allocates risk between the parties– fair return to each party

– continuity of income year to year

– minimize risk for non-payment

– improve communication skills

• Put the agreement in writing

• Both parties should be accountable to the lease arrangements established.


12

Iowa Farmland Lease Terminations

• Iowa Farm Leases run from March 1 to the last day of February, unless stated in a written lease

• Termination must be given for Cropland by Sept 1 to be effective the last day of February the following calendar year

• Now applies to all cropland parcels, including those under 40 acres in size

• Lease forms can be obtained from the Iowa State University – Ag Decision Maker web site.


Assuring Rent Payment is Made


• Require all rent be paid “upfront” on March 1.

(Reduction for interest paid by the borrower

may be a consideration.)

• Require irrevocable letter of credit from the

Producer/Tenant’s lender.

• Require the Landlord’s name be included as

Payee on checks for crops.

• File and perfect a Landlord Lien - this includes

recording the lease with the Iowa Secretary of

State’s Office.

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Risk

Re

wa

rd

Custom Farm

Crop Share

Net RevenueShare

Cash Rent(Fixed or Flexed)

Cash Rent(Fixed or Flexed)

Net RevenueShare

Crop Share

Custom Farm

What is the Best Type of Farm Lease?

90

110

130

150

170

190

210

230

250

270

$ per acre

Crop Share

Cash

Flex Rent

Comparing Crop Share, Cash and Flex Rents

Source: Edwards, ISU Extension Econ, May 2013

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Cash Rent as % of Gross Crop RevenueIowa Average Yield x Oct.-Dec. Cash Price

Mean= 38%

Mean= 25%

Blended Avg.

= 33%


Types of Flexible Cash Farm Leases

• Option A: Rent = % of Gross Crop Revenue

• Option B : Rent = Base Rent (average rent)

+ Bonus

– Bonus = (Gross Crop Revenue – Base Crop

Cost Estimate) x %

– Base Crop Cost Estimate = Input costs + Base

Rent

• Concept of “Profit Sharing” between Tenant

and Landlord

– Uses Actual Farm Yields and New Crop Harvest

Delivery Bids available to the TenantPg. 66-68, Farm Leasing Arrangements, July 2014

15

Advantages of Flexible Cash Leases

• Actual rent reflects the farm’s actual yields

and cash prices available at harvest (Gross

Crop Revenue)

• Risk of revenue changes can be shared

between the landowner and the tenant

• Landowner can be guaranteed a base rent,

plus a bonus based on a % of the farm’s net

revenue per acre (by crop rotation, tillage, yield)

• Tenant gets to reflect higher crop input costs

• Most flex leases are multi-year.


Iowa Flex Lease Case Study

• Farm Overview:– 200 Tillable Acres – productive, well drained soils

– APH Yields: 165 bu/A Corn and 47 bu/A Sb

– 2013 Yields: 143 bu/A Corn and 49 bu/A Sb

– $250/A Base Rent for Flexible Cash Rent

• Average cash rent in the area held steady in 2014

• Tenant is concerned about escalating cash rents, higher input costs and declining APH levels

• Landlord would like $300/A if operator has good yields and high prices are available.

Source: Johnson, ISU Extension, July 2014

16

$250/A Base Rent + Bonus (33% of Net)

*Estimate*Estimate

$259

Average

$310

Average

$295

Average

$250 $250 $250 $250 $250 $250

$263

Average


Determining Gross Crop Revenue

• Assumes last-half Base Rent plus the Flexible Payment (bonus) is paid Post-Harvest

• Actual Farm Yields (dry weight) uses APH crop insurance requirements

• New Crop Cash Bids at local elevator are averaged using a minimum of 4 time periods

• A Flexible Cash Lease can adjust annually to Farm’s actual yields and cash prices available for harvest delivery bids.

• Annually by December 1; actual farm yields times the average cash price available are known to calculate the Gross Crop Revenue.


17

Use of Farm’s Actual Input Costs or ISU Crop Cost Estimates

• Best to use the Farm’s costs if available (by crop rotation, tillage practice, etc.)

