For generations, the Taylor family has farmed hundreds of acres in Sciota Township along the Cannon River and its tributaries.
About five years ago, they made a change: The rows of corn and soybeans don’t reach the riverbanks any more.
Instead, there’s about 100 feet of natural prairie grass between the crops and the water. They planted it, with the help of Dakota County, to prevent erosion, restore habitat and preserve their family land.
“It’s a very good idea,” Ray Taylor, 80, said. “It saves agricultural land for future generations.”
The Taylors were early participants in Dakota County’s Farmland and Natural Areas Program (FNAP), which aims to protect open space, water quality and habitat. They sold the county permanent conservation easements covering 343 acres, retaining ownership and pledging to follow a conservation plan.
Voters approved $20 million in bonds in 2002 to fund the preservation program, the first of its kind in the state, for 10 years. At the time, rich farmland was being snapped up for subdivisions and strip malls.
As FNAP gets close to completing what it set out to do — the original balance has dwindled to few million dollars — the results have been widely praised by county officials, landowners and conservationists. Thousands of acres have been preserved in perpetuity. A look at a map shows a handful of green spaces that will stay green in the northern, more populous part of the county, and large swaths of undisturbed land that will help maintain the health of important watersheds in the rural, southern part of the county.
“There’s this inherent peace about preserving the rural landscape and allowing farming to continue to thrive,” said Al Singer, the county land conservation manager.
The county has been financially shrewd, too: It has parlayed the original $20 million into an additional $45.6 million in grants and donations, including property worth $23.8 million from participating landowners.
For example, the Taylors, whose land was appraised at $1.4 million, got $505,000 from the county and $504,000 from a federal farmland preservation program, then donated land worth about $400,000.
From doubts to success
County leaders are now thinking about what to do when the money runs out: Seek outside funding to do more? Go back to the voters? Call it quits? But when the original plan was pitched in 2002, not everybody was convinced it was a good idea. Realtors were among those who voiced concerns, claiming the program would push land prices higher.
Greg Stattman, a Realtor who now serves on the program’s citizen advisory committee, said the economy and the county’s careful stewardship of the bond money have staunched the criticism.
“I don’t think there’s the animosity there was before, because there just isn’t the development we were seeing in 2002,” Stattman said, adding that he likes the county’s focus and desire to protect water quality.
“What’s really impressed me is how many other counties in the state haven’t even bothered,” he said.
Washington County now has a similar program, with a $20 million bond referendum approved by voters in 2006, but officials there didn’t start buying property until this year.
The National Association of Counties and the nonprofit Trust for Public Land, which helped launch the Farmland and Natural Areas Program, bestowed a national conservation award on the Dakota County program in 2005.
“The track record and the accomplishments are stellar,” said Susan Schmidt of the Trust for Public Land. “We are well aware of many acres that have been protected and, but for this program, I’m sure would not have been protected.”
Tom Lewanski, of the nonprofit Friends of the Mississippi, said the buffers are an important step toward improving water quality.
“It certainly will help a lot,” he said. “Not only are you helping water quality, but you’re also gaining the habitat values on these buffers planted in native vegetation.”
For the Taylors, restored wild habitat along the Cannon River means glimpses of foxes, turkeys and pheasants.
It’s nice to see some natural areas,” Ken Taylor, 54, said. “You don’t have to take everything. You can give something back.”Katie Humphrey • 952-882-9056
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June 25, 2010
Legislative changes simplify enrollment for Rural Preserve program
Aug. 16 deadline approaches for initial decision on non-ag land enrolled in Green Acres
Saint Paul – Recent legislative changes will make the new Rural Preserve program a simpler option for Minnesota farmers deciding on property tax treatment of non-agricultural, class 2b rural vacant land that is currently enrolled in Green Acres.
Class 2b land will no longer qualify for Green Acres starting Jan. 2, 2013 (for taxes payable in 2014). Rural Preserve is just one of several options landowners may choose for class 2b land once it is removed or withdrawn from Green Acres.
Revenue Commissioner Ward Einess “urges landowners to weigh all of your options before making this important decision about your class 2b land. Think carefully about what is best for your overall situation.”
Other options for class 2b land are explained below.
Rural Preserve will offer tax deferral benefits similar to Green Acres for qualifying rural woodlands. Though tax benefits are similar, Rural Preserve requires a preservation plan and covenant that prevents changing the use of land while enrolled in the program.
Legislation enacted this year simplified the preservation plan requirement and reduced the minimum covenant and enrollment period to eight years (down from 10 years). The revised law requires a simplified “conservation assessment plan” to enroll eligible land in Rural Preserve, which can be based on a USDA field map rather than a more-detailed land inventory as under the previous requirement.
Landowners can apply for Rural Preserve starting with the 2011 assessment (for taxes payable in 2012).
