Farm Leasing Arrangements. Tim Eggers. Field Agricultural Economist

Farm Leasing Arrangements Tim Eggers Field Agricultural Economist teggers@iastate.edu 712-542-5171 www.extension.iastate.edu/feci

Farm Leasing Arrangements Charles Brown Field Specialist - Farm Management crbrown@iastate.edu 641-673-5841

Farm Leasing Arrangements Melissa O Rourke Field Specialist - Farm Management morourke@iastate.edu 563-382-2949

Farm Leasing Arrangements Shane Ellis Field Specialist - Farm Management shanee@iastate.edu 712-792-2364

Farm Leasing Arrangements Steve Johnson Field Specialist - Farm Management sdjohns@iastate.edu 515-957-5790

Farm Leasing Arrangements Kelvin Leibold Field Specialist - Farm Management kleibold@iastate.edu 641-648-4850

Farm Leasing Arrangements Ryan Drollette Field Specialist - Farm Management drollett@iastate.edu 319-337-2145

Farm Leasing Arrangements Gary Wright Field Specialist - Farm Management gdwright@iastate.edu 712-276-2157

Agenda 2015 Farm Leasing Arrangements Follow -up Evaluation Summary Land Values Cash Rental Rates Landlord/Tenant Communication Legal Issues Farm Program Payment Update Costs of Crop Production Calculating a Fair Cash Rental Rate

Which of the following would you consider to be your PRIMARY occupation? Answer Response % Non-farming landowner 144 44% Active farmer 97 29% Ag lender 24 7% Attorney or Accountant 8 2% Professional farm manager 3 1% Other (please specify) 53 16% Total 329 100%

Intended changes to lease arrangements based on information presented Apply for the Beginning Farmer Tax Credit or Custom Farming Tax Credit 4% Move from an oral lease to a written lease agreement 9% File and perfect a landlord's lien 3% Increase rent 3% Decrease rent 30% Change type of lease 9% Other 9% Implement conservation strategies 9% No changes will be made 24% N=382 excludes Not Lessors/Not Lessees

You answered, we listened Why do you choose to participate in farmland leasing meetings? 1. Gain knowledge on farmland leasing, rental market and trends 2. Improve knowledge for communicating with other parties involved 3. Gain knowledge on leasing practices

5. Why did you choose to participate in the Farmland Leasing Arrangements Meeting? # Answer Response % 1 Update on rental market 36 28% 2 Non-farmer education/communication 27 21% 3 General gain of knowledge/information 20 16% 4 Update on lease arrangements/practices 20 16% 5 Update on current issues 13 10% 6 Learn what others are doing 8 6% 7 Speaker/location/topic 5 4% SEE Excel file tab 5_whyparticipate for raw data.

You answered, we listened What topics would you want covered at the 2016 Farmland Leasing Meeting? 1. Profitability and cost of production 2. Setting rates and determining what is fair 3. Taking care of the land 4. Types of leases 5. Legal updates negotiations, terminations

Have you attended a Farmland Leasing Arrangements Meeting prior to this year? # Answer Response % 1 Yes, multiple times. 147 44% 2 Yes, once before. 54 16% 3 No, 2015 was the first time I attended. 125 38% 4 I don t know/i m not sure. 5 2% Total 331 100% ~1,845 participants at Leasing Programs in 2015. Survey results from 137 through Qualtrics (33% response rate) and 199 returned from mailed survey (29% response rate) totaled 336 evaluations (~18% of participants).

December 2017 Corn Futures Contract 2016 Leasing Meetings

November 2017 Soybean Futures Contract 2016 Leasing Meetings

2015 Cropland Value by State - Dollars per acre and percent change from 2014 http://usda.mannlib.cornell.edu/usda/current/agrilandva/agrilandva-08-05-2015.pdf

AgLetter Federal Reserve Bank of Chicago

Realtors Land Institute March 2016 Survey

Farmland Value per Acre 1950-2015 Land value per acre ($/acre) 8000 6000 4000 2000 0

Farmland Values for Crop Reporting District 1 by Year $ per acre $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 High Medium Low $1,720 15% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ per acre $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Farmland Values for Crop Reporting District 2 by Year High Medium Low $1,856 19% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ per acre $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Farmland Values for Crop Reporting District 3 by Year High Medium Low $1,300 14% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ per acre $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Farmland Values for Crop Reporting District 4 by Year High Medium Low $1,388 15% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ per acre $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Farmland Values for Crop Reporting District 5 by Year High Medium Low $1,372 14% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

$ per acre $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Farmland Values for Crop Reporting District 6 by Year High Medium Low $821 9% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Farmland Values for Crop Reporting District 7 by Year $ per acre $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 High Medium Low $1,159 15% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Farmland Values for Crop Reporting District 8 by Year $7,000 $6,000 High Medium Low $ per acre $5,000 $4,000 $3,000 $2,000 $1,000 $0 $394 8% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Farmland Values for Crop Reporting District 9 by Year $ per acre $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 High Medium Low $322 4% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent of Sales 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Iowa Farmland Purchases by Farmers and Investors and Land Values 2006-2015 Farmers Investors Average Land Value $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Average Land Value per Acre

Iowa Landlords by Ownership Arrangements - % Rented Acres Corporation, 5.3 Other, 3.1 Operator Landlord, 23.2 Trust, 23.9 Total acres rented out in Iowa, 2014: 16.33 million acres more than 50% of Iowa farmland. Partnership, 14.4 Individual, 37.0 Source: USDA NASS TOTAL

