Roundaway Plantation A Rice, Soybean and Wheat Plantation in the Mississippi Delta 2,715 acres (4.24 square miles or 10.98 square kilometers) Investing in Mississippi Delta farmland provides a very interesting and safe investment.
Table of Contents Page Roundaway Plantation 3-7 Location Description Geographical Map Acreage and Soil Types Improvements Financial Information 8-9 Revenue and Income Purchase Price, Existing Mortgage Refinancing of Roundaway Plantation Brief Explanation of the Current Farm Program 2002-2007 10 Examples of the Current Farm Program 11 Management of Roundaway Plantation by Fischer Associates Farm Management, Inc. 12 Conclusion 13 2
ROUNDAWAY PLANTATION Location The Plantation is located in the State of Mississippi in the County of Coahoma, approximately 12 miles south of the town of Clarksdale. Clarksdale is an agricultural center for northwest Mississippi, where the farmer finds all needed supplies, equipment parts and service, and grain buyers. From the center of Clarksdale a paved road leads to the farm. This paved road forms 1.3 miles of the eastern borderline of the plantation. This road leads to the town of Drew, MS, which is situated on a highway 49W going to Indianola, Belzoni, Yazoo City, and Jackson, MS. Roundaway Plantation is part of the flat Yazoo Basin, geographically also named the Mississippi Delta, which, over a period of thousands of years, was formed by the Mississippi River and its tributaries. Roundaway Plantation is located about 20 miles east of the Mississippi River. 3
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Acreage Statistics Tillable Land Roads, Ditches, Headquarters, Woods, River Total Deeded Land Total Rice / Soybean Rotation Land Irrigatable land not suitable for growing rice Non-irrigatable land Non-irrigatable land not currently farmed Total Tillable Land Irrigatable Land Non-Irrigatable Land Total Tillable Land 2,386.6 acres 328.4 acres 2,715.0 acres 2,109.6 acres 155.8 acres 99.2 acres 22.0 acres 2,386.6 acres 2,265.4 acres 121.2 acres 2,386.6 acres Base Acreage Allocation by the United States Department of Agriculture (USDA) Roundaway Plantation has been enrolled into the 2002-2007 Farm Program. Below you find the allocated Base Acreage and Payment Yields for Roundaway Plantation, which determines the USDA price support payments. (DP) (CCP) Direct Counter Cyclical Crop Base Acres Payment Yield Payment Yield Rice 800.8 4074 lbs/acre 4074 lbs/acre Soybeans 933.4 29 Bu/acre 29 Bu/acre Wheat 596.7 36 Bu/acre 36 Bu/acre The farm contains a rather large wheat base acreage. This is a sign that the fields have good drainage conditions. Soil Type Approximately 85% of the acres are Sharkey Clay, Alligator Clay, and Dowling Clay soils. The high natural fertility of these soils, along with the available irrigation, provides excellent production capabilities for rice and soybeans. Approximately 15% of the acres are Forestdale Silty Clay and Forestdale Silty Clay Loam soils. These are mixed soils (neither light nor heavy soils) and are marked yellow on the USDA soil map. They also produce excellent yields of rice, soybeans, and wheat (if drained well). 5
Excellent Drainage Conditions The drainage system consists of several miles of ditches and tail ditches (so called surface water and irrigation water catching ditches). On the enclosed farm map the drainage systems are shown as tail ditches, drainage ditches, drainage canal, low points, or river. These ditches are responsible for transporting the excess rain water or irrigation water through the Plantation owned ditches into the Sunflower River. About half of the west borderline of the farm is formed by the Sunflower River. This provides the farm with an excellent drainage outlet, which is a valuable characteristic in the flat Delta region. The Sunflower River has formed a very deep riverbed and is capable of draining off all excess surface water during even the hardest downpours. Optimized Modern Rice Fields One of the foes of the rice farmer is the red rice weed. The red rice weed reduces the rice yield, and if severe lowers the price received per bushel. To combat red rice the farmers utilize a yearly 50% crop rotation plan. In other words, rice is planted on 50% of the rice land, and the other 50% is planted in soybeans. The next year, soybeans are planted where rice was planted in the previous year, and vice versa. When severe red rice exists the farmer is forced to plant an additional year or two of soybeans; with extreme outbreaks of red rice the farmer can be forced to plant soybeans three years in a row. This reduces farm income since more money can be made with rice than soybeans. Planting