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Monday, March 5, 2018

Beginning Farmer Tax Credit

By David Bau, Extension Educator

In May 2017 a new tax credit for Minnesota beginning farmers became available.  The new law provides tax credits for the rent or sale of farm land or a variety of farm assets to beginning farmers.  Agricultural Assets include: land, livestock, facilities, buildings and machinery used for farming in Minnesota.

To qualify as a beginning farmer you must be entering or entered farming within the last 10 years.  You must provide a majority of the labor and management for farm located in Minnesota.
Have adequate experience and knowledge for type of farming you are engaged in.  Be able to provide positive projected earnings statements.  You are not directly related to owner of the agricultural asset.  Have a net worth that does not exceed current limit of $800,000.

The beginning farmer will need to participate in an approved financial management program.  Costs of this program may also be eligible for a tax credit for 3 years for maximum of $1,500 per year.

Credit to the agricultural asset owner include: 5% of the lesser of the sale price or fair market value of the agricultural asset up to a maximum of $32,000, 10% of gross rental income in each of the first three years of a rental agreement up to maximum of $7,000 per year, 15% of the cash equivalent of the gross rental income for the first three years of a share rent agreement up to a maximum of $10,000 per year.

The asset owner can claim only one of the above credits in any given tax year up to the maximum stated.

The Rural Finance Authority is administering the tax credit by certifying beginning farmers, assisting beginning farmers in locating an eligible financial management program in their area and certifying that owners of agricultural assets are eligible for the tax credit. 

This is a first come first served initiative.  The maximum amount available in 2018 is $5 million, increasing to $6 million in 2019 and remains at this level through  the 2023 tax year.

The asset owner may be an individual, trust, or a qualified pass-through entity.

For more information contact Rural Finance Authority by phone at 651-201-6004 or by email at

Monday, February 19, 2018

To Rent or Not to Rent??

By David Bau, Extension Educator

Farmland rental rates have remained high even though grain prices have gone down significantly.  As grain prices rose farmland rental rates were slow to increase. When grain prices started to fall in 2013, farmland rental rates started to decline, but at a much slower pace than grain prices.

The average cash prices for corn and soybeans in 2012 in Worthington were $6.82 for corn and $12.64 for soybeans.  The average price of corn declined each year since while soybean prices peaked with an average price of $13.99 in 2013. From 2012 through 2016, corn prices declined by 54.5% and soybean prices by 27% , while average rents paid by southern Minnesota in adult farm management programs declined from a peak of $243.47 in 2013 to $226.85 in 2016 or 7%.  Corn and soybean prices declined by an average of 41% and if this was applied to 2013 average rental rates the average rate in 2016 would calculate to $143.65.

Many rents are still above $200, $250 and higher.  If I use $250 rental rate and total cost of production estimate for 2018 of $760 per acre for corn and $530 for soybeans.  Using expected yields of 200 bushels per acre for corn and 55 bushels per acre for soybeans the cost per bushel calculates break evens of $3.80 for corn and $9.64 for soybeans.  Current 2018 cash bids are $3.25 for corn and $9.30 for soybeans, both below the breakeven prices necessary above.

Why would a farm rent land for $250 per acre or higher next year?  The farmer has to ask the question to rent or not to rent?  What are some reasons to rent with a potential loss forecast?  Farmers are optimists and they are always hoping for better prices, and prices could increase to cover their costs.  Farmers need to maintain their size to generate sufficient income to cover their living expenses and equate their equipment with the farm size.  Once a rental parcel is lost, it is hard to ever get back into the operation and if the farm size shrinks, it might fall to a level where the farmer will have to look for ways other than farming to provide for their living expenses.  Other job opportunities are limited in rural communities.

With the projected prices producing negative income from renting why should the farm say no?  If the farmer has good records, they know every parcel of land and which has great potential each year to produce an exceptional crop and which parcels are subject to drought with lighter soils and which will drowned out due to water holes with poor drainage.  These poorer parcels should be the first to go.  If this reduces your farmed acres too much, examine ways to utilize your equipment differently, through custom work, or sharing equipment with a similar sized farmer.

For farmers who decide not to rent, they may determine farming can no longer provide for them a living wage and they will need to find a new occupation.

Many landlords have been slow to lower rents due to good yields the past three years.  Many look at their high property taxes and land values and think rents should reflect this.  Rents account for 1/3 of the costs on corn and 2/5 of costs for soybeans and if a farmer is unable to negotiate a lower rent that will be a major factor in having to say no.

Over 1200 farmers in southern Minnesota in the Adult Farm Management programs have lost money on cash rented corn ground since 2014 and looks like this will hold true for 2017 and 2018 and as farmers have been unable to pay back operating loans with these losses, many will be getting a no from their banker if the profitability numbers don’t improve and that will be a decision not to rent they did not want to make.

