17:31:00
02/22/2012
MIAMI (DTN) -- This year's crop insurance season is unlike many others: Instead of standard decisions on hail, wind or all-risk crop insurance, many growers are also contemplating whether to insure weather.
Texas cotton and sorghum farmer Andrew Miller lives in a drought zone near Corpus Christi and he worries whether conventional crop insurance will adequately cover his risks if he suffers another back-to-back disaster. Until the last two weeks, it had been six months since many of his fields received significant rainfall.
"We've had three major droughts in the last seven years," the Odem, Texas, grower said, including zero yields on 100% of his crop in 2006, another zero yield on 40% of his crop in 2009 and a statewide calamity in 2011.
"If federal crop insurance isn't affordable, or if we deplete our average yields too much more, I'd take a look at a weather policy in the future," Miller said. "But for right now, buying weather insurance looks like a gamble."
A private weather policy to insure rainfall in the months Miller needed it most would have cost about $50 per acre this season, he said. So instead, he spent only $25 per acre and upped his conventional multi-peril Revenue Protection policies to 75%. That not only covers yield losses from drought or hurricanes, he noted, but provides security in case prices collapse before harvest.
NEW OPTIONS
Climate Corporation's revised Total Weather Insurance (TWI) policy is debuting this year with much fanfare across the Grain Belt. Although some companies offer weather derivatives, Climate Corporation is the first major competitor to offer protection against too little or too much rain, night-time heat stress, heat stress during pollination and early frost.
The weather program can work for growers who lack strong 10-year production histories or whose specialty crops don't often qualify for conventional insurance. But in many cases, TWI is an expensive alternative to federally-subsidized all-risk crop insurance, experts interviewed by DTN conclude.
Real TWI rates on a Story County, Iowa, corn farm quoted in mid-February are $37 premium for a maximum payout of $190/acre of corn coverage. To make that claim, however, a grower would have to recognize $275 of losses first.
Jeff Hamlin, director of agronomic research for the Climate Corporation, said their trained agents recommend that growers buy both TWI and federal crop insurance, not one or the other.
"Total Weather Insurance complements (multi-peril insurance) by providing coverage for profit losses growers can experience when weather events cause yield shortfalls that are significant, but not catastrophic enough to be covered by even the highest levels of federal crop insurance," he said.
That could be expensive considering that changes in federal crop insurance rates and corrections for corn and soybean yield drag will make federal crop insurance coverage a more affordable buy this year for much of the corn and soybean belt, others contend.
Matt Allyn, a farmer from Mount Vernon, Ind., considered weather insurance but is leaning toward buying an 85% Revenue Protection policy with the new trend-adjusted yield option instead. He effectively will be able to insure about 90% of his historic yield once the trend adjustments are calculated, greatly increasing odds of a claim in the event of any yield or revenue loss. "I think weather insurance is more like a wild card," Allyn said. "RP doesn't care why your yields are low, it's all covered."
Gary Schnitkey, a University of Illinois economist and crop insurance expert, definitely doesn't recommend scrimping on revenue coverage. "Before you even think about buying a weather policy, you should be buying the maximum revenue coverage you can get," Schnitkey said.
Weather insurance policies cover narrow periods of weather events that may or may not correlate to reduction in yields. Revenue protection policies cover all yield and price risks during the growing season and they're subsidized by taxpayers who pay 60% or more of premium costs, he said.
"Especially in Iowa and Illinois, the big risk growers face is price volatility, not yield," Schnitkey added. "In fact, I can make a case that if we had perfect weather this year (with the acreage USDA expects), it would be the worst thing for growers" because bumper crops would quickly send corn and soybean prices plummeting.
Another concern for Ohio State University economist Carl Zulauf is "basis risk with weather policies, ie., the difference between the measured weather event and what actually occurs on the insured farm." In effect, "the interrelationship between the occurrence of a weather event and its impact on yield is very complex," Zulauf said. "To illustrate this point, look at the good corn yield in Ohio this year despite the very late plantings or the soybean yield in Illinois despite the dry weather."
Given the perils weather insurance covers, "it seems likely to me that there would be a fair number of times when you would receive a payment and did not incur a loss and a fair number of times when you suffered a loss and would get no payment," Zulauf added.
This year TWI shrank its grids for measuring rainfall events from 12 square miles to 2.5 square miles because of this complaint, but others note that measuring temperatures from a fixed point remains a problem, as they can be 10 to 15 miles away or more from the insured property.
"Policies always default to the closest [weather] station, but a grower has the option to choose whichever regional station he feels is most appropriate for reflecting conditions in his field," Hamlin said.
Napoleon, Ohio, farmer Mark Wachtman has been intrigued by TWI's offerings at pitches this winter. On one hand, he grows popcorn that is highly susceptible to heat stress during pollination and green beans vulnerable to early frost. Yet the TWI policy insuring against too much rain at planting time probably underestimates how long it takes to dry out his heavy soils, he said, making the probability of a claim too low.
"Ohio is soaking wet even now" so spring planting could be delayed again as it was in 2011, Wachtman said. "But at the end of the day, I'm insuring my crop not for yield but for revenue."