soybeans instead of rice helps to eliminate red rice weed problems because herbicides can be used to fight the red rice weed that does not hurt the planted soybeans. Until just a few years ago it was not possible to use a herbicide on the red rice weed in a rice field without also killing the planted rice. We now have a new weapon in fighting the red rice weed. A new conventional (not gene manipulated) rice seed called Clearfield Rice allows the red rice weeds to be eliminated in a rice field with the herbicide Newpath without hurting the planted rice. However in order for this new combination to work a farmer must be able to flood the Clearfield rice field very quickly after applying the herbicide Newpath. Red rice weeds cannot germinate under water. Once the herbicide Newpath kills existing red rice plants the farmer floods the field quickly, not allowing new red rice seed to germinate. Thus precision land formed fields are necessary to allow the farmer to flood the fields quickly. Conventional land formed fields are not suitable unless they have been corrected and optimized to allow for quick flooding. Of Roundaway s 2,386.6 tillable acres 1,713.4 acres have been precision land formed. These precision land formed fields have straight levees, meaning the grade is in one direction with no side fall. 396.2 acres are land formed the conventional way and have been corrected for modern rice farming. Thus all 2,109.6 acres of the rice/soybean rotation land are improved and ready to take advantage of the new Clearfield Rice variety and its herbicide counterpart Newpath. Many rice plantations are struggling to get their fields corrected or precision land formed. Roundaway Plantation is fortunate to have all its rice rotation land compatible with Clearfield Rice. 6
Improvements on Roundaway Plantation: -- (23) twenty-three irrigation wells with risers (water outlets) and 80 psi PVC underground lines (most wells have been overhauled and restored during the past 7 years); amounts to at least $12,000 per well $ 276,000 -- (5) five grain storage tanks with loading and unloading augers; all grain bins are equipped with stirring devices, butane gas heaters, and fans to dry rice or other grains with a holding capacity of 72,000 bushels @ $2.00 per bushel $ 144,000 -- (1) one large grain storage tank with butane gas heater and fan with a grain holding capacity of 32,000 bushels @ $2.00 per bushel $ 64,000 -- (1) one large repair shop $ 40,000 -- (1) one enclosed metal building to store seed, power units, trucks, etc. $ 30,000 -- (2) two trailer homes for labor @ $3,000 per trailer home $ 6,000 -- (1) one nice farm home, with storage building and outside office $ 140,000 -- (1) one wooden storage building with concrete floor $ 10,000 -- (1) one artesian well with water holding tank (good drinking water for all buildings and neighbor home); pumping cost and maintenance are shared with neighbor $ 10,000 -- 396.2 acres land has been formed the conventional way with some side slope for flood and furrow irrigation; this land was further optimized and corrected to be able to take advantage of Clearfield Rice and its herbicide counterpart Newpath; an average of 550 cubic yards of soil per acre had to be moved to achieve the required grade at a cost of $0.75 per cubic yard (this includes ditches and drain pipes) $ 163,432 -- 1,713.4 acres land has been precision land formed with straight levees (no side slope) for flood and furrow irrigation; an average of 750 cubic yards of soil per acre had to be moved to achieve a 1.5% even grade (fall in one direction) at a cost of $0.75 per cubic yard (this includes drainage ditches and drain pipes) $ 963,787 Total Value of Improvements Placed / Invested into the Land $1,847,219 From April 1997 through May 2004 the owner invested an average of $680 per acre of improvements on this land in order to achieve top production of rice and irrigated soybeans. 7
2005 Revenue Projection for Roundaway Plantation Rice Production: 1,054.8 acres Rice at 140 Bu./ac. @ $4.25/Bu. $ 627,606.00 Soybean Production: 1,054.8 acres irrigated soybeans (rice rotation) x 45 Bu./ac. @ $6.25/Bu $ 296,662.50 155.8 acres irrigated soybeans x 45 Bu./ac @ $6.25 $ 43,818.75 99.2 acres non-irrigated soybeans x 25 Bu./ac @ $6.25 $ 15,500.00 Wheat Production: 223.3 acres wheat x 60 Bu./ac @ $3.50 $ 46,893.00 100% Projected Farm Revenue for 2005 $1,030,480.25 2005 Farm Rent Payment for Roundaway Plantation Landowner s 28% Share of the Projected Farm Revenue of $1,030,480 for 2005 Projected Farm Rent Revenue... $288,534 Yearly Expenses Insurance Coverage: Homes, Shop, Grain Bins. $4,078 Irrigation Equipment $1,270 Grain Storage... $ 786 Liability.... $1,062 $ 7,196 Farm Management Fee (6% of Land Owner Revenue) $ 17,312 Maintenance & Repair.. $ 10,000 Property Taxes.. $ 13,829 Miscellaneous $ 1,500 CPA & Legal Fees $ 1,000 Total Average Yearly Expenses $ 50,837 Projected 2005 Net Income for Roundaway Plantation $ 237,697 8
