Cropland values starting to come down

A chart of the changes in land values overtime in the AgriBank District

 

Average cropland and farm real estate values across the 15-state AgriBank District declined for the first time since the onset of the Great Recession in 2009, and pastureland values declined for the first time since 2010, according to U.S. Department of Agriculture (USDA) 2016 survey data. However, the decline in farmland values—due to considerably lower commodity prices that have fallen from record highs in the crops and livestock sectors—is at a moderate rate. This report highlights the latest farmland values and cash rents across the District, as well as looks
ahead to the future.

CROPLAND VALUES
The Northern Plains states experienced the largest declines in cropland values from 2015
to 2016, while the southeastern states in the AgriBank District and Wisconsin experienced
growth. Figure 2 shows the percentage change in cropland values by state across the
District, with the average value and absolute dollar change in brackets. Among the states:
A chart of average cropland values in the AgriBank District
– North Dakota had the largest percentage decline (-6.5 percent), followed by South Dakota (-5.6 percent) and Nebraska (-4.3 percent). Some of this reduction can be attributed to the decline in crude oil and energy markets, particularly for North Dakota. Additionally, declines in wheat and minor feed grain prices contributed to the drop in cropland values.

– Wisconsin (+$200) had the largest increase (with its strong dairy industry being a contributing factor) and, along with Arkansas, Kentucky, and Tennessee, most likely saw an increase in cropland values due to the strong recreational and urban expansion components in their land markets.Also, the diversity of crop production in these states continues to support values while states that have cropland concentrated in corn and soybean production (such as Iowa and Illinois) have seen values decline with the lower price levels for both crops.

In terms of average value per acre, Iowa also was the highest ($8,000 per acre), followed by Illinois ($7,450) and Indiana ($7,000). The lowest values were in the Northern plains states of Wyoming ($1,370), North Dakota ($2,000), South Dakota ($3,520) – and Arkansas ($2,710).

PASTURELAND VALUES
Figure 3 shows the state percentage changes (average value per acre and absolute dollar
change in brackets) for pastureland values across the District.
A chart showing the changes of pasture land in the AgriBank District
– Arkansas (+7.0 percent) had the largest percentage increase, followed by Nebraska (+4.6 percent) and South Dakota (+4.1 percent). As with cropland, states with a strong recreational and urban expansion component tended to do better than others. Also, states with a strong dairy (Wisconsin and South Dakota) and beef industry (Nebraska) presence tended to do better

– Illinois (-4.2 percent) had the largest percentage decrease, followed by Michigan (-3.0 percent) and Minnesota (-2.9 percent)

-In absolute dollar terms, Arkansas (+$160) also had the largest increase while Illinois (-$150) had the largest decline among the District states

In terms of average value per acre, Tennessee was the highest ($3,540), followed by Iowa ($3,400), Illinois ($3,400), and Ohio ($3,100). The lowest per acre values were found in the Northern Plains states of Wyoming ($510 per acre), North Dakota ($830), Nebraska ($910) and South Dakota ($1,020).

CROPLAND CASH RENTS
Figure 4 shows the percentage change in average cropland cash rents by state across the District, with the rate per acre and absolute dollar change indicated in brackets.
A chart showing the change in rent for cropland within the AgriBank District
– Minnesota (-6.1 percent) had the largest decline, followed by Iowa (-6.0 percent) and Nebraska (-4.9 percent)

– In absolute dollars, Iowa had the largest decline (-$15 per acre), followed by Minnesota (-$11) and Nebraska (-$10)

– Michigan (+$9 or +7.6 percent) and Wisconsin (+$3 or +2.2 percent) were the only states to show increases in cropland cash rents from last year

For the average cropland rental rates per acre, Iowa had the highest rate ($235), followed by Illinois ($221), Nebraska ($196) and Indiana ($192). The lowest rental rates were in Wyoming ($62) and North Dakota ($68). The average rents in the District states were substantially higher compared to states outside the District ($143.47 versus $98.77 per acre), despite declining by more than the national average (-6.4 percent versus -5.6 percent). Revised figures for 2015 reversed a decline that USDA reported last year for cropland average cash rents.

