2014 Farm Bill Information Session Step in the Right Direction

Last night the 2014 Farm Bill review took place in West Lafayette, Indiana to a crowd of nearly 400 farmers, FSA agents and agriculture professionals. As the years of direct payments to farmers have come to an end, a new and more complex safety net has been created to help farmers in time of duress while simultaneously putting a ‘dent’ in the Federal deficit.

2014 Farm Bill Information Session Step in the Right Direction farm credit mid america farm bill review

The information sessions from Farm Credit Mid-America get into the real meat & potatoes of the 2014 Farm Bill and how it impacts producers.

The new farm bill and its 959 pages is a difficult read at best, fortunately for farmers in Indiana, Farm Credit Mid-America is helping weed through the muck to educate farmers on deadlines and decisions that have a real impact on their operations – continuing to raise the bar as an industry leader.

Dubbed ARC (Ag Risk Coverage) and PLC (Price Loss Coverage) the two new programs in the farm bill have created quite the stir among the farming community. Designed to help farmers producing a variety of covered commodities across the nation, these programs seek to address the fundamental challenges that exist in the market – low prices, low yields and low revenues. As more and more agricultural economists talk about risk management, ARC and PLC are meant to be a tool in the farming tool box that reduce risk and give farmers a choice in how they are protected by the USDA. Given the complex nature of the Farm Bill and the formulas for calculating payments, the crowd heard from a variety of industry professionals including Kyle Cline, policy advisor for national government relation for Indiana Farm Bureau, Farm Credit Mid-America professionals and Dr. Chris Hurt, renowned agricultural economist from Purdue University.

While the entire room appreciated what the Indiana Farm Bureau provides in terms of a voice in Washington, the message from Kyle was clear, Agriculture is a minority voice on capital hill. Changes in the farm bill means it’s time for every farmer to make a choice in how they run their operations and it’s a crucial time to be heard.

According to Cline, “only 25 members of Congress claim agriculture as a previous occupation” and while he remained optimistic about the future of the Farm Bill, he cautioned the crowd that now is the time for the voices of the agriculture community to stand up. “Speak with your congressmen, senators and build relationships so your voice continues to be heard.”

On the schedule to help farmers understand how ARC and PLC are calculated was the Executive Director of the Farm Service Agency, Julia Wickard. To the crowds slight surprise, Julia was unable to attend as she was in Washington D.C. working on behalf of each and every farmer in the room – a challenging and noble job. In her stead, Farm Credit Mid-America took the stage and addressed the crowd on how payments are calculated using the complex formulas of ARC and PLC. Agricultural economics is not my strong suit and judging from the looks of frustration, and the whispers of  more red tape that resonated through the crowd, getting assigned some math homework wasn’t at the top of the to-do list for those in attendance. Making decisions on updates, elections and enrollment into the new USDA Farm Bill programs requires research, time and effort – this process may be easy for some farming operations and quite challenging for others. Thank you to Farm Credit for educating and leading the way.

Taking the complex nature of the Farm Bill and turning it into something tangible and easily understood is part art and part science, that job fell on the plate of Dr. Chris Hurt of Purdue Agricultural Economics, who knocked it out of the park.

Dr. Hurt got down to business, tackling a question seemingly on everyone’s mind ‘What do you recommend we do?’

5 Things to Consider as a Farmer & Producer:

  1. Updating your yields if they are higher
  2. Build your base with crops that offer the strongest returns
  3. Consider the ARC-County program first
  4. Ask yourself, “What conditions beat ARC-County?”
  5. In bear conditions, PLC may make more sense

Long story short, Dr. Hurt and other agricultural economists from around the country predict that the majority of farming operations will choose to enroll in the ARC-CO program as the yield data is based on a county by county basis. The ARC-CO program does not require a crop to be planted for payments to trigger, whereas its counterpart the ARC-IC does.

With a difference in payments of 85% vs. 65% of  base acres, it may take yields that are “31% higher than the county average for ARC-IC to make sense,” said Dr. Hurt. Those with irrigated farmland may be more likely to fall into the ARC-IC program election.

In conclusion, these meetings are great learning experience and we encourage you to attend. Consulting with your FSA agent, farm manager, accountant and banker are a vital step to your understanding of the financial impact of the Farm Bill – our advice is to continue to have conversations about farm risk management with those you trust the most to determine what is best for you and your farming operation.

About the Author

Johnny Klemme is a published author, graduate of Purdue University and Land Broker specializing in farms, recreational property and development land in West Central Indiana. Born and raised on a local farm, his commentary on issues that are important to the farming and real estate community can be found at www.PrairieFarmland.com/blog

 

 

 

 

4 Concerns Worth Paying Attention to from the PAER Farmland Values Report

A Closer Look at the 2014 Purdue Agricultural Economics Farmland Real Estate Values

There is a common thread to anyone who has an interest buying and selling farms in Indiana. From the farmer that lives down the road, concerned about his own operations, to the real estate investor who looks at buying farmland as an alternative to stocks – the question on everyone’s mind is “What is my farm worth?”

The answer to this question is never easy.  With grain prices in continual flux, input costs on the rise, the recent boom in the price of farmland, and the seemingly universal agreement that interest rates will only go up from today’s rates – the perceived value of farmland real estate is ever changing. From the expectations of the buyer and seller to the financial and emotional considerations that occur in every real estate transaction,

the old adage remains true – the farmland real estate market is local in nature and should not ignore the fundamentals.