The main choices for landowners with class 2b land currently enrolled in Green Acres include:
Withdraw class 2b land from Green Acres by Aug. 16, 2010. The usual three-year payback of deferred property tax will be waived for class 2b land withdrawn by Aug. 16. This avoids the payback, but withdrawn acres will be valued at market value for taxes payable in 2011 and beyond.
Leave class 2b land in Green Acres for now, but transition it to another program before Jan. 2, 2013. Class 2b land that is shifted to Rural Preserve by 2013 will not be subject to the three-year payback requirement. Land that is shifted to other programs will be subject to a three-year payback. Examples include the Sustainable Forest Incentive Act (SFIA), which provides an annual payment for enrolled woodland, or the class 2c Managed Forest classification, which provides some landowners with a reduced class rate.
Leave class 2b land in Green Acres until the 2013 assessment. Any class 2b land remaining in Green Acres will be automatically withdrawn on the assessment date of Jan. 2, 2013. The land will be subject to a three-year payback and will be assessed at full market value for taxes payable in 2014 and beyond.
Taxpayers with questions should contact their county assessor’s office. For general program information, visit the Department of Revenue website at www.taxes.state.mn.us and click “Property Tax” in the top-left navigation menu.
WASHINGTON, July 14, 2010 – Agriculture Secretary Tom Vilsack today launched a new feature on the ‘Know Your Farmer, Know Your Food’ website to highlight local and regional food systems and the multitude of connections being made between farmers and consumers. The new online resource advances a national conversation about food and agriculture and highlights the importance of local and regional food systems – one of the fastest growing segments of agriculture – to American agriculture, the economy, and rural communities.
“By developing our local and regional food systems, we can spur job growth in our rural communities and ultimately strengthen American agriculture,” said Secretary Vilsack. “This showcase will serve as a hub of ideas, local success stories, and USDA resources that showcase and strengthen the link between local production and local consumption that benefits producers of all sizes.”
The ‘Know Your Farmer, Know Your Food’ Ideas and Stories webpage – http://kyf.blogs.usda.gov – will provide real-world examples of the outpouring of dedication, entrepreneurship and support for agriculture that are taking place every day across the country. The website also serves as a clearinghouse for USDA resources aimed at linking local producers with consumers and promoting a national conversation about food and agriculture.
USDA’s “Know Your Farmer, Know Your Food” initiative seeks to create new economic opportunities, to promote local and regional food systems that help keep wealth in rural communities, and to encourage a national conversation about what we eat and where it comes from in order to benefit producers of all sizes.
USDA is an equal opportunity provider, employer and lender. To file a complaint of discrimination, write: USDA, Director, Office of Civil Rights, 1400 Independence Avenue, SW, Washington, DC 20250-9410 or call (800) 795-3272(voice), or (202) 720-6382 (TDD).
The National Pork Producers Council and National Cattlemen’s Beef Association have taken first steps toward challenging USDA’s new proposed federal rule on livestock marketing recently when they requested an extension of the 60-day comment period on the proposed federal rule that could change livestock marketing rules. The comment period currently expires Aug. 23.
USDA was told by Congress in the 2008 farm bill to specify the criteria it will use under the Packers and Stockyards Act to define “undue or unreasonable preference or advantage in a contract.” USDA responded last month with a highly detailed proposal that has become increasingly controversial.
Livestock groups are telling the press that since they have had an opportunity to review the proposed rule, they believe that it goes well beyond the parameters set out in the law, specifically with regard to sections on “unfairness,” purchasing practices, contracts, “competitive injury” and recordkeeping. For example, NPPC President Sam Carney told the press that the USDA proposal, “is overly broad and very vague. We need more than 60 days to determine all of the ramifications this regulation could have on America’s 67,000 pork producers,” he said
NPPC also has concluded that the broad scope of USDA’s proposal and what it called “the lack of an adequate economic analysis of its impact on the livestock industry” warrant an extension of the comment period. The organization also pointed out that the Aug. 23 comment deadline is four days before the next USDA-Department of Justice workshop on competition in the livestock industry, and that public comments from that event in Ft. Collins, Colo., as well as from the final Dec. 8 workshop in Washington, D.C., should be considered before making the proposed rule final.
One very important new requirement in the proposed rule is its ban on direct packer-to-packer sales and its restrictions on other buying practices. Another is the proposed change that would allow many small meat plants to sell products nationally, even abroad, after being approved by state inspectors who enforce USDA standards.
Meat industry experts suggest the USDA proposal would exceed its legal authority. In addition, they suggest the rule would prohibit or restrict many practices allowed for decades, and could severely harm producers and the industry.
For example, packers who own feedlots would have far fewer sales options, since they could sell their cattle only to their company’s packing division — and pork companies that raise hogs would face similar restrictions.
Perhaps the most controversial, longer-term effect of the USDA proposal, industry observers suggest, is the change in requirements for producers who allege anti-competitive actions. In such cases, a showing of “competitive harm” has traditionally been required to support allegations — but, USDA now proposes to eliminate that threshold, a very important change.
