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Farm Leasing Arrangements. Tim Eggers Field Agricultural Economist teggers@iastate.edu 712-542-5171 www.extension.iastate.edu/feci. Agenda. Iowa Nutrient Reduction Strategy Flexible cash leases Landlord liens Agricultural Act of 2014 CSR2 use Bioenergy (CENUSA, POET, DUPONT)
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Farm Leasing Arrangements Tim Eggers Field Agricultural Economist teggers@iastate.edu 712-542-5171 www.extension.iastate.edu/feci
Agenda • Iowa Nutrient Reduction Strategy • Flexible cash leases • Landlord liens • Agricultural Act of 2014 • CSR2 use • Bioenergy (CENUSA, POET, DUPONT) • Beginning Farmer Tax Credit • Trends in • Farm land values • Cash rental rates • Costs of Production
Situation • Increasing concern about the quality of local and regional waters • Substantial demand for agricultural products • 2008 Hypoxia Action Plan • development and implementation of N and P reduction strategies for Mississippi/Atchafalaya River Basin states
Cost of Lost Soil and Nutrients • Loss of in-field productivity • Off-site water quality impacts, locally and in the Gulf of Mexico • Eventual decline in land value Duffy, 2013
Why? And why now? • Iowa’s productive soils and cropping systems also contribute to water quality concerns • Society and EPA expect more from cities, industry and agriculture • Gulf Hypoxia Task Force requires plan to reduce N and P load to Gulf by 45% • EPA requests strategy that emphasizes state implementation of new and existing N and P practices for point and non-point sources
What is the Iowa Nutrient Reduction Strategy? • Voluntary, science-based program to reduce Nitrogen and Phosphorous impact on water • Includes cities, industry and agriculture • A practice-based approach to show meaningful and measureable progress • A framework for innovation and verification of new practices and technologies
Can we achieve the nutrient reduction goals for Gulf of Mexico Hypoxia? • Not simple • Not as simple as just fine-tuning nutrient management • Not impossible
Nitrate-N Reduction Practices *Load reduction not concentration reduction **Concentration reduction of that water interacts with active zone below the buffer
Phosphorus Reduction Practices Assessment did not include stream bed and bank contributions although recognized as significant
Nutrient Value of Lost Soil • Each ton of soil contains an estimated • 2.32 pounds of Nitrogen @ $0.44 per pound • 1 pound of Phosphorus @ $0.43 per pound • Value in nutrients = $1.45 per ton of soil • Average Iowa farm is 333 acres • $2,414 in lost nutrients alone, per year Duffy, 2013
Summary • To achieve goals will require a combination of practices – conservation systems approach • N versus P may require different practices • Multiple benefits and costs of practices need to be considered • Targeting of practice placement will be critical (Precision Conservation)
Flexible Cash Lease • Rent is paid in cash • Actual rent paid each year is determined by a formula that includes any or all of: • Actual price • Actual yield • Costs of production • Also called “variable” cash leases
Reasons for Flexible Leases • Fewer landowners and tenants want to be involved in crop share leases • Still recognize a need for sharing risk • Prices and yields have been volatile in recent years • Cash rents have lagged behind profits in crop production • Neither party enjoys renegotiating annually
Prevalence of Flexible Leases • Iowa land tenure surveys • 1993: 3.5% of cash rented acres • 2003: 11% of cash rented acres • 2007: 12% of cash rented acres • 2012: 16% of cash rented acres
Types of Flexible Cash Farm Leases Option A: Rent = % of gross revenue Option B : Rent = base rent + bonus Bonus = (Gross Crop Revenue – Base Crop Cost Estimate) x % Base Crop Cost Estimate = Input costs + Base rent
Assuring the Rent is Paid • How can parties assure one another that the rent will be paid?
First Step? -- Use a written lease. And, be sure that: • The legal description and parcel number in the lease is accurate. • The parties to the lease are properly identified. • The lease terms are clear.
Landlord’s Lien Law • Iowa’s Landlord Lien Law went into effect on July 1st, 2001 • Applies to existing farm leases • Gives landowners priority in collecting rent owed by their farm tenants • Landowner must have filed a Uniform Commercial Code (UCC) with Secretary of State where tenant does primary business
Landlord’s Lien Law • Amended by the Iowa General Assembly in 2002 • UCC Financing Statement, once filed, continues to be effective until a termination statement is filed so long as the parties (landlord and tenant) remain the same.
Landlord Lien Law • A financing statement filed to perfect a lien in farm products must include a statement that it is filed for the purpose of perfecting a landlord’s lien. • Must be filed with Secretary of State within 20 days of when the lease goes into effect
Should you “do it yourself”? • Just having the language in the lease is not enough. • Creation, filing and perfection of a Landlord Lien is a complicated legal procedure involving intricacies of Iowa law (Iowa Code ch 570 and related sections) and Uniform Commercial Code (UCC) (Iowa Code ch 554). • Owner-Landlords who wish to do this may find it advisable to hire an attorney to be certain that all legal documents and procedures are correctly followed.
Base Acres Keep current base acres or do a one-time “reallocation” of base acres Reallocation allowed to covered commodities planted between 2009 and 2012 Reallocation in proportion to the ratio of 4-yr average plantings/prevented plantings Total number of base acres limited to total of existing base acres
Payment Yields Keep current CCP payment yield or do a one-time “update” of payment yield on a commodity-by-commodity basis Update: 90% of 2008-2012 yield per planted acre on the farm If the farm yield is below 75% of the 2008-2012 average county yield, then the farm yield is replaced by 75% of the 2008-2012 average county yield
Price Loss Coverage (PLC) Price-based support program Works like CCP Payment rate = Max(0, Reference price – Max(Marketing year average price or Loan rate)) Reference prices are: Corn $3.70, Soybeans $8.40
Agriculture Risk Coverage (ARC) Revenue-based support program Revenues based on 5-year Olympic average yields and prices Triggers at county or individual farm level, instead of state level ARC choice: Individual ARC: crop revenues are combined County ARC: revenues are crop-by-crop
Supplemental Coverage Option (SCO) • An additional policy to cover “shallow losses” • Shallow loss = part of the deductible on the producer’s underlying crop insurance policy • SCO has a county-level payment trigger • Indemnities are paid when the county experiences losses greater than 14% • Premium subsidy: 65% • Starts in 2015 • Can’t have ARC and SCO together
Three Choices PLC + SCO Price protection with top-up county-level insurance protection, paid on 85% of base ARC-County County-level revenue protection based on historical averages, paid on 85% of base ARC-Individual Farm-level revenue protection based on historical averages, paid on 65% of base Once chosen, locked in until 2018
Two Waves First wave: Choice on base acreage and yield updating Probably occurs late summer timeframe Second wave: Choice on farm bill programs Probably late fall/early winter Harvest the crop and farm bill at the same time
Bioenergy Options New farm bill pushes land out of CRP Energy laws require more bioenergy content Perennial grass crops provide environmental & energy benefits
New Bioenergy Grasses Developed Liberty, a new switchgrass variety, enters the market in 2016 Liberty yields 40% more traditional switchgrasses Designed for bioenergy
Statewide Average $8,716 up 5.1% up $420
High Grade Land $10,828 up 6.3% up $646
Medium Grade Land $8,047 up 3.5% up $274
Low Grade Land $5,298 up 3.5% up $179
Northwest $10,960 high $12,824 med $9,918 low $6,845 up 2.8% up $83 down 3.9% down $445
