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Showing posts from 2013

Searching for a Fair Rent for 2014

Kent Olson, Extension Economist
After the recent years of high crop prices and low interest rates, land prices and rents have risen to new heights. But now, with the recent drop in crop prices and the stickiness of land rents not falling as quickly as crop prices, many farmers are feeling the squeeze once again between revenue, costs, and rent. This is painting an unhappy, perhaps tense picture for both tenants and landowners as rents are discussed and negotiated for 2014.

As a first step in rent negotiation, let's look at what each side sees from their viewpoint.

As a base, we'll start with the projected returns and costs for growing corn in 2014 in west central Minnesota (Table 1). This projection is based on the 2012 production records for west central Minnesota, recent NASS data on prices paid by farmers for inputs, and CBOT futures prices. (Details are in the footnote for the table.)

Based on this projection, an owner-operator is projected to face a loss of $180 per acre.…

Workshop: What is a fair and profitable farmland rental agreement?

Join University of Minnesota Extension for this workshop designed to assist land owners, farmers, and agri-business professionals with farm financial issues related to farmland rental rates, ownership, management, leasing agreements, and other matters.

Meetings will be held throughout southern and central Minnesota at no cost. View meeting dates and locations for central Minnesota and southern Minnesota.

MEETING DETAILS
The meetings are sponsored by the University of Minnesota Extension and will last approximately two hours.

Presenter: Dave Bau, Ag Business Management, Extension Educator

MEETING AGENDA

Farmland rental rate trends
Land values
Increasing input costs
Landlord worksheet
Tenant worksheet
A rental rate that works, Excel spreadsheet
Flexible leases
Rental lease examples
What is a fair rental agreement?
Who should attend:

Landlords and farm land owners
Farmers and tenants
Agri-businesses
Ag professionals
Make plans now to attend one of these free informative meetings.

In case of inclement we…

Minnesota gift tax effective July 1, 2013

Gary Hachfeld

MANKATO, Minn. (10/22/2013) - As a result of the 2013 Minnesota legislative session, Minnesota now has a state gift tax effective July 1, 2013. The rules follow many of the federal gift tax rules with a few differences. The gift tax also has implications regarding the state estate laws and tax.

The Minnesota gift tax allows for an annual gift exclusion of $14,000 per person per individual per year to any number of persons without any tax. Couples can combine their gifts for a total of $28,000 per recipient if the spouses own the asset together, write separate checks for $14,000 each or file an IRS 709 and Minnesota gift tax form. In addition, each individual is allowed a lifetime gift exclusion of $1,000,000 which represents a lifetime gift tax credit of $100,000. Couples can combine their lifetime exclusions as well. Gifts in excess of the annual exclusion amounts will require the donor to file an IRS 709 and Minnesota gift tax form. Gifts in excess of the lifetime exclus…

Homestead classification key to Minnesota $4 million estate exclusion

Gary Hachfeld

MANKATO, Minn. (10/22/2013) - During the 2011 Minnesota legislative session, state lawmakers initiated a Qualified Small Business Property & Qualified Farm Property Exclusion. This $4 million dollar Minnesota estate tax exclusion for qualified small business and qualified farm property was signed into law July 2011 for decedents dying after June 30, 2011. Legislative law tied qualifying for the farm property exclusion to maintaining homestead classification on the farm land. If homestead classification is lost before the decedent's death, the estate will not qualify for the additional exclusion.

Many folks feel qualifying is not going to be a problem and is a panacea for eliminating Minnesota estate tax upon their death. However, without planning there could be major issues. There are several scenarios where the decedent could lose homestead classification and therefore not qualify for the exclusion. Those scenarios include: 1) Decedent has retired from farming an…

Should I have a Will, a trust or both?

Gary Hachfeld

MANKATO, Minn. (10/22/2013) -- Personal estate planning is a critical part of life, especially when transferring a farm business to the next generation. However, recent survey data from four states shows that over 69 percent of farm family members do not have an up-to-date personal estate plan. Part of the reason is confusion around the differences between a Will and a revocable living trust.

A Will and a revocable living trust are instruments that will direct your assets to the individuals, a business entity, organizations, or charities upon your death. You do not need both. One or the other will suffice. The choice of which instrument to use should be based upon your estate planning goals. Each instrument has specific traits.

A Will triggers the probate process. The parameters vary by state but in Minnesota, probate occurs when the decedent owns $50,000 or more of assets or any real estate. Probate is a court supervised process. In Minnesota it takes 12-18 months on avera…

Trends in farmland rental rates for 2014

By David Bau, Extension Educator
University of Minnesota Extension

What are the trends in farmland rental rates and where are they going in 2014? There are many places to find relevant information. The "Cropland Rental Rates for Minnesota Counties" publication prepared by Gary Hachfeld, William Lazarus, Dale Nordquist, and Rann Loppnow utilizes the FINBIN data base with historic information from an adult farm management data base. You can find the publication at two different websites: the Center for Farm Financial Management website under publications, and the Southwest Research and Outreach Center website under research and outreach.

The Minnesota Agricultural Statistic Service cropland rental information is included in the annual bulletin. It can be found online (once the federal government shutdown ends). Another annual publication by the Minnesota Agricultural Statistic Service on cash rent is released in September each year.