• Concern could exists if tenant allocates extra expenses to a farm using a Flexible Cash Lease

• Consider using ISU Extension’s “Estimated Costs of Crop Production” (FM-1712) to reflect production and crop rotation for each crop planted

• Use final 2015 Crop Cost Estimates (not preliminary) by tillage, rotation and yield to determine Base Crop Cost Estimate:– Corn following Corn: Base Rent + $547/A

– Corn following Soybeans: Base Rent + $494/A

– Soybeans following Corn: Base Rent + $270/A


Total Cost Expected Yield bu/A Cost Per Bushel

Soybeans after Corn

Corn after Soybeans

Corn after Corn

2015 Crop Cost Forecasts (Preliminary)

$546

$770

$823

50

180

165

$10.92

$4.28

$4.99

Source: Plastina, ISU Extension Economics, July 2014

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Farmland Leasing Resources

• ISU Ag Decision Maker Web Site– www.extension.iastate.edu/agdm

• Whole Farm – Leasing– Rental Rate Surveys, Leasing Forms, Lease

Agreements, Flexible Farm Leases: C2-21

• Crops – Cost & Return

– Estimated Costs of Crop Production: A1-20

• By Crop, Rotation, Tillage Practice, Yield

Expectation

Factors to Impact 2015 Cash Rent Rates

• Corn and Soybean prices

– Increased average yields & soybean acres

– Weather variability that impacts yields

– Livestock feed & export demand (meat & grains)

– Price of crude oil (ethanol use)

• Farmland drainage (tile, terraces, waterways)

• New 2014 farm bill (ARC PLC Programs

require more landowner involvement)

• Local supply and demand determines the

cash rental rates.

http://www.extension.iastate.edu/agdm

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5 ISU Extension Web Sites• Ag Decision Maker – ISU Extension Economics

www.extension.iastate.edu/agdm/wdleasing.html

www.extension.iastate.edu/agdm/info/farmbill.html

• Center for Agricultural Law and Taxation

www.calt.iastate.edu

• ISU Extension Publicationswww.extension.iastate.edu/pubs

• Iowa Nutrient Reduction Strategy

www.nutrientstrategy.iastate.edu

ISU Polk County Extension Farm Management


Farm Management Field SpecialistsRegion 1: Melissa O’Rourke

Region 2: Shane Ellis

Region 3: Kelvin Leibold

Region 4: Kristen Schulte

Region 5: Tim Eggers

Region 6: Steve Johnson

Region 7: Ryan Drollette

Region 8: Charles Brown

www.extension.iastate.edu/agdmPg. 100, Farm Leasing Arrangements, July 2014

http://www.extension.iastate.edu/agdm/wdleasing.html

http://www.extension.iastate.edu/agdm/info/farmbill.html

http://www.calt.iastate.edu/

http://www.extension.iastate.edu/pubs

http://www.nutrientstrategy.iastate.edu/


http://www.extension.iastate.edu/ag/farm-management-melissa-o%E2%80%99rourke

http://www.extension.iastate.edu/ag/farm-management-kelvin-leibold

http://www.extension.iastate.edu/ag/farm-managment-kristen-schulte

http://www.extension.iastate.edu/ag/farm-management-tim-eggers

http://www.extension.iastate.edu/ag/farm-management-steve-johnson

http://www.extension.iastate.edu/ag/farm-management-jim-jensen

http://www.extension.iastate.edu/ag/farm-management-jim-jensen

https://www.google.com/url?q=http://www.extension.iastate.edu/farmmanagement/&sa=U&ei=4yn_T7rDNpG4hAfEjJzoBg&ved=0CAgQFjAB&client=internal-uds-cse&usg=AFQjCNGyyVjLwEm_6plYTJ8obtu5Rg8zgw

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New 5-Year Farm Program (2014-2018)

Marketing Loan National Rates:$1.95/bu Corn

$5.00/bu Soybeans

Source: The Agricultural Act of 2014, February 2014

Commodity Crop

Program Education

ARC PLC

Final Regulations

Conservation

Compliance

Farm Programs: Estimated Implementation Timeline

FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN

2014 2015

Agricultural Act

of 2014

FEB

ARC PLC

Election then

EnrollmentLivestock

Disaster

Assistance

Program

Source: FSA and Other Ag Media Resources, July 2014

MAR APR

Letter from FSA

explaining Base

Acres & Yield

Updates

Conservation

Programs (CRP,

CSP & EQIP)

Spring Seeded Crops – Crop Insurance Closing Date (March 15)

Base Acres and Yield Update Plans Released

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FSA Commodity Crop Enrollment Decisions

Fall: Update Farm’s Yields

(Using 2008-12 Average X 90%)

Winter: Elect ARC-CO, ARC-IC

or PLC; then Enrollment for

2014 & 2015 concurrently.