The process from here is that interested parties — and, there certainly will be many, by all indications — will make formal comments to USDA, and include legal and economic analyses of the likely effects of the new rules. Given the level of interest and controversy, USDA appears certain to allow an extension of the time period for public comment, and, once it has had time to review the comments, it will propose a final rule — and, then interested parties will decide whether to mount legal challenges, which seem likely at this time.
At this early point in the process, it appears the USDA proposal could change the structure of the U.S. livestock marketing channels in very significant ways, both by restricting options now used by packers and others and by making it easier to bring charges of anti-competitive behavior.
Industry observers suggest that at least some of these proposed changes have been rejected by earlier court decisions. If so, it will be important to see whether Congress will now craft new legislation to support USDA’s proposal. Certainly, the proposed changes are important and should be watched carefully as they continue through the regulatory and legislative process, Washington Insider believes.
Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products, on the News Menu on Farm Dayta, and on the News and Analysis Menu of DTN’s newest Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com.
DTN Washington Insider can be contacted at Washington.email@example.com
As the crop season rolls into midsummer, we’ve got some real back-and-forth going on when it comes to the state of affairs weatherwise.
Light to locally moderate rain will move across the central and southern Plains through the western Midwest Wednesday. Eastern Midwest, northern Plains, and Delta areas will be mainly dry. The rain is not heavy enough to cause new flooding, but soils in the western Midwest will continue to be wet from these additional showers. We’ll also see some delays in wheat harvest; however, the southern Plains harvest season is very close to finishing. Temperatures will be hot in the eastern and southern areas as well, with the possibility of some stress to crops. In contrast, very cool conditions are in store for northern areas.
Highs: 70s Canadian Prairies, northern, western and central Plains; 80s northern, western, and central Midwest, southern Plains, Texas Panhandle, west Texas; 90s eastern and southern Midwest, Delta, Deep South, central, eastern and southern Texas.
Bulletins have quite a bit of flooding for the southern Plains–continued flood issues in the western and central Midwest–and heat concerns from the eastern Midwest through the Northeast. There is some heat stress to crops in the eastern Midwest from this weather pattern this week.
5-day rainfall does offer some potential for showers over the eastern Corn Belt and Delta–which will be welcome. We’ll see rain in most of the central U.S.–possible flooding in the southeastern Plains–and wheat harvest delays due to rain in the central Plains.
5-day highs–on the mild side for sure. No threat to corn pollination from a temperature standpoint through the balance of this week. This, of course, is where some of the real discrepancies come in. Corn pollination is off to a good start with 19 percent silking. However, the crop conditions are declining–and maybe just a bit early for that feature. The overall U.S. crop rating dropped two percentage points last week, and the Iowa corn crop went down by seven points due to the effects of wet ground leaching out nutrients and causing drowned-out spots. On the other hand, of course, areas which aren’t drowned out are looking very good.
The jet stream pattern through Saturday the 17th has fair model agreement. We stay with the U.S. depiction for a broad trough over the northern and eastern Midwest. Still some showers with no major heat wave problems.
There are some issues internationally. In Europe, France has 95-100 degree high temperatures forecast for Thursday. Look for that heat to spread northeast to Germany by the weekend–stressful to crops.
And the North China Plain is HOT–100+ again Tuesday–stressful to crops–certainly including corn. The northeast is not as hot, but this pattern is noteworthy.
Pertinent numbers from the Australia weather bureau regarding the Southern Oscillation Index (SOI) in the Pacific are: average the last 30 days +3.65; average the last 90 days +6.96; daily contributor to the SOI calculation +14.47. So, at this point the Pacific SOI reading is edging toward La Nina values but it’s not there yet.
GILTNER, Neb.—Farmer Jim Kreutz uses derivatives to soften the blow should the price of feed corn drop before harvest. His brother-in-law, feedlot owner Jon Reeson, turns to them to hedge the price of his steer. The local farmers’ co-op uses derivatives to finance fixed-price diesel for truckers who carry cattle to slaughter. And the packing plant employs derivatives to stabilize costs from natural gas to foreign currencies.
Far from Wall Street, President Barack Obama’s financial regulatory overhaul, which may pass Congress as early as Thursday, will leave tracks across the wide-open landscape of American industry.
Designed to fix problems that helped cause the financial crisis, the bill will touch storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus, attesting to the sweeping nature of the legislation, the broadest revamp of finance rules since the 1930s.
Here in Nebraska farm country, those in the business of bringing beef from hoof to mouth are anxious, specifically about the bill’s provisions that tighten rules governing derivatives. Some worry the coming curbs will make it riskier and pricier to do business. Others hope the changes bring competition that will redound to their benefit.
“Out here we like to cuss the large banking institutions because of the mortgage mess, but we also know that without them some of these markets don’t work,” says Mike Hoelscher, energy program manager for AgWest Commodities LLC, a Holdrege, Neb., brokerage that provides derivatives services to the farming industry.