PASTURELAND CASH RENTS
Figure 5 shows the percentage change in cash rents per acre for District pastureland. The District average rental rate declined by $1.23 per acre (-4.2 percent) compared to the U.S. average decline of $1.00 (-7.1 p ercent). Among the District states:
A chart showing the different in rent for pastureland in the AgriBank District
– Arkansas (+11.1 percent) had the largest percentage increase, while Nebraska (-15.8 percent) had the largest percentage decline

– In dollar terms, Iowa, Minnesota and Arkansas tied for the largest increase (+$2) in average pastureland cash rental rates

– Only four states declined in rates, with Nebraska showing the largest decline (-$4.50/acre), followed by South Dakota (-$3), Missouri (-$2) and North Dakota (-$1)

In terms of per acre cash rent rates, Iowa had the largest average ($52), followed by Illinois ($36) and Wisconsin ($35). North Dakota had the lowest rate ($17), followed by Arkansas and Tennessee ($20).

A full report of the AgriBank District can be found here.

 

Farm Credit study helps food hubs thrive

A picture of multiple varieties of vegetables at a supermarket/food hub

 

Food hubs are a growing movement across the country and are focused on making healthy, local food accessible to a broader audience while ensuring fair returns to farmers. A break from the traditional approach to food marketing and distribution, food hubs have been in need of more data to give growers insights about how best to organize, price and operate to achieve their social objective and earn enough revenue to succeed.

To help meet the need for data and insights, Farm Credit joined with Wallace Center at Winrock International, a non-profit that hosts the National Good Food Network (NGFN), to develop COUNTING VALUES: Food Hub Financial Benchmarking Study. This new study was made possible through a grant from Farm Credit’s national contributions program and draws on financial and operational data from 48 regional food hubs in the nation.

 

Wallace Center, a learning community of individuals and organizations pursuing market-based approaches to a more sustainable and equitable food and farm sector, says there are currently more than 300 regional food hubs in the U.S. The new study’s findings provide an in-depth look at the growth—and growing pains—of these wholesale intermediaries. Among the top insights are:

  • Almost half of all food hubs are less than five years old. During this time, many experienced double digit annual growth rates.
  • The highest performing 25 percent posted a 4 percent profit compared to the average of -2 percent. Within this relatively narrow spectrum, the most profitable food hubs were larger, older, and for-profit operations. Those with sales greater than $1.5 million averaged profits of 2 percent while food hubs between five and 10 years in operation averaged 1 percent profit. On average, for-profit food hubs earned a 1 percent profit compared to not-for-profit food hubs, which posted -7 percent before consideration of grant income or contributions.
  • The top 25 percent of hubs spent 39 percent more on labor (cost per worker equivalent). Those workers outperformed their peers by 56 percent (sales per worker equivalent). These factors can make a big difference in a thin margin business. The gross margin of the typical food hub in the study was 14.5 percent. That means only 14.5 cents of every sales dollar remained after selling the product to cover overhead or provide profit. Balancing profit margins with goals for an equitable food system is an ongoing challenge for some food hubs, which can be addressed in part with more efficient operations.
  • “This comparative data is intended for food hub management,” says Counting Values’ lead author Erin Pirro, a farm business consultant with Farm Credit East. “It can also be useful to farmers and food producers as well as lenders, investors, and grant makers. All need to understand where the risks are for each stage in the value chain and for the sector as a whole.”

The financial benchmarks are designed to help food hub operators generate sufficient revenue to achieve economic sustainability. Tina Prevatte, Co-CEO of participating hub Firsthand Foods, says, “This study provides useful metrics that will allow us to more effectively track our progress in a brand new industry. We’re building something that is different from the traditional food industry. Slim margins and operating near breakeven are actually signs of success when your intention is to make good food accessible to all while also paying farmers fairly and equitably.”

 

United FCS has been active on the food hub front. In the past few years, the Association supported two separate food hub projects – one in Willmar, Minn., and the other in Stevens Point, Wisc.

To build on this concept, the United Acres Garden began growing fresh food this summer to improve the local offerings of Olivia, Minn. Once the Willmar Food Hub is completely up and running, produce grown in the Garden could find its way to market in Willmar.

You can read the full food hub study by clicking here.

Local ag professional recognized for long time membership

A headshot of James hagedornGlendale, CO – October 27, 2016 – James D. Hagedorn, ARA with United Farm Credit Services in Willmar, MN, was recently recognized by the American Society of Farm Managers and Rural Appraisers (ASFMRA) for 30 years of Membership within the Organization. Hagedorn is an agricultural professional who provides services for clients which may include farm and ranch management, rural appraisal, and/or agricultural consulting.