Marcia Zarley Taylor can be reached at marcia.taylor@telventdtn.com
(CZ/AG)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
17:29:00
02/22/2012
LOUISVILLE, Ky. (DTN) -- Soaring land values, record farm incomes and headlines of high-value land lease auctions have folks on both sides of the tenant-landowner relationship scratching their heads about how to arrive at fair lease rates. But Kevin Dhuyvetter says the most surprising part about many land rent discussions today is the fact that a discussion is actually happening.
Dhuyvetter, a Kansas State agricultural economist whose work focuses on farm management and land issues, discussed the lack of communication between tenants and landlords during a Cash Rent Workshop session at the recent National Farm Machinery Show. While he pushed the notion of open communications, he warned the audience of farmers and farmland owners that his comments would likely make many of them uncomfortable.
"Back when the common rental agreement was based on crop shares, we had to talk more about yields, expenses and other details," Dhuyvetter said. "Today we don't talk. It's easier for the landlord to kick the tenant off the land, or to hold a lease auction, or even to sell the land, than to deal with the difficult conversation" of increasing rental rates or change the type of lease arrangement with the current tenant.
"Why are we seeing faster turnover of farm tenants? Why are farm lease auctions getting more interest?" Dhuyvetter asked the crowd. In many cases, he said, those action are, at their core, due to a breakdown in communications.
Dhuyvetter said he often asks tenants whether they view landlords as "partners" or "competitors." Typically tenants choose partner. "But when I ask producers if they think they need to share yield and financial information with their landlords, most will say 'no way, I'm paying cash rent it's none of their business what my yields are.'
"The heck you don't have to share," Dhuyvetter said. "You may not be obligated to share that information, but if you want to keep farming the land, you probably should."
ADJUSTING FOR PRICE SWINGS
Arriving at a fair rental rate has only become more complicated with the swings in farm income for the past five or so seasons, he said. That's led too many producers to think of rent bonuses as an easy way to compensate landlords in good years.
Dhuyvetter doesn't like rent bonuses. "The problem is bonuses can create a false sense of expectations. Then landlords suddenly want to know why they didn't get bonus like they got last year." He also doesn't like that most bonuses are purely at the discretion of the tenant. "What if next year prices are good and yields are good, but it's the year you, say, want to remodel the house. All of a sudden, you don't have extra cash. I don't think things like that should be a reason not to pay a bonus."
FLEX-RENT COMPLICATIONS
Dhuyvetter said that in general, the tension between tenants and landlords is at a peak because of the rise in land values and, in the Western Corn Belt, because of the shift from crop share arrangements to cash rent.
All of those recent changes, and the higher farm incomes that have driven those changes, make it all the more difficult to set a fair price for farm rent. Dhuyvetter quoted University of Illinois research that shows a wide range in actual cash rents paid compared to county average rental rate. In 2010, 35% of renters paid from $20 over to $20 under the county average; 19% paid $20-$60 over while 26% paid $20-$60 under the average.
To manage market volatility, Dhuyvetter said he is beginning to like the idea of flexible-rate cash rents. If a landlord and tenant can create a rent formula that takes in critical variables, flex rent does have the potential for both parties to get an equitable return.
"The problem is, to get all those variable in there, is complicated, and takes even more communication," he said. Negotiating a flexible system with multiple landlords can be even more complicated. "There isn't really a template, because every relationship, each situation, is different."
The only way to keep the relationship positive is when both parties take responsibility for making sure they're getting a fair deal for the land. "Landlords, it's your job to know what your land's worth. Tenants, it's also your job to make sure the landlords know what the land is worth. Nobody gets a free ride."
But overall, Dhuyvetter puts more of the onus on tenants. "I think the reason things like rent auctions have become more popular is because we, as tenants, haven't been as forthcoming with information as we should have been.
"At the end of the day, you have to look yourself in the mirror. Here's my litmus test. When I talk to a producer [about whether a rent fee is fair] and if first thing that happens is he starts getting defensive and rationalizing the situation -- 'But I always mow the road ditches and take care of this and that' -- I think, OK, we've got a bit of a guilty conscience on this. We probably need to do a better job of communicating."
Greg D. Horstmeier can be reached at greg.horstmeier@telventdtn.com
(CZ\SK)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
10:23:00
02/22/2012
OMAHA (DTN) -- For a fifth week in a row, retail fertilizer prices tracked by DTN show the market in a holding pattern.
In the latest weekly survey, all eight major fertilizers were lower compared to a month earlier, although these drops were fairly diminutive. DAP had an average price of $655 per ton, MAP $707/ton, potash $656/ton and urea was at $552/ton.
Starter fertilizer, 10-34-0, had an average price of $812/ton, anhydrous $779/ton, UAN28 $385/ton and UAN32 $434/ton.
On a price per pound of nitrogen basis, the average urea price was at $0.60/lb.N, anhydrous $0.47/lb.N, UAN28 $0.69/lb.N and UAN32 $0.68/lb.N.