Sales Price of Roundaway Plantation 2,715.0 acres at $1,700 per acre. $4,615,500 Return on Investment: The projected 2005 net income of $237,697 corresponds to a net return of 5.15% on the total investment of $4,615,500. Existing Mortgage on the Roundaway Plantation There is a mortgage on Roundaway Plantation in the amount of $1,856,000 at an interest rate of 6.9%. This interest rate is fixed through maturity of the loan on January 15, 2012. Interest is due and payable semiannually on January 15 th and July 15 th. An annual principal payment of $48,000 is due every January 15 th. The remaining balance of $1,568,000 is due on January 15, 2012. According to our experience with MetLife, this loan can be assumed upon request by the purchaser. However current interest rates for a similar type loan are lower. If the new buyer wishes to seek new financing or pay the entire purchase price for Roundaway Plantation in cash, then the existing mortgage can be paid off by buyer on day of closing. The prepayment penalty would be a percentage of the loan balance: After Penalty January 3, 2005 2% January 3, 2006 1% January 3, 2007 0% (balance can be paid with no penalty) Modification or Refinancing of Existing Loan MetLife might be willing to modify the existing loan. If the purchaser pays the 2% payoff penalty MetLife might consider lowering the interest rate of the existing loan to 5.5% for five years, or 5.7% for the remaining term of seven years. Depending on the financial statement of the purchaser and the entity type of the purchaser, MetLife would entertain mortgaging 55% to 70% of the purchase price. 9
Brief Explanation of the current Farm Program 2002-2007 On May 13, 2002, President Bush signed the Farm Security and Rural Investment Act (FSRIA) into law. The farm bill helps the United States Department of Agriculture (USDA) secure the production of food and fiber. Several key provisions of this new farm bill give stabilization to the U.S. farm economy mainly by establishing target prices for selected commodities under FSRIA 2002 Law. During the years 1998 through 2002 we experienced a period of low commodity prices. The new Farm Program stabilizes the farm economy by guaranteeing the Farmer/Landowner receive target prices on their program crops. These established target prices are higher than the commodity prices during the years 1998 through 2002. Thus, if the commodity prices should fall for any reason the farmer/landowner still receives a respectable income, bringing further security to this investment opportunity. This farm program allowed Roundaway Plantation to update its Base Acreage and its Payment Yields. Regardless of the commodity prices at the market place, the farming operation will receive Direct Payments (DP) based on the base acreage and payment yields. Further, a Counter Cyclical Payment (CCP) on all listed commodities, including soybeans, will be made. The amount of this payment depends on the 12 month average commodity price the farmer was able to receive at the market place. It is payable on 85% of the established base acreage times payment yield times the variable CCP rate for each commodity. Basically, the farmer / landowner can at minimum expect to receive the target prices listed below on 85% of the base acreage and its payment yields. For the products grown in excess of 85% of the base acreage, the farmer/landowner will receive no less than the Loan Rates, even if the market price is lower. However, if the market price is higher than the loan rate, the farmer/landowner receives the market price. Target Price Loan Rates Commodity 2002-2003 2004-2007 2002-2003 2004-2007 Cotton (lb.) $ 0.7240 $ 0.7240 $0.52 $0.5235 Soybeans (Bu.) $ 5.80 $ 5.80 $5.00 $5.11 Corn (Bu.) $ 2.60 $ 2.63 $1.98 $2.08 Rice (Bu.) $ 4.725 $ 4.725 $2.925 $2.99 Wheat (Bu.) $ 3.86 $ 3.92 $2.80 $2.52 Direct Maximum Counter Payments Cyclical Payments Commodity 2002-2007 2002-2003 2004-2007 Cotton (lb.) $0.0667 $0.1373 $0.1373 Soybeans (Bu.) $0.44 $0.36 $0.36 Corn(Bu.) $0.28 $0.34 $0.40 Rice(Bu.) $1.0575 $0.7425 $0.7425 Wheat(Bu.) $0.52 $0.54 $0.65 10