Hagedorn has been affiliated with ASFMRA, the largest and oldest professional association that provides opportunities for development through the highest quality educational and meeting offerings, and a strict standard of code of conduct and ethics to its members, for 30 years.

The ASFMRA represents nearly 2,000 agribusiness professionals across the U.S. and Canada, who provide farm or ranch management, rural appraisal and appraisal review or agricultural consulting services. Professional managers represent owners of over 25 million acres of U.S. farmland and provide the direct management of these operations. Professional rural appraisers provide valuation estimates on over 50 million acres of farm, ranch. and natural resource lands each year.

The ASFMRA, founded in 1929, is the pioneer organization in rural property issues and education. lts focus is to create and maintain a professionally trained group of AFMs (Accredited Farm Managers), ARAs (Accredited Rural Appraisers), RPRAs (Real Property Review Appraisers), and AACs (Accredited Agricultural Consultants) who are capable of providing expert guidance and assistance to people who own and/or operate agricultural lands and rural resource properties.

United FCS announces new hire & staff transition

Contact: Lynda Hauge, HR Director
United FCS
(320) 214-5007

A headshot of Deb GrongDecember 2, 2016 – Deb Grong recently joined United FCS as a Sr. Customer Service Representative (CSR) and Kelli Anderson is transitioning to the role of Insurance Specialist. Deb & Kelli will both be based in the Marshall, Minn., office.

As a Sr. CSR, Deb will provide first-contact customer service to customers, along with providing administrative support to all members of the retail delivery team. Her customer service experience includes many years in United FCS’ Madison office.

A headshot of Kelli AndersonKelli will service the organization’s insurance portfolio (MPCI, Hail, Livestock and Life) in Lincoln and Lyon Counties. She has been with United FCS for 12 years, serving as a Customer Service Representative (CSR). In addition to her CSR role, she provided support to the region’s insurance department.

United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 employees.

New ag landscape taking shape in Washington

A picture of the Captiol Building in Washington, D.C. at sunset

 

In farm country, early support for Donald Trump’s presidential campaign held strong through the Nov. 8 election, as rural voters across the country voted overwhelmingly in favor of the Republican candidate. Now, as the president-elect starts to assemble a Cabinet and other leadership posts, here’s a quick look at some of the early contenders for key agriculture roles, as well as an updated summary of ag-related policy positions in what remains a very fluid situation.

Secretary of Agriculture. When this article was completed, leading contenders to replace Tom Vilsack for this Cabinet-level post included Gov. Sam Brownback (R-Kan.); former governors Dave Heineman (R-Neb.), Sonny Perdue (R-Ga.), and Rick Perry (R-Texas); and Sid Miller, the current Texas secretary of agriculture. In addition, several non-politician names have emerged, including Charles Herbster, a Nebraska agribusiness owner who leads Trump’s agriculture advisory team; Mike McCloskey, an Indiana dairy executive; and Chuck Connor, president and CEO of the National Council of Farmer Cooperatives (NCFC). (AgriBank is a member of the NCFC.)

U.S. Senate. Since the Republicans maintained their Senate majority, Sen. Pat Roberts (R-Kan.) will likely continue to chair the Senate Agriculture Committee, with Sen. Debbie Stabenow (D-Mich.) retaining her role as the highest-ranking Democrat. During the 2016 election, only four of the 20 seats on this committee were up for grabs, and incumbent senators Michael Bennet (D-Colo.), Charles Grassley (R-Iowa), John Hoeven (R-N.D.), and Patrick Leahy (D-Vt.) were all returned to office.  

U.S. House of Representatives. Similar to the Senate, Republicans hold a majority in the House, which means Rep. Mike Conaway (R-Texas) will keep the gavel as chair of the House Agriculture Committee. Rep. Collin Peterson (D-Minn.) will continue as ranking Democrat. This year, about a handful of the committee’s 45 seats were competitive, with incumbents Mike Bost (R-Ill.), Jeff Denham (R-Calif) and Rick Nolan (D-Minn.) retaining their posts after tough races. Three other committee incumbents – Dan Benishek (R-Mich.), Chris Gibson (R-N.Y.) and Ann Kirkpatrick (D-Az.) – did not run-for House re-election, while a fourth (Nebraska Democrat Brad Ashford) was ousted by Republican Don Bacon.