With fertilizer prices continuing steady and planting season quickly approaching, many farmers are debating whether to lock in their fertilizer needs before they return to the fields.
Richard Oswald, a 2011 Missouri River flood victim who farms with his son, Brandon, near Langdon, Mo., has not purchased any fertilizer to date. The northwestern Missouri farmer is still drawing off the P and K applied over the last several years and has decided not to book any of his anhydrous in advance.
"We haven't locked in any anhydrous," Oswald told DTN. "Anhydrous looks to be pretty steady here."
In the past, Oswald pre-purchased anhydrous as a practice. Then a few years ago he paid $850/ton for anhydrous that was worth $750/ton in the fall when he applied the nitrogen fertilizer. Since then, he has chosen not to lock in his anhydrous needs.
Also factoring in his decision to delay pricing is the condition of some of his fields. Oswald farms mostly Missouri River bottom ground in Atchison County, Mo., which was severely flooded last year.
"With the situation on the river bottom, we figure we'll wait and see before putting anything down," he said. "Prevented planting will work with or without $100-plus (anhydrous per acre) plowed into a flooded field."
Just three of the eight major fertilizers are still showing double-digit increases in price compared to one year earlier. Leading the way higher is 10-34-0. The starter fertilizer skyrocketed in price last year but has fallen back some in recent months. It is now is 22% higher compared to the second week of February 2011.
Potash has jumped 14% while urea has increased 12% from a year ago.
Four fertilizers have seen just slight price increases compared to a year earlier. UAN28 is 8% higher, both UAN32 and anhydrous are up 6% and MAP has risen 1% compared to last year.
The remaining fertilizer, DAP, is actually 3% lower compared to one year ago.
DTN Pro Grains subscribers can find current retail fertilizer price in the new DTN Fertilizer Index on the Fertilizer page under Farm Business.
Retail fertilizer charts dating back to November 2008 are available in the DTN fertilizer segment. The charts include cost of N/lb., DAP, MAP, potash, urea, 10-34-0, anhydrous, UAN28 and UAN32.
DTN collects roughly 1,200 retail fertilizer bids from 310 retailer locations weekly. Not all fertilizer prices change each week. Prices are subject to change at any time.
DTN's average of retail fertilizer prices from the second week of the month ($ per ton).
| DRY |
| Date Range |
DAP |
MAP |
POTASH |
UREA |
| Feb 14-18 2011 |
674.63 |
698.87 |
578.15 |
491.44 |
| Mar 14-18 2011 |
677.63 |
701.04 |
590.63 |
491.55 |
| Apr 11-15 2011 |
677.62 |
691.25 |
589.34 |
483.40 |
| May 9-13 2011 |
677.75 |
704.91 |
601.55 |
489.49 |
| June 13-17 2011 |
680.06 |
702.80 |
604.80 |
529.88 |
| July 11-15 2011 |
694.41 |
717.92 |
622.74 |
589.66 |
| Aug 8-12 2011 |
691.71 |
739.50 |
644.88 |
611.09 |
| Sept 12-16 2011 |
704.72 |
725.15 |
642.21 |
604.67 |
| Oct 10-14 2011 |
714.41 |
742.32 |
661.09 |
619.11 |
| Nov 14-18 2011 |
714.41 |
742.32 |
661.09 |
619.11 |
| Dec 12-16 2011 |
697.75 |
734.14 |
659.62 |
589.75 |
| Jan 9-13 2012 |
670.87 |
719.26 |
659.87 |
554.16 |
| Feb 11-17 2012 |
654.95 |
707.17 |
656.06 |
551.86 |
| Liquid |
| Date Range |
10-34-0 |
ANHYD |
UAN28 |
UAN32 |
| Feb 14-18 2011 |
665.45 |
736.28 |
355.97 |
408.88 |
| Mar 14-18 2011 |
724.16 |
741.47 |
369.30 |
410.71 |
| Apr 11-15 2011 |
761.74 |
733.57 |
367.67 |
420.78 |
| May 9-13 2011 |
816.47 |
744.40 |
377.52 |
426.50 |
| June 13-17 2011 |
830.62 |
744.04 |
401.27 |
433.55 |
| July 11-15 2011 |
811.63 |
772.22 |
409.82 |
446.72 |
| Aug 8-12 2011 |
810.58 |
823.05 |
389.52 |
448.44 |
| Sept 12-16 2011 |
792.16 |
801.39 |
400.83 |
446.10 |
| Oct 10-14 2011 |
823.47 |
819.01 |
408.34 |
461.55 |
| Nov 14-18 2011 |
823.47 |
819.01 |
408.34 |
461.55 |
| Dec 12-16 2011 |
829.30 |
806.28 |
401.31 |
457.22 |
| Jan 9-13 2012 |
814.28 |
796.17 |
390.64 |
443.28 |
| Feb 11-17 2012 |
811.56 |
778.75 |
385.33 |
434.29 |
Russ Quinn can be reached at russ.quinn@telventdtn.com
(MZT/AG)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
10:27:00
02/21/2012
It's been a warm winter everywhere, but the higher-than-usual temperatures have taken on different manifestations around the Corn Belt. In Illinois and Indiana, farmers have been fighting mud while trying to bring their winter corn commitments to market. Meanwhile, on the wrong windy day in Iowa or southern Minnesota this winter, you might have seen an eerie haze of dust blowing across the horizon. For the past 21 weeks, the U.S. Drought Monitor has identified a severe short-term drought across portions of northern Iowa, southern Minnesota and eastern South Dakota.