Examples of the New Farm Program Below are some examples of how the farm program works by using rice. Since the Direct Payment is guaranteed, the 12 month average market price determines how much the counter cyclical payment will be, since market price + DP + CCP = Target Price. Hence, the only variable other than market price is the counter cyclical payment (CCP). The maximum CCP rate for rice is $0.7425 per bushel. Example A: If the market price plus the DP for rice is less than the target price, the farmer/landowner receives a CCP equal to the amount needed to reach the target price. Market Price per Bu. Rice $3.2500 Direct Payment + $1.0575 Counter Cyclical Payment + $0.4175 Target Price per Bu. rice $4.7250 Example B: In this example the market price for rice is less than the target price. However the market price is sufficient enough that the target price is reached without the need of a counter cyclical payment. Market Price per Bu. Rice $3.6675 Direct Payment + $1.0575 Counter Cyclical Payment + $0.0000 Target Price per Bu. rice $4.7250 Example C: In this example the market price for rice is greater than the target price. The market price is sufficient enough that the target price is reached without the need for a counter cyclical payment. Market Price per Bu. Rice $4.9500 Direct Payment + $1.0575 Counter Cyclical Payment + $0.0000 Target Price per Bu. rice reached Farmer/Landowner receive $6.00/Bu. Rice Example D: In this example the market price for rice is not only below the target price, but also below the loan rate. However the farmer/landowner still receives the loan rate on 100% of the produced crops. Market Price per Bu. Rice $2.3500 Farmer/Landowner choose to place rice in USDA-CCC Rice Loan Program USDA-CCC Loan Rate $2.9900 Direct Payment + $1.0575 Counter Cyclical Payment + $0.6775 Target Price per Bu. rice $4.7250 11
Management of Roundaway Plantation Roundaway Plantation is leased to a very experienced farmer, known as a tenant. The tenant owns all the necessary farm equipment needed to operate the plantation. It is the responsibility of the tenant to finance the crop expenses and the harvesting costs. The customary rent for leasing quality land such as this is 28% of all products produced on the plantation, payable to the landowner The landowner s only obligation is the upkeep of certain improvements, which is detailed in the Farm Lease Contract. Fischer Associates Farm Management, Inc. has been managing agricultural land for over 30 years. We pride ourselves in ensuring the landowner receives the best possible long-term return. The main management duties include: The selection and employment of the tenant The negotiation and the closing of the farm lease contract Presentation of the yearly crop plans with budgets and detailed income and expense projections Organization and supervision of additional investments in land, installations, and buildings if needed and approved by landowner Supervision of the proposed crop plans and the progress of the crop harvest Marketing the landowner s share of the crops Maintaining the records for the farming operation, including the preparation of the data used by the CPA for the yearly tax return Representation of the landowner at the United States Department of Agriculture for participation in various farm programs Furnishing reports to the landowner, including financial statements, crop progress, harvest results, etc. Make arrangements with tenant to maintain the fertility of the Plantation according to soil tests, at the expense of 72% by Tenant, 28% by Landowner For these services, Fischer Associates Farm Management, Inc. charges 6% of the landowner s yearly crop revenue, including other revenues such as house rental and hunting leases. 12
Conclusion In conclusion I would like to reiterate a few points outlining why Roundaway Plantation is such an outstanding farm: 95% of the tillable acreage is irrigated 71% of the tillable acreage is precision land formed (straight levees) 104,000 bushels of grain storage enable the farmer and landowner to dry and store rice and other commodities, allowing more flexibility in marketing of the crops 23 irrigation wells, most of which have been replaced or overhauled during the past 7 years; new irrigation wells were installed on the large acreage which was precision land formed during the past seven years the Sunflower River allows for a perfect drainage outlet during times of heavy downpour all of the 2,109.6 acres of rice/soybean rotation land has been optimized in order to be compatible with the red rice weed combatant Clearfield Rice and its herbicide counterpart Newpath Sitting on one continuous tract of land and bordering the Sunflower River, Roundaway Plantation is truly a beautiful, well maintained and fully improved farm. A tour of the plantation will speak for itself. Edited by Alfred H. Fischer Fischer Associates Farm Management, Inc. March 31, 2005 13