How Farmers Use Derivatives
Derivatives are financial instruments whose value “derives” from something else, such as interest rates or heating-oil prices. The first derivatives were crop futures, which appeared in the U.S. at the end of the Civil War and became a standard facet of business for companies across America.
During the financial crisis, they became notorious as American International Group Inc. and others were gutted by bad bets on derivatives linked to bad mortgages.
President Obama and other proponents say the financial overhaul will prevent the kind of reckless lending and borrowing that sank the financial system and left taxpayers with the check. They say non-financial companies are worrying unduly about the derivatives portion of the legislation. The Senate is expected to approve the financial regulatory overhaul on Thursday, sending it to the president.
The full impact won’t be known for years, but in Nebraska nerves are already on edge.
Executives at Five Points Bank in Hastings think the new rules on mortgage lending will make the home-loan business less profitable. “When they create a new regulator, it really scares us,” says Nate Gengenbach, vice president of commercial and agricultural lending.
Advance America Cash Advance Centers Inc. thinks the new Bureau of Consumer Financial Protection will take aim at the payday-loan business, though it’s not clear what steps the agency will take. Advance America’s storefront at the Skagway Mall in Grand Island charges an effective 460.08% annualized interest rate on a two-week $425 loan.
But it’s the derivatives portion—the part of the bill aimed directly at Wall Street—that might end up touching most lives in rural America.
The new law requires most derivatives transactions be standardized, traded on exchanges, just like corporate stocks, and funneled through clearinghouses to protect against default.
What’s Made It Into the Bill?
For consumers, for investors, for banks and for the government.
Faced with intense lobbying, Congress partially exempted businesses that use derivatives for commercial purposes. So, farmers and co-ops probably won’t face new collateral requirements, for instance—although there remains a dispute over that section of the bill. Those that trade derivatives on regulated exchanges, such as the Chicago Board of Trade, are less likely to see immediate impacts than those conducting private over-the-counter deals, which will face federal regulation for the first time. The goal is to make such deals transparent.
The question for these farmers is whether such rules will make hedging more expensive. Some say new requirements on big players will create higher costs for small players, including the cash dealers will have to put aside to enter into private derivatives transactions. Some brokers think restrictions on big-money banks and investors will drain the amount of money available to the everyday deals farmers favor.
Others predict the opposite effect, pushing money from the private market to the exchanges and creating more competition that will benefit farmers.
Uncertainty reigns in Giltner, a town of 400 residents 80 miles west of Lincoln. At first glimpse, Giltner’s landscape seems featureless, a fading horizon of corn and soybeans. But its details are more subtle, including wildflowers and shaded creeks. Everywhere galvanized-steel sprinkler systems crawl across farm fields like giant stick insects.
Mr. Kreutz, an outgoing 36-year-old with a sandy crewcut and sunburned neck, gave up a career in finance and took over the 2,800-acre family farm after his father’s death. As he works his fields, he checks the crop futures prices on his smart phone.
Here’s how Mr. Kreutz does it: Say in early summer he sees that the price for a Chicago Board of Trade futures contract on corn for delivery later in the year is $3.56 a bushel. If he likes the price, and wants to lock it in, he calls AgWest and sells a futures contract for 5,000 bushels. The futures contract is a derivative in which the price for corn is set now for exchange in the future, though no kernels will change hands. Instead, when the contract nears expiration, Mr. Kreutz and the buyer of his contract will settle—in effect—by check.
By fall, when Mr. Kreutz is ready to deliver his crop to the local co-op, the market price might have fallen by 50 cents. He’ll sell his actual corn for that lower amount. But he’ll make up the difference through his financial hedge. (Mr. Kreutz buys a new futures contract at the lower price to make good on his earlier promise, making up the 50 cents.) In all, he’ll have hit the price target he locked in earlier in the year, minus brokerage fees.
If the price rises during the summer, as it did during the food crisis two years ago, Mr. Kreutz has to pony up extra cash for his broker—a margin call—to maintain his positions. He recoups that by selling his actual corn at a higher price, but has to take a loss to meet the futures contract he signed earlier in the year, missing out on a windfall but ultimately meeting his target price.
Mr. Kreutz does this type of operation dozens of times a year, hedging about 70% of his 345,000-bushel corn harvest.
Such deals ripple through the local economy. When Mr. Kreutz gets a margin call from his broker, he turns to his banker, Mr. Gengenbach, for a loan to cover it. Mr. Gengenbach estimates that one quarter of his farm clients use derivatives.
“Somebody like Jim has a lot of money in his crop out here,” says the 37-year-old Mr. Gengenbach. “If he can’t protect that, it’s not good for us.”