I am by no means a meteorologist, but data is data, and while we've been watching a South American drought add volatility to the nearby corn and soybean futures markets, it's been interesting to see new-crop (December '12) corn futures stay within a 45-cent trading range since November. The market doesn't seem too worked up about the potential for that U.S. drought to affect upcoming corn production.
Nor should it, really. Any attempt to find a correlation between February soil moisture and final crop yields would be spurious, at best. Rational people (and traders) pay the most attention to weather risk premium when weather has a real chance to affect final yield. In 2004, researchers at the National Drought Mitigation Center at the University of Nebraska* determined they can assess the drought risks for final yield with a 60% accuracy rate in late April, a 76% accuracy rate in early July (when corn is in a vegetative state), and an 89% accuracy rate in late August and September. Their study considered that the moisture recharge period begins in September or October of the previous year, but the pre-planting period just wasn't statistically influential enough to make predictions about yield. In a more concrete example, USDA doesn't report row-crop ratings in winter for the simple reason that there is no crop in the ground to observe right now. Anything could happen between now and planting, let alone between now and harvest.
Nevertheless, there is a persistent belief that the current drought is an omen of worse things to come. You wouldn't have to look too hard to find a farmer willing to tell you this winter has felt "just like 1976" or "just like 1988." And historical data also documents this. Twice since 2000, northwest Iowa experienced a moderate or severe drought in February, and at the harvest timeframes following both those instances (2000 and 2003), the drought had grown even more severe. There were four years the Drought Monitor called just abnormally dry, but the subsequent harvests had a 50/50 chance of being normal or abnormally dry.
Earlier this month, Klaus Wolter at the National Center for Atmospheric Research, stated he thinks there's a 50/50 chance of La Nina remaining into summer 2012. Currently, DTN's Spring Outlook reflects that continuation, with limited drought relief in the area currently affected and a spring rain surplus in the already muddy areas of the Eastern Corn Belt. But Wolter also noted that in 6 of the 10 two-year La Nina events between 1900 and 2009 (what we are experiencing right now), the scenario switched over to an El Nino event. That doesn't necessarily mean drought relief, either. DTN's Bryce Anderson pointed out to me that El Nino conditions in the northwestern Corn Belt actually imply above-normal temperatures and below-normal precipitation. Altogether, it seems too soon for the market to know what precipitation the crops will have available, and therefore too early for the market to care.
However, if we get through a nice dry planting season and then June and July come along with no abatement to the drought, the truly justified worry is that crops will have to start their season already behind on soil moisture. Two of the most disastrous years for Iowa's corn yield in recent memory occurred in 1977 and 1988, when central and northwest counties had yields 74 and 42 bushels per acre below local trendline, respectively. And the data confirms what farmers have been saying: those winters, like this winter, were dry. In February 1977, NOAA weather stations across Iowa did indeed show precipitation totals about half an inch below normal for the month, and it was a continuation of months of similar data. The deviation from normal was even greater in February 1988. However, in 1993, when final corn yield during a droughty harvest was 62 bushels per acre below local trendline in Iowa, the early months of the year were actually quite wet, which just demonstrates how quickly and dramatically a climatic situation can change.
You may recall (I didn't) that in 1977, the Eastern Corn Belt actually had a very good year. New yield records were set in Ohio. The national average yield, 90.8 bushels per acre, was right on trendline. This year, however, with global feed grain ending stocks already tight and looking to get tighter once the full impact of the South American drought is known, the market may have much less tolerance for any dip in U.S. production.
The whole point of a market building in a weather risk premium is to recognize that price not only reflects what is known about supply right now, but that it also reveals what might happen in the future. Unfortunately for market bulls, there is a very real chance that 94 million acres (or more) could be planted to corn and the whole Corn Belt could receive adequate moisture and reach trendline yield above 160 bushels per acre. So at this point, weather risk leans toward a discount rather than a premium.
There are a couple of trading implications resulting from all of this. In the immediately observable universe, old-crop corn futures (July) have a fully-materialized South American drought at their backs and are already trading at an 80-cent premium over new-crop corn futures (December). That's a full 80 cents above the average spread for this time of year. In 2011, that same old-crop/new-crop inverted spread traded as wide as $1.33 in March.
On the other hand, looking forward into the unpredictable future, if the current drought extends into an even deeper one during a more critical time period, crops will have a harder-than-usual time dealing with low precipitation, and thus, there will be a stronger-than-usual chance of price volatility this summer. If ever there was a year for marketing strategies that don't commit a farmer to margin calls during a crop shortage, I think this may be it.