Regulatory, tax positions fueled rural support, trade policies still up for debate

While neither Trump nor Hillary Clinton spent much time on agricultural issues during the campaign, the GOP candidate’s promises to roll back many federal regulations and reduce taxes were a big part of his appeal to ag producers. While it’s unlikely that Trump will actually make good on his campaign promise to abolish the Environmental Protection Agency (EPA), the odds are much higher that his team will reduce or eliminate many regulations affecting lands, waters and pollution. For example, a prime regulatory target for a Trump administration may be the EPA’s “Waters of the United States” rule, which many farm advocacy groups say gives the federal government too much authority to dictate water usage on agricultural lands.

On the tax side, Trump’s plan boils down to two words: lower and simplify. This includes dropping the current number of tax brackets from seven to three, while capping taxation on “pass-through” business income at 15 percent. In addition, the president-elect has consistently supported a permanent repeal of the estate tax – an important issue for larger producers, since current law allows only the first $5.45 million (or $10.9 million for married couples) in real estate or other assets to be passed on tax-free at death to designated heirs. Since Trump will have a Republican majority in Congress, and his overall tax philosophy appears to be largely in sync with previous GOP orthodoxy, it’s likely that much of this agenda may become reality.  

As a candidate, president-elect Trump supported a renegotiation of the North American Free Trade Agreement (NAFTA) and opposed the Trans-Pacific Partnership (TPP), a proposed trade agreement between North America and several Pacific Rim nations, including Australia, Japan, Peru, Malaysia, Chile, Vietnam, Brunei, Singapore and New Zealand. After the election, many veteran trade experts said the prospects for TPP’s passage were all but dead, given Trump’s opposition and a lame-duck Congress. In the long term, some farm advocacy groups believe the lack of a TPP trade package may reduce export opportunities for U.S. farmers, many of whom are already suffering from a price decline for many agricultural commodities.9  On the other hand, Trump has been supportive of Trade Promotion Authority, which allows a U.S. president to fast-track negotiation of trade agreements, subject to a non-amended, up-or-down vote from Congress.

Another key trade issue is potential tariffs that candidate Trump said he would impose on a number of nations. For example, the Trump campaign promised a 45 percent tariff on imports of Chinese goods to help improve the domestic market for U.S. manufacturers. However, with annual U.S. agricultural exports to China now totaling more than $20 billion, such a move has the potential to spark a trade war that could hurt producers.

Updates on other positions that affect agriculture

Biofuels and Renewable Fuel Standard. In a speech at the Iowa Renewable Fuels Summit in January, Trump voiced support for both biofuels and the Renewable Fuel Standard. This was a particularly important issue for many crop producers, many of whom rewarded him with their support during the November election. Given Trump’s consistent theme in favor of domestic energy security, many industry leaders expressed confidence that the president-elect will support policies to expand the use of biofuels over the next several years.

Crop Insurance. The president-elect responded “yes” to an Iowa Farm Bureau candidate poll earlier this year regarding federal safety net support for producer revenue risk or catastrophic disasters. In a later Politico report, the Republican presidential candidate reaffirmed his support for crop insurance, saying, “Agriculture is not about food, it is about national security.” Because Trump has Republican majorities in both the U.S. Senate and House of Representatives, political observers believe the 2018 Farm Bill will require less negotiation with urban or Democratic lawmakers, allowing for more emphasis on producer protection and less on conservation. This same dynamic may also enable lawmakers to successfully separate the federal food stamp program from farming legislation, which was the source of a bitter partisan debate during talks on the 2014 Farm Bill, but the urban-rural coalition may still be needed to pass new legislation that addresses both programs.

Immigration. As a candidate, Trump supported building a wall on the U.S.-Mexico border to help reduce illegal immigration. He also backed a new requirement for companies (and by extension, farm businesses) to hire American workers first before seeking visas for immigrant labor. To do this, the campaign said petitions for workers should initially be sent to local unemployment offices – not U.S. immigration services. Additionally, Trump’s platform called for a halt in issuances of new green cards for immigrants, after which “employers will have to hire from the domestic pool of unemployed immigrant and native workers.”

While it remains to be seen how aggressively a Trump administration will move toward making those proposals a reality, the ripple effects of reduced migrant or immigrant labor for agriculture are pronounced. In a detailed analysis of Trump’s positions on immigration enforcement and agriculture, Moody’s Analytics noted that “immigrants are imperfect substitutes for native U.S. workers due to different occupation choices and skills.” If the supply of immigrant manual labor for producers is reduced, Moody’s believes it’s unlikely that enough American-born workers will fill the void, even at somewhat higher wages.   