Mr. Kreutz’s brokerage, AgWest, thinks the new finance law will hurt both firm and farm. If big investors and dealers have to keep more cash on hand, there will be less liquidity in the market and therefore the cost of derivatives will increase, Mr. Hoelscher, the broker said.
A few minutes from the Kreutz family farm are the corrals of Jon Reeson’s feedlot. Mr. Reeson, 43, is married to Mr. Kreutz’s sister Jane. His feedlot holds as many as 1,500 steer, mostly Black Angus, which grow from 600-lb. calves into 1,300 pounders ready for slaughter.
Mr. Reeson uses derivatives to hedge both the price he pays for feed and the price he gets for selling his steer.
The fattening takes about 7,000 pounds of food for each animal. Mr. Reeson can’t count on a favorable price from his brother-in-law’s farm, in which he has a stake, so when he sees a feed price he likes, he seals it with a futures contract.
In April, he called AgWest and locked in a price with a futures contract for $95 per hundredweight of cattle. Since then the market price has dropped to $90. If the price stays there until October, he’ll have made the right call, earning a higher price than if he’d relied on the market alone. If the price spikes higher, though, he’ll miss out on potential gains.
Mr. Reeson is willing to live with that possibility in exchange for locking in a profit or a narrowed loss. Derivatives hedging helped him survive the recession of 2008-2009, when cash-strapped diners avoided steak and the price of beef plunged.
He’s watching the new legislation warily and can’t yet tell if it will hurt or help.
When his cattle have reached full weight, Mr. Reeson puts them on Roger and Barb Wilson’s trucks for the trip to the slaughterhouse. The Wilsons have seven semi tractors and 16 trailers, and one of their biggest costs is diesel fuel to keep the fleet on the road.
In 2004, Cooperative Producers Inc., his local co-op, offered Mr. Wilson a price-protection plan for 10,000 gallons of diesel at about $2.50 a gallon, with 90 days to use it.
CPI had a choice. It could take its chances and hope the price of fuel would drop before Mr. Wilson took delivery on his full order, a windfall for the co-op. If diesel prices jumped, though, the coop would take a bath. “That falls under speculation,” says Gary Brandt, CPI’s vice president of energy. “But that’s not what cooperatives do. That’s what Goldman Sachs does.”
Instead, CPI hedged on the New York Mercantile Exchange, buying a futures contract on heating oil, a close market substitute for diesel fuel. The co-op goes a step further and hedges also the difference between the prices of fuel traded in New York and delivered in Nebraska.
For the 57-year-old Mr. Wilson, the pricing plan proved a mixed blessing. The first year, the pump price shot up by another 20 to 25 cents, meaning he was getting a good deal. The following year the pump price dropped about a quarter a gallon, but Mr. Wilson was obliged to pay the higher price. “It hurt to have to pay for that fuel,” he recalls sourly. He quit the program after that.
The finance law’s imminence has prompted CPI’s Mr. Brandt to warn his sales team and customers that the co-op may have to end its maximum-price fuel contracts. He’s worried too that CPI might have to cut its fuel supplies if it can’t hedge against price drops.
“We have to start making a game plan if they take away the ability for us to hedge that inventory,” Mr. Brandt says.
The Wilsons deliver Mr. Reeson’s steer to a low, cement-gray complex on the edge of Grand Island, Neb., where trucks arrive loaded with cattle, and others leave loaded with meat. Over the past year, Mr. Reeson has sold 1,125 steer to the packing plant, which is owned by JBS USA, a Greeley, Colo., unit of Brazilian-owned JBS SA.
JBS buys livestock two ways. Sometimes it pays cash for the following week’s kill. Sometimes it buys further forward, agreeing in July, for instance, to a fixed price for steer delivered in December. JBS hedges on the derivatives market to make sure live cattle prices don’t drop before it takes delivery.
The company also sells beef cuts forward to restaurant chains, promising delivery at set prices months ahead of time. JBS expects to have enough meat to fulfill the agreements. But if it runs short, it doesn’t want to risk having to pay higher prices to buy meat to supply those restaurants.
So, it uses the derivatives market to play it safe. To do so, the company has to find a way to hedge different cuts of beef: Tenderloins might represent 1.5% of the total value of a steer. Strip loins might make up 3%. In a sense, JBS protects itself by reconstructing the steer through a derivatives trade on the Chicago Mercantile Exchange. “We try to put the carcass back together financially,” says company spokesman Chandler Keys.
The company hedges electricity for its refrigerators and natural gas for its boilers. It hedges currencies to stabilize its income from overseas. It hedges fuel for its fleet of thousands of trucks.
Even executives at a big firm such as JBS haven’t been able to nail down the precise impact of the legislation on their business, introducing an unaccustomed level of uncertainty into their operations. They aren’t changing the way they use derivatives, yet, hoping instead that exemptions for commercial users will insulate them.
“To get food, particularly highly perishable food like meat and poultry, through to the consumer, you have to manage your risk,” says Mr. Keys.