**
*Wu, Hong & Hubbard, Kenneth G., & Wilhite, Donald A. (2004).An Agricultural Drought Risk-Assessment Model for Corn and Soybeans. International Journal of Climatology.
Elaine Kub can be reached at ekub@agrisk.net
(CZ/AG)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
09:34:00
02/21/2012
WASHINGTON (DTN) -- Ethanol and farm groups praised an Environmental Protection Agency decision Friday to approve a higher level blend of ethanol known as E15, but the Environmental Working Group announced a campaign to discourage consumers from using it, and an Agriculture Department economist said he did not think it will win acceptance soon.
In formal terms, EPA released an evaluation of information submitted by the Renewable Fuels Association and Growth Energy for satisfying the emissions and health effects data requirements for registration of E15, gasoline containing 15% ethanol.
The evaluation document concludes that the submission would be sufficient to satisfy those requirements, which makes it legal for a fuel or fuel additive manufacturer to sell E15 once it is registered with EPA. The agency had granted partial waivers for E15 for use in 2007 and newer light-duty motor vehicles and for use in 2001-2006 light-duty motor vehicles. But those decisions were dependent on the evaluation of the health data.
"This is a remarkable achievement by America's clean, renewable fuels industry, as moving to E15 results in reduced dependence on foreign oil, jobs here in America and consumer savings at the pump," according to a news release from Tom Buis, CEO of Growth Energy, which represents ethanol plant builders and managers.
"Growth Energy commits right now to the American public that we will work with the retail industry to bring E15 to their stations," Buis said.
"For three years, Growth Energy has led the effort to clear the way for consumers to have access to affordable, renewable and cleaner-burning fuel," he said. "Now it is up to the retailers and individual fuel companies to register for approval to sell E15. With ethanol selling an average of 76 cents a gallon cheaper than gasoline and $4-a-gallon gasoline on the horizon, we'd encourage all Americans to ask their local filling station how soon they will see more-affordable E15."
Growth Energy also noted in a memo that Friday's announcement is the final federal regulation that needs to be met in order for E15 to enter the marketplace, and that it expects Iowa to be the first state where retailers register to sell E15.
Iowa's state codes are already in conformity with EPA's decision last year to approve the E15 waiver for cars and light trucks 2001 and newer, the memo said. Illinois, Indiana, Nebraska, South Dakota, Minnesota and North Dakota are expected to follow.
"We are one step closer to having E15 available for widespread distribution in the U.S.," said National Farmers Union President Roger Johnson in a news release. "American consumers deserve a choice at the pump."
"E15 is a homegrown fuel that saves consumers money and helps wean us off of our addiction to foreign oil," Johnson said. "Today's decision is a win for rural America, a win for national security, and a win for the environment."
But USDA Chief Economist Joe Glauber told The Hagstrom Report today that he does not expect E15 to have much impact on the market or the rural economy right away, as the cost for retailers to switch from E10 to E15 is "substantial."
"I don't see that happening any time soon," Glauber said in an interview.
In a speech to the crop insurance industry in Scottsdale, Ariz., on Wednesday, Glauber said that blender pumps, which the gas stations need for ethanol fuel sales, "are an expensive proposition." Following the expiration of the ethanol tax credit and the protective tariff "after years of growth, ethanol has begun to flatten," Glauber said.
The Environmental Working Group, which opposes ethanol in general, said that it would launch a campaign to urge motorists to stay away from E15.
"Every major automaker has warned that millions of vehicle warranties will be voided if drivers fill up with E15," EWG said in a news release.
"That means consumers will pull into gas stations that could have as many as four pumps with different kinds of fuel: one for E10 (up to 10% ethanol); one for E15; possibly one for E85 (between 70% and 85% ethanol); and maybe one for old-fashioned gasoline. The EPA intends to approve E15 only for vehicles manufactured after 2000."
Some gas station pumps may not even have labels specifying which ethanol blend is which, because not every state requires them, although industry officials have said they do expect stations to label the pumps once they are selling E15.
Jerry Hagstrom can be contacted at jerry.hagstrom@telventdtn.com
(CZ/SK)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
08:33:00
02/21/2012
KANSAS CITY, Mo. (DTN) -- Despite the economics of crop production and federal spending right now, there is still room for conservation practices and promoting wildlife, USDA's chief conservationist said.
Dave White, chief of the Natural Resources Conservation Service, spoke over the weekend to hunters at the Pheasant Fest convention and expo in Kansas City. White said landowners are trying to balance the various growing demands on their land.
"We have agriculture production and we have sustainability and we can have it built in where wildlife is a part of it," White said. "I don't think there is one farm or one ranch or one woodlot in the United States of America that doesn't have room for wildlife."
Yet, White acknowledged there is more woodland cutting and farmers clearing trees at the edges of fields to increase crop production.
"I understand the economics and the motives to maximize, but I think there is going to be a long-term price that is pretty devastating," White said. "If you are farming up to the edge of a creek bank, it's just going to start going. It's just going to start slumping off. We're just going to start increasing the sediment loads in our rivers. So it's very disheartening to see those natural buffers go."