Cuba. The president-elect has promised to reverse the improved U.S. relations with Cuba forged by President Barack Obama over the past two years unless the Caribbean nation meets his demands for more political and religious freedoms. Just days after the death of longtime Cuban leader Fidel Castro, Trump said, “If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal.” A U.S. reversal risks alienating agriculture interests that see trade opportunity with Cuba. The Farm Bureau said in September that restrictions on sales to Cuba are “placing U.S. farmers and ranchers at a serious disadvantage in this nearby market.”

Infrastructure. In a 100-day plan announced at the end of October, the president-elect promised to sponsor an “American Energy and Infrastructure Act,” which would attempt to “leverage public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.” According to other elements of his 100-day plan, Trump said some of the funding for water and environmental infrastructure needs would come from cancelling U.S. payments to United Nations climate change accords. Taken as a whole, these promises are attractive to most producers, who rely heavily on highways, rail and waterways to transport their goods to market.

This post comes from AgriBank’s AgriThought Report.

Preparing for your 2017 credit needs

A headshot of Jeff Schmidt By Jeff Schmidt, Chief Credit Officer 

With another harvest in the books, it is time to focus on finishing 2016 business while getting prepared for 2017. In many cases, this includes the renewal of your operating loan. 

After several exceptionally profitable years, grain and livestock producers have been facing significantly tighter margins the last two years, and this trend looks to continue in 2017. 

Here at United FCS, we believe in working with you, our member-owners, on an individual basis to develop a plan that works for your operation in 2017. This may include rebalancing your current debt structure to build working capital, refinancing debt to take advantage of the current historically low interest rates, and to allow your operation to withstand the current tighter margin environment.

A farmer combining their corn with a grain bin in the foreground

It may also involve working with you to determine if there are non-producing or under-producing assets on your balance sheet that could be sold to create working capital and/or reduce debt, or if there are costs that could be better managed in your operation, such as input costs, land rent, equipment or family living.

To be able to renew your operating loan along with the possible need for other actions that might be necessary for you to consider in 2017, here are few things that can be done in advance:

  • Complete your balance sheet as close to year-end as possible and be sure to include any checks in float, as well all 2017 pre-pays
  • Have your 2016 earnings completed, preferably on an accrual basis, along with any capital purchases and sales that happened in 2016
  • Complete a 2017 monthly cash flow to aid in determining the size of operating loan your operation will need in 2017. Also, highlight any changes in your operation for 2017 compared to previous years, as well as any capital needs or sales
  • Be prepared to discuss break evens, marketing plans and strategies for 2017
  • If possible, please supply this information one to two weeks prior to your meeting with your loan officer, to allow them time to review in advance
  • Allow for a couple hours of discussion with your loan officer to review this information

Additionally, please be sure to check out previous helpful United on Ag articles addressing credit, including having sufficient liquidity for your operation. You can read that article by clicking here.

If you have questions on how to prepare any of this information, please contact your loan officer, as we have tools that can help in putting this information together. 

Sharon Chandler joins UNITED FCS

Contact: Lynda Hauge, HR Director
United FCS
(320) 214-5007

A headshot of Sharon ChandlerNovember 3, 2016 –Sharon Chandler recently joined United FCS as a Tax Assistant in the Olivia Office. As a seasonal tax assistant, she will provide clerical support to the tax team including front line customer service.

Chandler resides in Olivia and has over 15 years of finance and accounting experience. She recently retired from her full-time career and will work with United FCS during the tax season.

United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members and with over $1.7 billion of assets, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 employees.

Farm Credit Association Boards Vote to Recommend Merger

Contact:              Eric Vinje AgCountry/United Logos
                            Eric.vinje@agcountry.com
                            701.282.9494

                            Adam Ulbricht
                            Adam.ulbricht@unitedfcs.com
                            320.214.5076

 

 

Fargo, N.D. – Providing reliable and consistent credit to agriculture and rural communities has been Farm Credit’s mission for 100 years. In an effort to better expand opportunities for member-owners, the Boards of United FCS and AgCountry Farm Credit Services unanimously approved a merger proposal for the two associations at a joint session in Fargo on November 11. The Boards of Directors initially agreed to explore a merger of the two associations in June of 2016.

Next steps include a review and approval by AgriBank, the funding bank for the associations, and a regulatory review and approval by the Farm Credit Administration. A stockholder vote in each association is tentatively planned for spring 2017. The associations are on a projected timeline for a July 1, 2017 merger implementation date.