Brief History of the PAER Annual Report

Since 1960, Ag Economists from Purdue University have studied the trends and gathered data from around the state of Indiana on farmland prices, cash rents and outside factors affecting the agriculture industry as a whole. Long story short, the PAER report is part survey, part economic analysis and one hundred percent valuable to agricultural professionals and farmers. In early August, the Purdue University team released their annual report and below are four key considerations that you should keep an eye on.

1. The Production Value of Farmland is Related to Market Value

Soil is the biggest asset that farmers have. Healthy, quality soils net great yields, as such top quality land, most notably in the West Central Indiana region, command the highest land values in the state averaging $12,108 per acre. According to the 2014 PAER report, low quality or lower yielding soil types in every region have much lower values per acre. Soils in the the Southeast range as low as $3,350 per acre.

There is some misconception in the real estate market that all farmland is created equal, but this really is not the case.

2. Lower Crop Returns x Higher Taxes = ?

According to Larry DeBoer, Professor of Ag Economics at Purdue, property taxes on agricultural land have risen 33% since 2007. With no easy answer on how to reduce the tax burden, farmland owners should pay special attention to the base rate per acre in upcoming years. How high might it go?

3. Outside Factors Influence Farmland Values

Location. Location. Location. Farmland in the “donut” that surrounds growing urban development commands a price per acre that may influence the perceived value of other farmland in the area. Known as progression, low quality farmland in close proximity to higher valued real estate experiences greater values. Farm real estate in areas that are prime for subdivisions and commercial retail development continually push the boundaries of the growing farmland values in Indiana. Other factors that economists cite as influencing these values include growth of the biofuels industry and the opportunity for increased exports of grains.

4. Don’t Ignore the Fundamental Costs of Agricultural Production

Input costs vary from operation to operation, but the basics always hold true – the cost of production,  should not exceed the value per bushel. For those that operate with the majority of their crop in the upper limits of cash rented farmland, this is where rolling the dice may have the most risk.

Conclusion

With more and more agriculture news sources reporting lower farmland values in the corn belt during the first quarter of 2014, it’s safe to say that we may be at an influction point. In terms of both cash rents and the price per acre of Indiana farmland, the expectation of farmland value and the fundamental principles that guide agriculture production seem to be out of sync.

Craig Dobbins, the very notable Agricultural Economist at Purdue University, told us in an interview that “the cost of production has been ratcheted up so high that farming operations need to seriously evaluate how they can lower the cost of production.”

We ask our clients and colleagues regularly about production value and its relationship to farmland value and do our best to get back to the basics.

 How does your investment in better soil health today affect the value of that land tomorrow?

Highly regarded Ag Economist Brent Gloy of Purdue University answered us via Twitter by saying “those kinds of investments have usually been a good bet.”

Will the best time to buy agriculture farmland in Indiana be later this year or the spring of 2015 when expectations of value are put in check with the reality of corn and soybean prices?

About the Author

Johnny Klemme is a published author, graduate of Purdue University and Land Broker specializing in farms, recreational property and development land in West Central Indiana. Born and raised on a local farm, his commentary on issues that are important to the farming and real estate community can be found at www.PrairieFarmland.com/blog

2014 Purdue Agricultural Economics Report Unveiled

2014 Purdue Agricultural Economics Report Unveiled red barn

Survey Says?! The 2014 PAER report takes a quantitative approach to farmland and cash rent values with its annual survey data.

The June 2014 PAER hit the wire on Tuesday of this week and as expected has created a surge in questions, concerns and conversation on farmland values in Indiana and how they relate to the cost of production for the agricultural industry.

Highly regarded as a valuable resource for all farmers, agriculture professionals, lenders and land owners, the 2014 PAER report is not a crystal ball for determining what is a farm worth. Rather, it should be considered another tool in the toolbox for analyzing production costs and how to improve returns.

 

Read the full report online >

Download the PDF from Purdue Univeristy >

We were fortunate enough to sit down with Craig Dobbins, author of the PAER Farmland Market in 2014 report and will be sharing his insights in our full review of the many factors that affect farmland real estate values.

In the meantime, we welcome your comments below and encourage to send us your questions on the hot topic of farm real estate. Stay tuned and subscribe to the blog for the latest news!

 

 

USDA Reports Farmland Values in 2014 Rise Nearly 8 Percent

USDA Reports Farmland Values in 2014 Rise Nearly 8 Percent USDA new farmers indiana land for sale

The USDA released their 2014 Farmland Real Estate Values Report

Farmers, land owners and investors are always interested in the value of their farmland. The annual USDA report that surveys some 11,000 parcels each year was released on August 2nd and the data says that the value of U.S. farmland increased approximately 8 percent since 2013. Our region of the corn belt remains the strongest overall, with some parts of the country seeing gains as high as 22%.

Overall farmland real estate values in Indiana increased an average of 8.6%

Indiana Farm Real Estate, Average Value per Acre since 2010
20102011201220132014
$4,170$5,070$5,840$6,400$6,950

The full report from the USDA covers pasture land, irrigated vs. non-irrigated farmland as well as buildings and structures.

Download the full USDA Report in PDF >

With grain prices achieving records highs, farmland real estate values have continued to climb alongside cash rents. This month the annual Purdue University Indiana farmland values report is expected to be released and should provide deeper insights to our local and regional county real estate market. As farm real estate is widely used as collateral for farming operations, we expect to receive a lot of valuable input from local agriculture economists, farmers and seed dealers in our area and look forward to sharing this valuable information with you.