Investors nervous about the stock market and in search of better returns than a money-market fund might consider plowing cash into farmland, say some financial planners.
By acquiring and renting out high-quality acreage, investors can book a 3% to 5% annual return from rental income and, over time, might rack up an additional 5% or so per year in appreciation, says R. Dennis Moon, managing director of specialty asset management at U.S. Trust, a unit of Bank of America Corp.
Farmland investing doesn’t come without risks, though. In order to smooth out price fluctuations, investors are advised to hold their property for at least five years. And if a farmer who’s renting your land goes bust and you can’t rent out the land again quickly, even the income proposition gets iffy.
That means doing some legwork is essential. Investing in farmland often requires a trip to the county assessor’s office and the local farm extension office to compare sale and rental prices. Mike Duffy, an economics professor at Iowa State University, says investors “need to be sure about what they’re buying, because land isn’t a homogenous commodity.”
One of the challenges in the current market is finding quality land. The supply is smaller than usual because farmers and their heirs are keeping land they otherwise might have sold, in order to book the rental income. “The number of high-quality farms offered on the market is down 30% to 40%,” says Loyd Brown of Hertz Farm Management Inc. in Nevada, Iowa, which specializes in farm management and acquisition. “Even medium-quality land is 20% to 30% less available for purchase.”
While wealthy investors can afford to roll up multiple tracts at a time, people of lesser means can buy smaller farms of 80 or 160 acres. Some lenders make mortgage loans for up to 60% of a tract’s value, though mortgage payments eat into rental income.
Another option: using a farm management company. Such firms locate land, advise on improvements and manage rental agreements, which vary depending on the size and type. The most common arrangement is a cash deal in which the farmer agrees to a certain price and pays several months upfront.
Other kinds of agreements allow investors to be more involved with what’s grown and to get greater returns—but they also require investors to take on more risk. The owner may provide the seed, chemicals and fertilizer, for example, in exchange for some of the revenues from crop sales.
Craig Karsen first bought farmland in the mid-1990s in Iowa because “I was looking for diversification,” he says. The retired securities trader, who lives in Chicago, sold about 900 acres from 2003-05, booking a 100% appreciation on top of 5% annual income.
In December, Mr. Karsen bought more. “I think it’s a good hedge against inflation against inflation, and it’s conservative,” he says.
Conservative for a stock trader, that is.
Write to Jilian Mincer at firstname.lastname@example.org
By: Jaci Smith, Regional Editor
Posted: Wednesday, May 26, 2010 1:00 am
Pretend you’ve decided to become a businessman to make your living. You have some start-up capital and assets to get going, but much more is needed, so you take out loans against those assets and your future profits.
You have a tried and true business plan, but there are many variables that affect it. Weather, labor, equipment and market forces that literally change each day buffet your attempts to stay afloat. And even though the demand is certain to be constant and the customer base — literally — is the world, there’s no steady growth, no predictability and no guarantees of success, even from year to year.
In general, unless you make at least $175,000 in sales every year, you don’t make a profit. In the industry you’ve chosen, the data over nearly a century shows that the rate of return on your assets and equity will be negative except for the largest of your brethren.
You are a farmer.
Paul Liebenstein was No. 1 on the list of Rice County farmers receiving subsidies from the federal government, a fact that caught him entirely by surprise.
Liebenstein is the owner of Wolf Creek Dairy in Dundas and last year he received $86,340 from the federal government, according to USDA figures compiled by the Environmental Working Group, an organization that has created a website to draw attention to federal farm subsidies and seeks reform to them.
Farm subsidies are federal dollars paid to farmers to do one of two things: fill the gap between the market price (if it falls below a certain level) and “parity” for their commodity, or to make up the difference between the cost to farm a crop per acre and profitability. The federal government also subsidizes crop insurance for farmers and has other, smaller subsidy programs, such as for conservation.
EWG will tell you on their website that federal farm subsidies are not working, that it costs American taxpayers astronomical sums of money — $35 billion since 1995 — and that, most importantly, the vast majority of the money falls into the hands of the wealthiest farmers and not family farms.
“Despite claims of reform, many of the top subsidy recipients in this update are the same operations we’ve seen before,” wrote EWG President Ken Cook in his national analysis of the USDA data. “Six of the top 10 recipients of commodity payments in 2009 were also in the top 20 in both 2007 and 2008. In contrast to the public fury over billion-dollar bailouts of Wall Street banks, all 20 top recipients in 2009 received more than $1 million each, several with multi-million-dollar hauls. And this is only one year’s worth of corporate handouts that have gone on for decades.”
In Rice County, it would seem that Cook’s analysis holds true, according to an analysis done by the Daily News. The county received $9.4 million in federal farm subsidies in 2009, the latest year for which data is available, and ranks 48th among the state’s 87 counties in how much it received. The state as a whole ranks fourth in the nation, receiving nearly $900 million last year.