 “This vote shows that our Boards feel pursuing the merger is in the best interests of our current and future member-owners, and that merging our associations will position us for greater long-term success,” says Greg Nelson, AgCountry Chair of the Board.

 “Moving forward with the merger will strategically position the cooperative to be a relevant source of credit and financial services for farm families, agribusinesses and rural home owners for many years to come.” adds United FCS Chair of the Board Brad Sunderland.

Together, the merged organization would serve nearly 18,000 customer-members throughout 65 counties in Minnesota, North Dakota and Wisconsin, totaling more than $7 billion in assets.

 

About AgCountry Farm Credit Services:

As a member of the Farm Credit System, AgCountry Farm Credit Services is an independently owned and locally governed lending association that provides credit and financial services to more than 12,000 farmers and ranchers in 18 counties in eastern North Dakota and 25 counties in northwest and west central Minnesota. AgCountry also provides agribusiness loans and leases nationwide. Offices are maintained in 26 locations throughout the territory, with nearly 400 employees. For additional information on AgCountry FCS, visit www.agcountry.com .

About United FCS:

United FCS is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture and the nation’s rural economy. Serving over 6,000 customer-members, United FCS has a primary focus in a 22-county service area in West Central Minnesota and North Central Wisconsin providing loans, leases and a wide array of financial services through 12 branch office locations and 190 locally-based employees. For additional information on United FCS, visit www.unitedfcs.com.

Agricultural data services: Potential risks and rewards

A digital computer screen inside a tractor

 

When the concept of precision agriculture first took off nearly two decades ago, the challenge was figuring out how to leverage the power of new technologies – such as GPS-guided machines, variable-rate seeding and fertilizer tools, and yield monitoring – to improve production efficiency and decision-making.

More recently, as onboard information-gathering systems for producers continue to grow more sophisticated and interactive, the major challenge for producers is to understand both the potential rewards and risks that come with their accumulated data.

“While issues in [agricultural] biotechnology took about 15 to 20 years to really sort themselves out, that won’t be true with agricultural data,” said Mary Kay Thatcher, senior director of congressional relations at the American Farm Bureau Federation in Washington, D.C. “I think in the next five years, if we’re not sure the right things are being done to help protect farmers and ranchers on data management issues, it may be too late.”

The potential rewards: Selling farm data for profit

Most modern-day producers are familiar with big companies offering digital agriculture technologies. In crop farming, common tools include autonomous equipment-driving systems and real-time tracking of seed, fertilizer and chemical applications. On the livestock side, computer-aided systems can use a cow’s milk production as a guide to adjust daily feed rations, or use infrared cameras to monitor poultry flocks for potential fevers. Because of the continued advances in wireless systems, sensor capabilities and information storage, Monsanto in recent years has invested over $1 billion to acquire smaller companies with new digital technologies. Similarly, DuPont hopes to generate up to $500 million in additional annual revenue via growth in digital technology offerings for agriculture.

Many farm management technologies marketed by large companies operate on a simple premise: Participating producers gather and upload large reams of data, which is then analyzed by the provider in order to deliver management recommendations that can potentially cut input costs and improve yields. As interactive agriculture data gathering becomes more prevalent, the value of the actual information will most likely rise.

“The ability of producers to monetize their data will increase over time as the marketplace matures,” said John Fulton, a Big Data expert and associate professor of agricultural engineering at The Ohio State University. “That value could show up in different ways, from producers making a profit by selling data to also using it at a higher level in their operations to improve purchasing, production and marketing decisions.”

As increasing levels of venture funding flood into digital agriculture start-ups, several companies have focused on giving producers more control over their information, along with greater potential to make money on that data. For example, Kansas-based Farmobile put actual money on the table earlier this year via a data storage pilot program in Minnesota. In exchange for a year’s worth of field data collected on 250,000 acres of that state’s farmland, Farmobile guaranteed that participating producers would have the option to sell their completed Electronic Field Records for a return of at least $2 per acre. All profits for that data above the guaranteed return would be split evenly between producers and the company. After initially limiting total payouts at $1 million, the company lifted the cap in July, noting strong market demand for farm data.

The current risks: Five key areas

Clearly, there are more opportunities for producers to leverage their data than ever before. However, many of those opportunities also carry risks related specifically to how that data is handled by third-party resources. In conversations with a variety of producers, farm advocacy groups and other agricultural organizations, Thatcher cited several evolving data issues, including:

Data portability. Here’s a simple example: Assume a producer bought seed from one company for several years, while also providing a significant amount of data to help guide planting recommendations. If the producer switches seed providers, will that person be able to retrieve all previous data and, if so, will it be delivered in a format the producer or new company can effectively use?