Source: Johnson, ISU Extension, August 2014

If a farm fails to elect either

ARC or PLC for 2014, then PLC

serves as the default program

for 2015 through 2018.

One-time choice (irrevocable)

by FSA farm number (will need

landowner’s signature or

Power of Attorney Form 211).

Late Summer: Retain Historic

Base Acres or Reallocate using

2009-12 actual planted acres,

can’t create new base acres.

Farm

ARC(ARC-IC)

65% of base acres,

Revenue Trigger = 5-yr.

Farm Yields X 5-yr. OA

MYA price (If elected,

revenue summed across

all commodity crops on

farm.

County

ARC(ARC-CO)

85% of base acres,

Revenue Trigger = 5-yr.

OA County Yields X 5-yr.

OA MYA price (Estimated

Price: $5.28/bu corn &

$12.27/bu soybeans)

PLC

85% of base acres, Price

Trigger when MYA falls

below $3.70/bu corn,

$8.40/bu soybeans X

Farm Yields.

SCO

ARC PLC Decisions: The 3 Step Process

Once Election has been completed then Enrollment by the “party at risk” occurs annually. Sign-up for both the 2014 and 2015 crops will run concurrently in early 2015.

The farmland owner and the farm operator can “reallocate” base acres and/or “update” CC Yields by FSA farm number.

Once Base Acres and Yields are determined for that farm, then the Election of the ARC or PLC program is established for the 5-year period 2014-2018.


22

• The first part of August, all owners and

operators will receive the following:

1. Letter that provides basic background of base acreage

“Reallocation” and “Update” of the CC Yield option.

2. “Summary Acreage History Report” which shows the

acreage of covered commodities reported to FSA, 2008

through 2012 per farm.

NOTE: This report also includes the “Base Acres” and

“CC Yield” as of 9/30/2013.

Summary Acreage History Report

Source: McClure, Iowa FSA Office, July 2014

Solving the ARC PLC Decisions Puzzle

Base

Acreage

Reallocation

Update

Farm’s

Yields

Potential

ARC PLC

Payments

ARCPLC

Overview


23

Reallocating Base Acreage2014 Farm Historic: 100 Total Base Acres

Corn

50 Acres

Soybeans

50 Acres


Base Acreage ReallocationExample #1

Corn Soybeans Total

Corn

65 Acres

Soybeans

35 Acres


24

Corn Soybeans Total

Base Acreage ReallocationExample #2

Corn

75 AcresSoybeans

25 Acres


1. Retain the Farm’s Current CC Yield

or

2. Update Yield (90% of Planted Yield

history)Uses production and total acres planted of covered

commodities, 2008 – 2012, using a simple average.

A plug yield of 75% of the county yield for any year with

low or missing farm’s yield.

Note: This option is available per Crop for landowners

and operators regardless of program election: PLC, ARC-

CO or ARC-IC.

Source: McClure, Iowa FSA Office, July 2014

Farm’s Yield Update Choices

25

Comparing ARC 5-Year Average Cash Prices vs. PLC Reference Prices

Agriculture Risk Coverage

(ARC)Year Corn Soybeans

2009 $3.55 $ 9.59

2010 $5.18 $11.30

2011 $6.22 $12.50

2012 $6.89 $14.40

2013 $4.45 $13.00

Price Loss Coverage

(PLC)

Corn = $3.70/bu.

Soybeans = $8.40/bu.

ARC 5-yr. OA MYA Prices

Corn = $5.28/bu.

Soybeans = $12.27/bu.