Wednesday, January 17, 2018

Comparing Corn and Soybean Cash Prices with Average Southern Minnesota Farmland Rental Rates

By David Bau, Extension Educator

The average cash price for corn and soybeans each calendar year since 2000 is listed in Table 1 below.  Columns 2 and 3 list the average cash prices each year in Worthington for corn and soybeans.  The Column 4 lists the average percent change in corn and soybean prices from the prior year.  Column 5 lists the average rent paid by 1200 farmers in Southern Minnesota who are part of an Adult Farm Management Programs.  Column 5 multiplies the price percent change by previous year’s actual average rents to determine the farmland rent each year.  Column 7 starts with the average rent $98.31 in 2000 and then multiplies this by the corn and soybean price change (-3.21) to determine a rental rate of $95.16 for 2001.  To determine the 2002 rental rate, start with the 2001 rate of $95.16 and multiply this by the price change (15.06) and to determine an average rent of $109.49 for 2002.  This process was repeated to determine rentals rate through 2017. There are two question marks for 2017 as the average rent will not be available until March of this year.
The last three columns vary quite significantly. If the change in corn and soybean prices was the main factor determining Southern Minnesota farmland rental rates, you would expect the actual rental rates to be similar to the Column 6. Comparing these figures the estimated rents using the price change factor were $29.26 lower than the actual rents listed in Column 5 over sixteen years or an average of $1.83 per acre per year, very close. Using the second calculation of starting with the 2000 average ($98.31) and adding or subtracting the price change each year to the previous calculation, there is much more variability and with calculated rents in Column 7 were higher by $752.89 over the sixteen years or $47.05 per acre per year, a significant difference. This more reactive rate is closer to what was called “the coffee shop rates”.

Rent had been on a steady increasing trend of less than $10 per from 2000 through 2005 then started increasing more rapidly from 2006 through 2010 and then increased only slightly in 2011 due to lower prices in 2009 and 2010, with $6.00 plus corn and $12.00 plus soybean prices, rents took off in 2012 and 2013 before beginning to decline in 2014 as corn and soybean prices moved lower.

Many factors effect rental rates including property taxes, input costs, yields, prices and gross income, but there does seem to be a relatively close tie to corn and soybean prices and southern Minnesota farm land rental rates.

Farm Resource Guide Available

By David Bau, Extension Educator

The Farm Resource Guide for 2018 is now available at many University of Minnesota Extension County offices across the state.  This resource guide includes a wide variety of useful farm business management information including the following items:

  • Custom rates
  • Average farmland rental rates by county
  • Flexible Rental Agreements 
  • It includes lease forms for Cash Rent and Share Rent arrangements
  • Farmland sales information for all counties in Minnesota
  • Information on charges for custom feeding, commodity storage, leasing buildings and various bin rental rates 
  • Current information on pasture rental rates, tree timber values
  • Marketing information along with recent cost trends for Minnesota
  • Commodity price probabilities for corn, soybeans, alfalfa hay, straw, grass hay, hogs and cattle
  • Corn and soybean yields by county 
  • Feedlot Rule Highlights and information on Manure Agreement and Easements 
  • Examples of Manure Spreading Lease and Land Application Agreement forms

This Resource Guide is available for a $25 fee plus postage and sales tax if you would like to have your own copy.  I can provide you the information in your preferred format: e-mail cost $25 plus sales tax; CD cost $28.50; or hard copy cost $30.00.

If you would like your own copy of the Farm Resource Guide, please e-mail me at or give me a call at 507-372-3900 ext. 3906 and let me know what format you would like.  I will send out the materials and an invoice as soon as possible.  I hope you find the Resource Guide useful and would welcome your feedback on what you would like to see included in next year’s Guide.

For more farm business information, please see the University of Minnesota Extension website:

Friday, January 12, 2018

Third Annual Women in Ag Network Conference on February 15

By Megan L. Roberts, Extension Educator

The Women in Ag Network is excited to announce our third annual conference on February 15, 2018 in St. Cloud, MN at the Holiday Inn and Suites. Registration begins at 8:45 a.m. with conference programming from 9:15 a.m. to 3:30 p.m. This third annual event will be a day of learning and networking for women involved in agriculture. Our theme is “Overcoming Adversity.” The theme was selected to be a relevant and timely topic as farmers and agriculture face lower commodity prices and economic challenges.

Katie Pinke, publisher of AgWeek and blogger of The Pinke Post, is our keynote speaker.  Her presentation, “Accepting Interruptions to Define Your Path Forward,” will highlight that even the most well-orchestrated plans aren’t exempt from interruptions on the farm or off the farm. In this time of agricultural adversity, Katie will help attendees define their best path forward through life’s pivotal moments. Katie will draw upon trials and triumphs in her personal life and ag business career throughout her presentation.

Breakout sessions will feature five diverse tracks for attendees to choose from: farm business planning, stress management on farms, consumer advocacy, risk management, and farm safety and health. The day will end with a panel discussion with panelists sharing how they have overcome adversity, whether it be a health challenge, weather event, farm transition, or other farm challenge. Below is a list of our breakout sessions and speakers.