Data privacy. Thatcher said producers clearly don’t want their data to be subject to Freedom of Information Act (FOIA) or other searches, where any current or archived information could be used against them by government agencies. Additionally, she said most producers are concerned about potential data leaks or breaches that could put them at a competitive disadvantage.

“In many cases, producers will regularly provide data to a company hundreds of miles away, but they don’t want that same data getting out to another farmer just down the road,” Thatcher said.

Transparency. For producers, this boils down to a clear understanding of how a third-party data services firm will use their farm and production data. To help simplify the evaluation, a coalition of agriculture organizations and industry suppliers created an Ag Data Transparency Evaluator. It’s a quick online resource that allows producers to check a number of agriculture data technology providers against a 10-question checklist, which helps clarify their practices for collecting, storing, and sharing or selling farm information.

Control. While producers routinely supply large amounts of data, it’s not always clear who owns that information. Given the hot-button nature of this topic, a number of industry associations, technology providers and land-grant universities developed an Agricultural Data Coalition, where producers can enter their own data and determine how, where and under what conditions it may be used.

Education. Among the current big picture risks, some agricultural advocates say this may be the one where the least progress has been made. While many equipment manufacturers and large agribusinesses do provide education on data-related topics, there’s a level of self-interest that’s hard to ignore. Thatcher said she hopes the Agricultural Data Coalition, which includes five land-grant universities, will be able to develop more robust, balanced training and information resources on producer data issues that could eventually be distributed via university extension offices.  

Steps to take now

For producers who are concerned about data issues, or those who are considering digital services for the first time, several steps can make the evaluation process a lot less stressful. These include: 

Retain copies of your own data. Even if producers aren’t actively planning to use, market or upload their production information right now, it’s wise to maintain a personal electronic record-keeping system. That data can potentially generate a lot of value over time – both for the producer’s on-farm use and potential marketability to third-party firms. Even if producers are currently uploading data to technology partners, they should still retain private copies for their own peace of mind.

“If you place your data into a third-party system, there’s a risk that you will be unable to download or receive the initial data from the system,” Fulton said. “So, it’s best to avoid any issues by maintaining a copy of the data, even if it’s just stored and organized by year.” 

Pay close attention to the fine print. Before signing any technology services agreements, producers should be fully aware of the provider’s data sharing, control, privacy and portability practices. And, as the relationship moves forward, producers must remain vigilant about any changes in those data practices or revisions to agreements.

Request a value statement and check references. In addition to carefully reviewing terms and conditions, Fulton suggested that producers ask the technology provider to draft a “value-added” statement that summarizes – in plain English – what one received from signing up for a data-driven service. In addition, he said it’s also a good idea to request references and actually follow up with other producers regarding their experiences and value obtained on their farm.

This post comes from AgriBank’s AgriThought Report.

What’s the right legal structure for your operation?

A fall farm scene

 

Any farm or ranch operation requires careful planning on a whole range of production, financial, insurance and succession planning issues. A producer’s choice of a legal business entity will have a significant effect on the long-term success of those other decisions.

“Back in the 1970s, C corporations were a very popular entity selection for producers, largely because they were effective in helping limit Social Security taxes while also allowing health benefits and the home to be included within the corporation,” said Kelvin Leibold, a farm business management specialist with Iowa State University Extension and Outreach. “But today, the Social Security tax and health insurance are deductible, and there’s more scrutiny on whether including the home in a corporation is really required for [farm] business. So, a lot of those advantages have disappeared over time, and producers are looking for new options.”

While there can be differences from state-to-state, sole proprietorships, corporations and partnerships are the three general business entities under which producers can organize their businesses. The choice of legal business entity tends to vary by the type of farm operation. According to the U.S. Department of Agriculture (USDA), about 92 percent of family farms (where the principal operator and people related to that person by blood or marriage own more than half of the business) actually operate as sole proprietorships, which is the most basic organizational option.  

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Source: 2011 Agricultural Resource Management Survey

On the other hand, that percentage drops sharply for nonfamily farm operations, where the use of partnerships, corporations or other organizational structures is much more prevalent (chart above).