ARC-CO: Calculating Corn Revenue

Notes:. Boone County, Iowa 5-year final corn yields. Revenue Guarantee equals 86% of Benchmark.


26

ARC-CO: 2014 Potential Corn Payment

Notes:. The 2014 Yield estimate considers a 180 bu/A average corn yield for Boone County. The ARC-CO

Payment ($/base acre) is 85% of the ARC Payment Rate.


ARC-CO: Calculating Soybean Revenue

Notes:. Boone County, Iowa 5-year final soybean yields. Revenue Guarantee equals 86% of Benchmark.


27

ARC-CO: Calculating 2014 SoybeanRevenue Guarantee

Notes:. The 2014 Yield estimate considers a 50 bu/A average soybean yield for Boone County. The ARC-CO

Payment ($/base acre) is 85% of the ARC Payment Rate.


Notes: Individual farm’s yields equal the Boone County yields for 2009-13. The Revenue Guarantee equals 86%

of the Benchmark. Acres are based on weighted average of reallocated base acres: 60% corn, 40% soybeans.

ARC-IC: 2014 Corn & Soybean Combined Revenue Guarantee


28

ARC-IC : 2014 Potential Corn & SoybeanCombined Payment

Notes: The 2014 farm’s yields are estimated at 180 bu/A corn and 50 bu/A soybeans. Acres planted in 2014 are

based on weighted average of reallocated base acres: 60% corn, 40% soybeans. The ARC-IC Payment ($/base

acre) is 65% of the ARC-IC Payment Rate.


PLC: Corn 2014 Payment Potential

Notes: PLC payments are made on 85% of base acres and based on a payment yield of 165.13 bu/A corn.


29

PLC: Soybean 2014 Payment Potential

Notes: PLC payments are made on 85% of base acres and based on a payment yield of 47.4 bu/A soybeans.


Separate a Revenue Trigger (ARC) from a

Price-only Trigger (PLC); 2014 to 2018

• What will cash prices be each year through 2018:

Corn above $3.70/bu, Soybeans above $8.40/bu?

Benefit from ARC, potentially larger payments with

County ARC (85% of base acres). Farm ARC

(65% of base acres) combines all commodity crops

across farm, potential for smaller payments

depending on farm’s actual yields.

• Corn below $3.70/bu, Soybeans below $8.40/bu?

Benefit from PLC, then you can add SCO to your

crop insurance coverage beginning in 2015.

Overview: ARC vs. PLC


30

August: Report from FSA shows historical

base, planted acres 2008-12 & CC Yield• Consider Reallocation using 2009 to 2012 planted acres vs.

Historical Base Acres on each farm

Late Summer/Fall: Reallocate Base Acres

and/or Update Farm’s Yields • The Actual Farm Yield Update (2008-2012 times 90%); a

plug yield of 75% of the county average for missing yields

• Use University online tools to compare ARC/PLC potential

payments through 2018

Winter: ARC/PLC One-Time Election then

Annual Enrollment for 2014 and 2015.

ARC vs. PLC Timelines & Strategies


Web Sites on the New Farm Program

• ISU Polk County Ext. Farm Management(Government Farm Programs: FAQs, Fact Sheets, Regular Updates,

Videos and Recorded Webcasts)


• Farm Doc – U. of Illinois Ext. Economicswww.farmdoc.illinois.edu

• Ag Manager – K-State Ext. Economicswww.agmanager.info

• Ag Decision Maker – ISU Ext. Economics(2014 Farm Bill Information: ARC PLC Analyzer, Publications, Voiced Media, Monthly e-Newsletter, Blog and Twitter Feed)

www.extension.iastate.edu/agdm/info/farmbill.html

• USDA Farm Service Agencywww.fsa.usda.gov/FSA/webapp?area=home&subject=arpl&topic=landing



http://www.farmdoc.illinois.edu/

http://www.agmanager.info/

http://www.extension.iastate.edu/agdm/info/farmbill.html

http://www.fsa.usda.gov/FSA/webapp?area=home&subject=arpl&topic=landing

Presentation Objectives - Iowa State University · 2014. 8. 29. · 2 Iowa Nutrient Management...

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