Yet, White also hears from the field that farmers are coming to NRCS meetings in droves in some states to learn more about improving soil health, particularly through cover crops. "It can reduce your input costs, increase your yields and make you much more adaptive to droughts and floods," White said.
White noted conversations about soil health are growing globally as well. Soil health is moving onto the agenda at the United Nations Rio Plus 20 sustainability meeting in June. "All of these countries are asking for soils health to be part of the conversation so the U.S. will probably participate in a meeting down there dedicated to soil health."
Currently, agriculture has complete exemption from the Clean Water Act for non-point sources. There are increasing complaints from cities about their rising costs to reduce nitrogen and phosphorus. "A lot of them are past the point where it is economical for them to do that. You are seeing huge investments for smaller amounts of reduction. They are seeing their costs go up a great deal and they look at farmers and see they are exempt. At what point do they start getting aggressive on this?"
White noted there is more discussion regarding tile drainage and whether that remains a "non-point" source. "When is a pipe a pipe?" he said. "If something like that happens it changes the whole ballgame for agriculture."
White said agriculture needs to be cognizant of those debates and be ahead of it. He cited the memorandum of understanding signed between federal officials and the state of Minnesota to improve conservation practices and take the risk of regulation off the table.
USDA also is using Conservation Innovation Grants to spur water-quality trading programs to address some environmental challenges. White cites a project in the Northwest in which landowners are paid to create riparian buffers and plant trees along river banks to cool the water, which is cheaper for power companies than paying for industrial chillers to cool the water. In some instances, landowners are receiving as much as $400 an acre in rental payments for the buffers.
Agriculture faces increased environmental pressure as USDA's conservation programs are going to see the conservation budget, projected at about $65 billion over 10 years, likely take a $6 billion cut in that projected spending in the next farm bill. That was the estimated conservation cut in the farm-bill proposal last fall during the failed supercommittee talks.
"We know we need more boots on the ground, but we don't see it's going to be federal boots," White said.
On Friday, USDA announced a $10 million project with the National Fish and Wildlife Foundation to leverage more non-profit or local government dollars through conservation grants that will range from $50,000 to $250,000. White expects the $10 million to turn into $20 million to $30 million in projects.
"We know we're going to have less money in the future," White said. "We're going to have fewer federal programs, but we're going to have more work. At NRCS, we think we enter into partnerships and we leverage what we have."
The Senate Agriculture Committee is scheduled to hold a hearing on conservation programs Feb. 28. The witness list for that hearing has not been released.
While NRCS doesn't administer the Conservation Reserve Program, the agency is working on ways to manage more acres coming out of the program if landowners want to install some conservation practices.
"Ideally, if the owners have made the decision to get out of CRP, what can we do to help transition them to keep good conservation in there to protect the resource base?" White said.
Pheasants Forever has been one of the champions of CRP, but Dave Nomsen, vice president of government affairs for the group, said hunters are also fiscal conservatives.
"That reduction in spending is important to our members," Nomsen said. "We hear about it so it needs to be addressed. But the challenge we have got is how to do things smarter, more efficient. Because regardless of whatever the price of corn is -- $7 or $2 a bushel -- you need conservation on the landscape, period. And it's more challenging when you have got all of these pressures out there right now with land values skyrocketing, commodity prices skyrocketing. It's tough."
Nomsen said a better system can be developed to help landowners make decisions on how to manage marginal lands. "There is a spot on every farm and ranch out there that I am convinced the best use for it is conservation."
A change last week in policies for the Environmental Quality Incentives Program will now allow funds to be used for perimeter fences. "So if a guy wants to go into red meat production, we'll help with the infrastructure --- the pipelines, water tanks, cross fencing, and even the perimeter fence, which is a big deal. We will cost share on all of that stuff."
Further, the Conservation Stewardship Program is available to help manage those lands, particularly if they are susceptible to erosion.
USDA also announced a new conservation initiative at Pheasant Fest to protect up to 750,000 acres of the nation's most highly erodible croplands. The initiative will assist landowners with targeting their most highly erodible cropland by allowing them to plant wildlife-friendly, long-term cover through the Conservation Reserve Program.
Chris Clayton can be reached at chris.clayton@telventdtn.com
(CZ\SK)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
18:01:00
02/17/2012
So they've got a deal in Congress on extending the payroll tax cut. Maybe our lawmakers have taken the voters' unhappiness seriously. Maybe they've learned how to overcome paralysis. Maybe there will be fewer hyper-partisan standoffs on future issues.
Then again, maybe not.
This payroll-tax compromise was just a gentle warm-up stretch. The strenuous tax aerobics and heavy budget lifting come later this year, when Congress must make three momentous decisions: whether to raise the debt ceiling yet again; whether to craft a well-timed, powerful set of spending cuts or let the $1.2 trillion in scheduled "sequestered" cuts kick in; and, most importantly, whether to extend the expiring Bush tax cuts. On this latter decision alone hinges $3.9 trillion in revenue over the next 10 years.