The top 10 percent of the 1,176 farmers who received subsidies took in nearly half — 49 percent — of all the money Rice County received. The average subsidy payment for those in the top 10 percent was $33,108, or $9,000 more than the median per capita income in the county, according to the U.S. Census.
But the numbers are where the similarities to Cook’s analysis ends.
After the passage of the 2008 farm bill, intended to equalize payments to all farmers big and small, the media was quick to analyze and find fault with the “reformed” subsidies system. The Wall Street Journal, New York Times and other large newspapers wrote in-depth stories on the law, largely concluding it failed to get the subsidies into the hands of the country’s family farms. Before the bill was signed into law, The Washington Post did a yearlong investigative project on subsidies with a title that said it all: “Harvesting Cash.”
The same was true earlier this month when EWG released its 2009 database. The headlines were the same: “Richest farms reap fattest subsidies.”
But in Rice County, not everything is as the EWG or some media claim, according to Daily News analysis. While it’s true that the top 10 percent of farmers received the most money, comparing that list to property records shows those in the top 10 percent also happen to be farming the most acres or milking the largest herds.
In fact, of the top 10 farms that received subsidies in 2009, none are considered “corporate” farms. All are owned by either one or several related members of the same family.
“I wonder how many people would be surprised to know the huge risks we take and the incredible stresses of long hours, huge debt loads, weather worries and the like that farmers face throughout their careers,” said Steve Albers. Albers farms crops in Dundas and last year was near the bottom half of those in the county receiving subsidy payments. He got $6,515 in 2009, according to USDA figures.
The Economic Research Service of the USDA puts out an annual report measuring the economic health of the family farm. It concludes what many farmers have known for years: Running a farm is the same as running a Main Street business, except there are far more variables beyond the “business” owner’s control – like the weather or a natural disaster.
Or a country’s culture, says Gene Kuntz.
Kuntz is a South Central College farm business management instructor. For years, Kuntz said, this country has had a “cheap food” policy. Rather than let market forces dictate, the federal government since as far back as the beginning of the 20th century determined that it’s more important to pay subsidies to farmers to keep food prices down than to let free market forces reign.
“We make it (food) cheaper than any other country in the world,” Kuntz said. “That, in essence, guarantees subsidies will be needed until we decide as a country to pay the same for food as other countries pay.”
EWG’s Cook says in his analysis that calling the subsidy payments a “bailout” is an insult to the term since the money doesn’t get to those who need it most — family farmers.
Not true, says Kuntz. He says without subsidies, what Cook thinks is happening now would actually be reality.
“Those payments keep family farms in existence,” he said. “Without them the ripple effect would be the elimination of the smaller farm units and the growth of larger ones.”
On the back 40
Liebenstein’s $86,000 federal subsidy went to pay part of his feed and labor bills. Wolf Creek Dairy has six full-time and six part-time employees.
But that same year overall he lost $300,000. He ended up having to take out a loan against his assets in order make his payroll and other costs. His only hope for future profits is if he makes enough to cover his expenses and his new loan.
Albers, who farms corn, beans, and cuts his own and his neighbors’ hay, said there have been years where the subsidy he received was his only profit. Last year his subsidy came to about $17 per tillable acre. The average countywide was about $20 per acre in crop subsidies.
But to farm that same spread would likely cost $600 an acre, Albers said.
“With the price of corn threatening now to go below $3, it’s not hard to see how it’s going to take a really good crop to come out,” Albers said.
The scale is what most people can’t relate to, said Kent Politsch, public affairs chief for the federal Farm Services Agency in Washington, D.C.
“The farmer is a small businessman,” Politsch said. “He operates his business on the scale of someone who owns three hardware stores. They both set up their business the same way — LLC — to get some tax breaks. But the farmer’s profit margin is far smaller than most.
“If you consider that businessman’s average income is about $40,000 and he hears that a farmer got $600,000 in payments, it seems really lucrative. But what no one talks about is that the farmer likely spent $700,000 to survive, and most of that money he put into the local economy. No other local businessman is doing that.”
Ag studies have shown that each dairy cow generates about $5,000 of impact on a local economy. Using that math, Liebenstein’s herd alone pours $2 million into Rice County’s economy. He supports implement dealers, bankers, and seed, fertilizer and chemical dealers. The families of his 12 employees depend on his farm in whole or in part for their income.
“There’s an old saying,” Liebenstein said. “It says ‘give all the money to the farmers because they’ll spend it all.’”
There’s no question that some may have figured out how to abuse the federal farm subsidy system, Politsch said. But for every one of those there are many others, like those on Rice County’s list of top recipients who are one bad crop, one low milk price year away from going broke.
“The last thing our economy needs to have happen is to have a farmer who’s producing the food we need to be lost,” Politsch said. “We lose farmers, we lose production, prices go up. That’s when we lose Main Street.”
—Reach Regional Editor Jaci Smith at 333-3133 or email@example.com.