A closer look at major legal business entity options

Here’s a closer look at each business entity category:

Sole proprietorships. As previously noted, this choice is both common and simple, largely because it does not typically require licenses, permits or other governmental registration. This is a “pass-through” entity, meaning that a producer’s farm income is subject to self-employment taxes and reporting, less any legitimate business deductions. However, this relative simplicity comes with two significant drawbacks. First, sole proprietorships don’t shield personal assets in the event of bankruptcy or legal actions. And, the business entity dissolves when the owner dies, making it a poor choice for succession planning.

Corporations. The “C” corporation is the most well-recognized entity structure, and it is widely used in the non-farm business world for businesses that wish to raise capital via the sale of public stock. In a farm or ranch entity, those stockholders can be family members or non-related individuals who hold shares in the operation. A key advantage to the “C” corp arrangement is estate planning, since land or other assets held by the corporation are not subject to a step-up in basis upon the death of the major stockholder, thus reducing tax liability for those designated to receive gifts or other inheritances. On the other hand, a “C” corp has higher recordkeeping requirements and, as an entity separate from the individual stockholders, is taxed on both earned profits income and dividends paid to stockholders. Any losses in a “C” corp are not deductible.

Within a corporation structure, there are two other alternatives. Producers can also consider a Subchapter S corporation (or “S” corp). This entity provides the liability protections of a “C” corp – in which the reach of bankruptcy or litigation is limited to assets within the corporation – but is taxed in a similar flow-through manner as a sole proprietorship. In addition to income from production operations, the Internal Revenue Service (IRS) also requires an “S” corp to pay taxes on passive income, such as that from cash rent arrangements. A limited liability company (LLC) also offers several advantages, including easy setup, flexible structure, pass-through taxation and liability protections. However, Leibold says some producers may lean too heavily on how the LLC structure can protect their personal interests.

“The LLC is a popular option right now for producers, but it may not always be the most appropriate choice,” he said. “For example, say a producer has an LLC, but doesn’t carry liability insurance. If that same producer allows an elderly family member to haul anhydrous ammonia tanks and an incident occurs, the courts would likely pierce that corporate shield, because that wasn’t a reasonable and prudent way to do business.”

Partnerships. Put simply, a general partnership is a legal entity created by two or more people who want to run a business. This makes it a very good option for non-family farm or ranch operations, since this type of partnership is relatively easy to set up and manage, often by transferring cash or land to the entity in exchange for proportional partnership interests. Each partner’s taxable interest is calculated by the cash put into the entity, in addition to the basis for any property contributed at the partnership’s formation and any proportional share of liabilities. Like the sole proprietorship and “S” corp, each general partner is responsible for self-employment taxes that flow though in individual returns. On the downside, the general partnership structure does not shield personal assets from creditors, and each participant is liable for their share of contracts or agreements with the partnership.

Meanwhile the limited liability partnership (LLP) offers a more focused entity alternative. Under an LLP, the general partner (or partners) typically holds management authority, meaning that limited partners cannot initiate contracts or bind the group to financial obligations. Limited partners have greater liability protections under the LLP than general partners. Like the general partnership, the LLP is a pass-through entity for tax purposes.

Key considerations for entity selection

How are major decisions handled? Consider this scenario: A young producer who actively runs day-to-day operations wants to expand the enterprise, while other stakeholders not regularly involved with farming are more interested in boosting cash flow and minimizing expenses. By carefully evaluating their individual situations, producers can choose the business entity that best suits their specific managerial requirements.  

How will the entity accommodate expected – and unexpected – life events? While producers can build an organizational structure that encompasses normal estate or succession planning issues, they also need to consider the potential for unplanned events, such as an early death, divorce or disability. For example, if a general partner unexpectedly dies, the partnership agreement will dissolve, which can create significant tax issues for the remaining stakeholders. That same event would not create similar turbulence within a “C” or “S” corp business structure, since those entities are perpetual.   

What happens if things don’t work out? Anytime a farm or ranch operation has more than one participant that has contributed money, land or other resources toward the venture, there’s room for disagreement. Under some circumstances, contentious issues can push relationships past the point of no return, which makes it important to plan for such contingencies before finalizing the choice of business entity.

“Typically, I like to ask people three things: Whose cash is being contributed, how much of it is at risk, and what is the plan to take things apart if the arrangement fails?” Leibold said. “Let’s say you start up a dairy operation with five limited partners and a general partner. If that doesn’t work out somewhere down the road, it’s wise to know the options for exiting the agreement.”