Together, these three decisions will put us at America's most critical fiscal turning point in decades. What Congress decides will affect every American for years to come. It will affect farmers and ranchers in countless ways, large and small.
Let's look at just three of many possible scenarios.
To understand the first, imagine the Republicans and Democrats in Congress pondering the Bush tax cuts and calculating the risks they face in this year's elections. Neither can be sure how the elections will go; each has a lot at stake if the other ends up in control of the government. The Democrats fear that if the Republicans prevail, the Bush tax cuts will end up extended permanently. The Republicans risk a Democratic victory undoing the cuts permanently for those making more than $250,000 a year.
Perhaps, both sides think, it would be smarter to avoid these risks by changing the terms of the debate. Forget the Bush tax cuts; do tax reform, and get it done before the elections. Come up with a plan that lowers and simplifies personal and corporate income-tax rates, eliminates a raft of exceptions, deductions and loopholes and somehow in the process raises more revenue.
There'd be something for everybody. For the Republicans, lower rates. For the Democrats, elimination of special favors for the rich. Problem solved.
Is such a deal possible? The odds are against it. Most likely, neither side is that risk averse. And even if they enter into a tax-reform debate, the resistance from those about to lose their favorable treatment would be fierce.
Farmers might be among those who'd lose special tax benefits. For example, the last successful tax reform, in 1986, ended preferential treatment for capital gains, taxing them the same as ordinary income, at a top rate of 28%. By coincidence that's the top rate some tax-reform proponents are talking about again.
If we ended up with a similar result -- ordinary income and capital gains both taxed at 28% -- farmland prices could get whipsawed. They might plummet in the short run as older farmers without heirs rushed to cash in before the current 15% capital-gains tax rate expires. Then, after the new higher rate took effect, farmers might be more reluctant to sell and land prices could rise again. The countryside would be full of unhappy people.
To understand the second scenario, imagine Congress acts in the way we've all come to know and hate. It deadlocks. The Bush tax cuts expire, not just for the rich but for everyone. The $1.2 trillion in sequestered cuts kick in because Congress can't agree on a better plan for reining in the deficit in the long term without zapping the economy in the short.
According to the Congressional Budget Office, this one-two punch would reduce economic growth next year to a dangerously slow 1% from an expected 2% or more. Some economists think the blow would be even more severe; they see us collapsing into recession. If Congress also deadlocked on the debt ceiling, shaking markets' confidence in U.S. debt paper, recession could morph into depression. Neither would be good for farmers.
In the third scenario, Congress works feverishly through November and December. It finally muddles through to some sort of solution. All of this takes time. There's suspense right up until the 11th hour. The negotiations are all-consuming in their demands on Congress's limited attention span.
That would have implications for the farm bill. Many farm groups hope one can be passed this year. To wait until 2013, they fear, risks even deeper cuts in farm programs than we now expect. It would also require an extension of current law for several months, which might be difficult to navigate through a minefield of potential amendments once the bill is out of the ag committees' hands.
If a farm bill is to go through earlier this year a lot of work lies ahead. The ag committees talk about completing work this summer, but history and the current divided state of the agriculture interest groups suggest they'll need more time. If the bill gets delayed into the lame-duck session, it will be competing with the three big decisions for attention. They could crowd the farm bill out.
With so many consequential scenarios potentially playing out this year, agriculture's eyes will be on Washington even more than usual.
Urban C. Lehner
Vice President, Editorial
DTN/The Progressive Farmer
Follow me on Twitter: www.twitter.com\urbanize
(SK/CZ)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
18:00:00
02/17/2012
In many ways, the succession process seems similar to a dance. A bit of uncertainty and self-doubt as a senior partner evaluates a successor's capabilities, followed by an awkward start as they find their feet and negotiate control. They finally develop a rhythm and understanding of how to work together, and the retiring generation can have some fun as they watch a partner's confidence blossom as he or she continues the dance and they sit down to rest a bit.
If only succession were that easy!
Preparing to hand off the business usually starts with rounds of self-questioning: Does the next generation really want to do this? Are they ready to step up? Am I ready to let go? Can they handle the risk, the complexity and the stress? Can I handle watching them make mistakes, go slower or faster or do it differently than I did it? When they take over, how will they use me? How will it change our relationship?
We think and talk as if succession is an event, when in reality, the transition is a process: it starts, stops and starts again, it evolves, it happens in stages, and it usually looks different at the end than how you envisioned it at the beginning. Businesses that continue intact through multiple generations approach succession as a process in which communication is expected, assumptions are clarified, goals are discussed, roles are explored and each participant's contribution is valued.
In some ways, the dance starts way before the kids (or grandkids) return, with the expectations you set while your kids are growing up. Do they see an example of a life they want? Do they experience the passion you have for the business? Do they appreciate the contribution you make to the world, your community and the lives of your employees? Are they exposed to the joy in your work? Do they get a chance to feel as if they are making a contribution, even if minor in their childhood or teenage years? Do you set an expectation that the potential successor get an education and gain some experience prior to coming back -- which is what you would generally expect of a non-family successor?