Friday, December 29, 2017

Revised version of "Ag Income Tax Update for Farm Families" is now available

A revised version of “Ag Income Tax Update for Farm Families” is now posted on the University of Minnesota Extension Ag. Business Management website.  The revised fact sheet is posted on the Farm Tax and Legal Issues page (please see link below).
This revised version addresses farm tax issues that will impact producers for the 2017 income tax year.  The recently passed tax reform has a very limited effect on a producer’s 2017 tax return.  I’ve confined the discussion in this document to what matters for 2017.  I will address the components of the new tax reform legislation later in the spring. 
Please feel free to contact me via email if you have any questions.  My email address is:
I want to wish everyone a safe and prosperous new year!
Thank you.

Rob Holcomb

Wednesday, December 27, 2017

Southwestern Minnesota Farmland Values Decline 6.1 percent in 2017

By David Bau, Extension Educator

At the end of each year for the last twenty-three years, a survey has been conducted of farm land sales in fourteen southwestern Minnesota counties.  The survey reports bare farm land sales to non-related parties for the first six months of each year. Land values had been steadily increasing until 2014.  After reaching record high prices in 2013, the upward trend was broken as prices declined in 2014.  The downward trend continued through 2017.  The summary report for this survey is available at the county extension offices in Chippewa, Cottonwood, Jackson, Lac qui Parle, Lincoln, Lyon, Martin, Murray, Nobles, Pipestone, Redwood, Rock, Watonwan and Yellow Medicine Counties.  This year the decline across the fourteen counties averaged 6.1%.  Average land values had not declined since 1996 when the average SW Minnesota land prices were $1,175 per acre in 1995 to a high in 2013 to $8,466 then declined in through 2017 to $6,340.

Data from these counties indicate prices decreased from an average of $6,751 in 2016 to $6,340 in 2017 or a decrease of 6.09%.  This is only the fourth decrease as far back as this data has been collect since 1995.  In 2013 was the largest year to year increase of 35.6%.  Farmland prices decreased in eight counties and while increased in six counties including Chippewa, Cottonwood, Jackson, Lac qui Parle, Redwood, and Yellow Medicine from 2016 to 2017.  There was a lot of variability in the numbers from 2016 to 2017.  The largest increase was in Lac qui Parle County with an increase of 22.0% while Rock experienced the largest decrease of 29.8% for the sales that met the bare farmland to non-related party transaction requirements.

Rock County had the highest average sale price of $7,545 per acre and Lincoln the lowest at $4,415 per acre.  The average Crop Equivalency Rating (CER) for the fourteen counties was 69 with the highest price per CER in Chippewa County at $101.20 and the lowest in Lincoln County at $76.12 per CER.  The assessed values for the third year in a row were higher than actual sales price with the assessed value at 103 percent of the sales price.  Historically the assessed value would be 75 to 80 percent of the sales value.  Nine counties experienced average sales prices that were lower than the assessed values in 2017.  While five counties experienced average sales prices that were more than the average assessed values, the lowest percentage was 90.01% in Lac qui Parle County.

Each year sales vary within a county and be closer to a larger city which would have an effect on these average values from year to year.  The quality of the land sold within a county may be a factor in the wide swings in the prices from year to year in individual counties. The number of sales in each county varies greatly from year to year.  The 6.1% decrease is well below historical increases of 1 to 2 percent.  For the last ten years there have been large percentage increases.  In the eight years before 2014, prices increased at an annual rate of 15.3%.   There are several factors that have an effect on land values.  Farm incomes, grain prices, interest rates, return on other investments and 1031 exchanges are often mentioned as reasons for the increase.  Farm profits were weaker in 2013 and turned negative in since 2014 with lower commodity prices.  There were good to record profits in the Southwest Minnesota Adult Farm Management program, from 2005 through 2012.   During 2013, half the farms in adult farm management in Southern Minnesota lost money on corn production.  This loss has continued through 2017. Many hog and dairy producers experienced a tough year in 2010 many with losses instead of profits with poor prices for their commodities and high feed costs. 

If the average farmer had losses from 2014 through 2017, this would soften local demand for the land from farmers.  Interest rates continue at historically low levels although are slowly increasing and land rental income is comparable or higher than what an investor can earn from treasury bills, bonds or certificates of deposit at financial institutions.   The stock market rebounded significantly since its low in March of 2009 to current record levels.  The 1031 exchange is for farmers or property owners who have land in an area of increased value due to location to city or development and rather then pay taxes on large gains from the sale of land they purchase like property or other farmland at a more reasonable price elsewhere, which increases rural farmland demand. 

The reason for increases or decreases in farm land sales prices is a combination of all of these factors.  If you would like a copy of the two page document on the trends in farm land sale prices, contact your local county Extension office at any of the fourteen counties listed above.

Which direction will farm land values go depend on several factors?  Supply and demand will determine this. The simple return on investment which is determined by rental rates will determine how competitive farm land is compared to other investments and this will determine a value for farm land.  Corn and soybean prices for 2018 crop are much lower than previous years.  This should have an impact on profits, farm rental rates and eventually farmland values.  The government programs have an influence as well through the farm bill.   If interest rates rise or farm rental rates fall, the value of land is sure to be affected in a negative way and that will cause a decrease in land values.  The table below indicates average land prices from 2012 to 2017.

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