Iowa completes a statewide survey of farm…

Prevented planting? Evaluating your options under crop insurance

Kent Olson, Extension Economist

Spring rains and flooded fields have delayed or prevented planting for many farmers in Minnesota. If farmers have multi-peril crop insurance and have not been able to plant by their crop's final planting date, they do have options.

For most of Minnesota, the final planting date for corn is May 31. For the northern counties it is May 25. The final planting date for soybeans in Minnesota is June 10. The late planting period extends for 25 days after the crop's final planting date.

If a farmer was unable to plant corn on or before May 31 (in most of Minnesota) because of an insurable cause of loss, the farmer may:

Plant corn during the 25-day late planting period with the production guarantee being reduced one percent per day for each day planting is delayed after the final planting date. (But planting corn in Minnesota after June 10 is not recommended due to potential frost before harvest.)
Plant corn after the late planting period, that is after Ju…

Choosing ACRE or DCP: The view in late May

Kent Olson, Extension Economist

Earlier this month, the choice between the Average Crop Revenue Election (ACRE) program and the Direct and Countercyclical Program (DCP) seemed to be tilting towards signing up for DCP in 2013. Now in late May, that tilting towards DCP has strengthened for Minnesota farmers after the rapid planting rate, the improvement in soil moisture in Minnesota, and the recent upward price movements in future prices.

The rapid planting rate during May and the soil moisture improvement have made it harder to argue that yields will vary widely from averages and trends. So, ACRE payments appear to depend more on the future prices for the crops being planted now. The recent improvement in future prices for the new crop suggest that prices will not be at levels that make the actual state revenue below the benchmark.

Using trend yields for the state yields and historical yields for individual farms, my analysis of 17 example farms across Minnesota show that the breakeven…

ACRE vs. DCP in 2013

Kent Olson, Extension Economist

The extension of the 2008 Farm Bill opens up the decision to participate in the Average Crop Revenue Election (ACRE) program or the Direct and Countercyclical Program (DCP). Under the earlier rules of the 2008 Farm Bill, if a farmer signed up for ACRE, they had to remain in ACRE through 2012. But the extension changes that requirement. Even if farmers signed up for ACRE before, the extension allows them to change their choice and sign up for DCP if they think that is a better choice for them in 2013. (Farmers do have the option to not sign up for either program, but this is not a sensible choice for 2013 in almost all cases.)

Farmers have until June 3, 2013, to sign up for the ACRE program and August 2, 2013, for the DCP program.

The 2013 decision to sign up for ACRE involves some uncertainty because the drought of 2012 has cast doubt on the potential yields for 2013 and thus the potential market prices. Plus, changes in the demand side for grains may h…

A flexible land rental agreement benefits in a dry year

By David Bau, Extension Educator, University of Minnesota

Farmland rental rates have increased dramatically the last few years as commodity prices have reached record levels and remained high compared to historic averages. But grain prices will go lower again, and rental rates often lag and do not decline as rapidly. This will leave farmers with high rental rates locked in, creating a loss for the year. A dry year producing lower yields will expand this loss; here the farmers bear all the risk. One way to share the risk and rewards with the landlord is to enter into a flexible land rental agreement. This will reduce the loss for the farmer and share more risk with the landlord.

In 2008, Iowa State Extension reported that nearly 12 percent of all cash leases were flexible. In Minnesota, less than 10 percent of leases are flexible. In a dry year, I encourage farmers and landlords to consider setting up a flexible agreement.

Flexible leases have several advantages:

The actual rent paid adjus…

What can livestock producers do to protect against dry year costs?

By David Bau, Extension Educator, University of Minnesota

In dry years, livestock producers are exposed to increasing feed costs. Concurrently, liquidation from producers who have run out of feed--or who are reducing livestock numbers to match feed supplies--can cause prices for the finished product to go lower. What can livestock producers do in a dry year to protect against higher feed costs and less than profitable market prices?

Producers should constantly monitor their cost of production for their livestock enterprise. If the markets allow a producer to lock in a profit on the future contracts, they should do it. They still are exposed to varying local basis and quality premiums or discounts.

If the producer raises their own feed, they should still account for the current feed costs when looking at locking a profitable price for the finished commodity.

Locking in feed supplies and costs can also give producers some assurance in a dry year. If hay prices are going up, look at reducing…

How to market grain in a dry or drought year

By David Bau, Extension Educator, University of Minnesota

How should a farmer approach commodity marketing plans in a dry year? Last year was the driest year on record since the 1950s in the United States. Crops varied widely across the country, but Minnesota was fortunate to receive May rains and timely rains thereafter in parts of the state. Minnesota's average corn year led the country. Unfortunately, going into the 2013 crop year, Minnesota's sub soil moisture is at extremely low levels--much lower than the 2012 conditions. What can a farmer do to enhance their commodity marketing under these conditions?

Start by considering purchasing a higher level of insurance coverage. The majority of farmers purchase 75 percent coverage level and some form of revenue product that insures both yield and price. The prices for soybeans and corn are set at the average of the November and December futures contract during the month of February each year. The 2013 prices are set at $5.65 for c…