In the middle, the dance has to do with the culture you create. Does the returning generation have an opportunity to experience multiple facets of the business? They may want to stay on the tractor or on horseback, and it is probably important that they do the physical labor at times to establish credibility with employees. But they also need to grasp all of the information you consider in the course of a day -- production, marketing, agronomic, livestock, accounting, legal, finance, human resource, and landowner issues are just some of the areas in which you focus. Making sure the next generation works "in" the business but also understands how you work "on" the business is critical to their future success.
Does the returning generation participate in the significant business decisions? In the beginning, they may be at the table simply observing the decision-making process. But as they gain experience in the operation, they need an opportunity to provide input. Encourage them to interact with the accountant, the banker, the agronomist, seed dealer and other vendors. You not only build their knowledge and experience base, but you can gain some outside perspective on what others think of your potential successors. Above all, help them gain some practice in making decisions. They probably won't make a mistake bigger than your ability to fix it.
Does the returning generation see the financial impact of the decisions you (and they) make? You should have a financial reporting system that produces useful reports that help evaluate the cost-benefit ratio of key decisions. You should also have a process by which you jointly reflect on past strategies and adjust future tactics accordingly.
At the end, the dance continues on -- even if a shuffle -- well past the time when you officially hand over the reins. The wisdom you've accumulated through experience and the judgment you've gained from decisions will likely be called upon in various situations. Telling the story, reminding future generations of the history of the business and the sacrifices and struggles made by prior generations encourages thankfulness and instills the values that made you successful.
At its core, the succession process is a balancing act. Just like a dance, the initiation will be a little awkward. In the middle you will probably step on your partner's toes. Dancing perfectly, however, is not the goal. Enjoying your time together in the family business is the reward, and the strategies mentioned here will help the dance go a little smoother.
EDITOR'S NOTE: Lance Woodbury works as a consultant to family owned and closely held businesses in Garden City, Kan., with a special emphasis on business planning, mediation and conflict resolution. He also maintains an interest in his family's western Kansas ranch. E-mail comments or suggestions for this column to lance@lancewoodbury.com.
(MZT/AG/CZ)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.
08:43:00
02/17/2012
OMAHA (DTN) -- The House Small Business Committee is taking a bigger role in discussions about the farm bill and issues farmers and livestock producers face as small businesses.
Small Business Committee Chairman Sam Graves, R-Mo., brought in representatives from a variety of agricultural sectors on Thursday to discuss the farm bill and issues related to farms being small businesses. The ag representatives met with at least eight congressmen on the Small Business Committee, including subcommittee chairs.
"A majority of our ag businesses in this country are actually small businesses," said Rep. Scott Tipton, R-Colo., in a phone interview after the meeting. Tipton chairs the Small Business Subcommittee on Agriculture, Energy and Trade.
These smaller agricultural operations are Sub S corporations, partnerships, limited-liability corporations or sole proprietorships, Tipton said. With that in mind, the ag reps highlighted some of their major concerns as a new farm bill is crafted.
Tipton said the agricultural groups raised many of the same points as Colorado farmers in a survey Tipton conducted. The farm groups expressed their support for crop insurance. Further, the groups want to maintain agricultural research to address pests and improve production.
"They want to make sure we are getting proper yields with the core knowledge that the population in this country and others is growing, that we lose every year 1.5-million-plus acres to development just in the United States," Tipton said.
Tipton said the agricultural groups also discussed with the committee the importance of conservation programs in preserving farmland.
Along with those issues, the farm groups also talked about their problems with regulation right now, Tipton said.
Last month, Tipton's subcommittee called a hearing on the U.S. Department of Labor's proposed farm-labor rules for children. A day before the hearing, Labor officials changed the language to try to reduce some of the concerns of farm groups.
Tipton, also a member of the House Agriculture Committee, said he had spoken to Agriculture Committee Chairman Frank Lucas, R-Okla., about the farm bill earlier in the week. Tipton said he was encouraged that Lucas was supportive of the Small Business Committee's willingness to raise some of the issues that are being discussed in the farm bill.
Tipton said he sees the Small Business Committee continuing to hold oversight hearings on agricultural issues "to get a very clear picture, because what happens in Washington impacts people at home. More oversight -- and we're interested in some of those impacts -- can and should help drive a lot of the policy that comes out of Washington, and many times that means less policy."
Given the budget challenges and criticisms of farm programs, Lucas could use allies in helping get a farm bill passed. The farm bill is expected to take at least $23 billion in cuts over 10 years.
Tax issues also loom large at the end of the year. Tipton criticized the $3.5 million estate-tax threshold the president proposed in his budget, as well as the effect of higher taxes on farms and ranches with $250,000 or more in adjusted gross income. Tipton said small businesses reinvest the dollars they earn.
"Tax policy is certainly going to drive some of those decisions and where the president is going with it is something we certainly will be addressing," Tipton said. "You will see a variety of different proposals."
Chris Clayton can be contacted at chris.clayton@telventdtn.com
(CZ\SK)
© Copyright 2012 DTN/The Progressive Farmer, A Telvent Brand. All rights reserved.