WHAT ARE SUBSIDIES? A federal government “safety net” to agricultural producers to help them through the variations in agricultural production and profitability from year to year — due to variations in weather, market prices, and other factors.
HOW DOES IT WORK? The primary subsidy system has the following elements:
—Direct payments paid at a set rate every year regardless of conditions.
—Counter-cyclical payments triggered when market prices fall below certain thresholds.
—A revenue assurance program provides for overall profitability for a given crop.
—Marketing loans offer terms whereby farmers can realize gains through loan deficiency payments (LDPs) and commodity certificates.
—Disaster payments recoup large losses due to natural phenomena. The government subsidizes crop insurance to further insulate farmers from risk.
TOP 10 RECIPIENTS IN COUNTY :
1. Paul Liebenstein, Dundas — $86,340
2. Metogga Lake Dairy LLC, New Prague — $85,099
3. George E Duban, Lonsdale — $82,298
4. Far Gaze Farms, Northfield — $79,334
5. Kuball Dairy Farm Llp, Waterville — $77,363
6. Douglas A Story, Kenyon — $77,219
7. Saemrow Dairy, Waterville — $76,898
8. James D. Duban, Montgomery — $63,893
9. Estrem Farms, Nerstrand — $59,624
10. Dennis L Tatge, Faribault — $54,681
• Stearns County took in more subsidy money in 2009 than any other county in the state, $30.4 million.
• The No. 1 subsidy in Rice County over the last 14 years is for corn crops, with 1,463 recipients taking in nearly $90 million.
Source: U.S. Department of Agriculture and the Federal Reserve
To see the database compiled from USDA data by the Environmental Working Group, click here.
By MARK MULLER : Last update: May 25, 2010 – 5:45 PM
Say the federal government used federal dollars to take development opportunities away from Minnesota and instead create jobs in other countries.
Most of us would be fuming. Market forces working against Minnesota is one thing; the federal government facilitating foreign investment over local job creation is simply unacceptable.
Yet this scenario is just what’s happening through the subsidized export of Minnesota’s agricultural products. The federal government spends an estimated $100 million a year maintaining navigation on the Mississippi River system, which is primarily used to get crops such as corn and soybeans out to international ports. This funding maintains the series of locks and dams from Minneapolis to southern Illinois that create pools of water deep enough to support a 9-foot channel for the navigation industry.
How does this create investment elsewhere? The production of an agricultural commodity is just the first step in the processing that eventually produces food, materials and energy. It isn’t too exciting to think of Minnesota crops becoming the low-cost feed supplier of a Taiwan poultry operation. Why then should we encourage that processing to take place in other parts of the world rather than in job-creating industries in the Midwest?
Navigation industry proponents aren’t satisfied with their current $100 million a year subsidy. They are pushing for the federal government to not only pay the operation and maintenance costs, but to increase taxpayer subsidies for the construction and expansion of Mississippi River locks. Rather than the current 50-50 split of construction costs, the industry’s proposal, which has received little public attention, recommends that taxpayers put $270 million annually toward construction and the industry only $110 million.
When agricultural production is narrowed down to just a couple of crops, such as corn and soybeans, economic opportunities that provide a greater return are lost. This hurts Midwest farmers who have little choice but to grow these crops even when prices are lousy, and hurts rural communities that need economic development. Land locked up in corn and soybeans can’t be used for higher value production such as locally grown fruits and vegetables or grass-fed livestock, products for which consumers are willing to pay a premium.
A recent Iowa State University study found that an increased production of 28 fruit and vegetable crops in the Upper Midwest could create $882 million in additional farm sales and 9,300 new jobs.
Federal policies play a primary role in keeping Midwest agriculture less innovative than it should be. The farm bill drives down prices and reduces the financial risk of growing commodity crops such as corn, soybeans, wheat, cotton and rice. This encourages farmers to grow these crops — and grain buyers to trade and process these crops — at the expense of other opportunities.
Federal transportation policies fall into this same trap. With the farm bill encouraging corn and soybean production, policymakers apparently feel some responsibility for facilitating the export of these crops. Export subsidies, quite simply, are used to try to offset bad policy decisions in the agricultural economy, which have flooded the Midwest with cheap corn and soybeans, and to drive farmers off the land.
Farmers don’t export, and there’s scant evidence that farmers get better prices because of exports. It’s the grain companies that almost always reap the profits from this trade. So why, then, are we spending taxpayer dollars on navigation?
There are much better ways of investing in Minnesota agriculture. What if that $270 million were instead used to encourage business opportunities for the storage, processing and transportation of Minnesota-grown foods?
When you hear about proposals to expand navigation infrastructure, tell Congress to take a pass. If federal funds aren’t going to support the Minnesota economy, at least they shouldn’t work against it.
Mark Muller is director of the Minneapolis-based Food and Society Fellows program, Institute for Agriculture and Trade Policy.