District Farmland Values Predictions Increase 5% or more in Five Years Increase 0-5% Stay the same Decrease 0-5% PERCENT Decrease 5-10% Decrease 10% or more Northwest 16 18 20 16 16 14 North Central 16 12 10 17 22 22 Northeast 7 22 15 10 22 24 West Central 20 20 16 14 16 12 Central 22 21 19 8 19 11 East Central 9 19 17 19 19 19 Southwest 18 15 21 10 13 23 South Central 12 12 15 12 32 18 Southeast 6 14 26 14 17 23 STATE 14 17 17 14 19 18

% Change in Land Values by District 2014 and 2015 District Average Value 2015 % Change 2014-2015 % Change 2013-2014 Northwest $9,685 0.7% -12.3% North Central $7,962-6.7% -13.1% Northeast $7,861-3.6% -11.0% West Central $8,061-4.3% -10.8% Central $8,505-6.4% -8.0% East Central $8,506-5.6% -3.4% Southwest $6,372-2.2% -13.5% South Central $4,397-1.7% -6.6% Southeast $6,892-4.5% 3.2% State Avg. $7,633-3.9% -8.9%

Iowa Farmland Value Portal http://card.iastate.edu/farmland

Percent of Farmland Leased or Rented, 2012 Source: USDA NASS 2012 Census of Ag

Rent to Owner - Corn $400 $350 $300 $ per Acre $250 $200 $150 $100 $50 Crop Share Cash Rent 30% Flex Rent $0

Crop Share vs Cash Rent vs Flex Rent Rent is paid in cash Rent returns change with price and/or yield Owner contributes to costs of crop production Crop Share X X Cash Rent Flex Rent X X X

Crop Share Lease Advantages Risks associated with price and yield variations are shared. The owner is more involved in making decisions and marketing the grain during the year. Both parties share the benefits from adoption of yield-increasing technology, or unexpected high yields or prices.

Crop Share Lease Advantages The owner receives more information about yields and inputs used each year. A second USDA payment limit is created.

Crop Share Lease Disadvantages The landlord and tenant must agree on how production expenses will be shared. Adjustments for sharing costs for storage and drying facilities, herbicides that reduce field work, or fertilizer and pesticide application may have to be made. The cropping plan to be followed and whether or not the farm participates in government programs must be agreed on.

Crop Share Lease Disadvantages Added cash rent for the use of buildings and storage facilities may have to be negotiated. If the owner s and tenant s grain is stored in the same bin, marketing decisions have to be made jointly. The landowner may be considered a material participant, and farm income will be subject to self-employment taxation.

ISU Cash Rent Survey Goal To provide current, accurate, and unbiased information on cash rents in Iowa Started in 1994 by Dr. William Edwards

ISU Cash Rent Survey Procedure People who are knowledgeable about rental rates are asked about typical land rental rates in their county Farm operators Landowners Agricultural Lenders Professional farm managers Realtors/Appraisers

ISU Cash Rent Survey 1,585 responses in 2016 (1,437 in 2015)

Average 2016 Typical Cash Rents for Corn & Soybean Acres

State and Crop Reporting District 1 $300 $250 Average Rent by Year $283 $267 $270 $259 $248 $224 $200 $150 $149 $174 $187 $188 State District 1 $100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 2 Average Rent by Year $300 $294 $277 $270 $250 $200 $150 $155 $183 $196 $191 $220 State District 2 $254 $243 $100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 3 $300 Average Rent by Year $266 $281 $277 $273 $250 $250 $223 $200 $150 $157 $190 $186 $192 State District 3 $100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 4 $300 $250 Average Rent by Year $227 $279 $294 $288 $265 $245 $200 $179 $196 $195 State $150 $151 District 4 $100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 5 $300 $250 Average Rent by Year $284 $275 $297 $261 $239 $226 $200 $191 $197 $195 $150 $157 State District 5 $100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 6 Average Rent by Year $300 $284 $273 $255 $250 $219 $252 $242 $200 $166 $186 $193 $196 State $150 District 6 $100 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 7 $300 Average Rent by Year $250 $246 $257 $249 $242 $200 $150 $161 $170 $176 $213 State District 7 $220 $100 $135 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 8 $300 Average Rent by Year $250 $200 $150 $100 $126 $155 $146 $151 $177 $193 $210 $202 State District 8 $187 $183 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

State and Crop Reporting District 9 $300 Average Rent by Year $250 $200 $198 $217 $229 $229 $217 $203 $150 $100 $134 $161 $173 $169 State District 9 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 1 Average Yield) Cash Rent as a % of Gross Revenue $1,000 $900 $800 $825 $880 46% 50% 45% 40% $700 $600 $500 $400 $300 33% $415 $642 27% 23% 30% $582 35% 30% 25% 20% 15% 2006-2015 Average 32% $200 10% $100 5% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 2 Average Yield) Cash Rent as a % of Gross Revenue $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 31% $442 $592 31% $789 $820 34% 24% 49% $552 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 2006-2015 Average 34% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 3 Average Yield) Cash Rent as a % of Gross Revenue $1,000 $900 $800 $700 $600 $500 $400 $300 $200 32% $446 $577 33% $807 $827 32% 24% 49% $563 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 2006-2015 Average 34% $100 5% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 4 Average Yield) Cash Rent as a % of Gross Revenue $900 $800 $700 $600 $500 $400 $300 $200 $100 36% $386 $618 29% $784 25% $739 38% 48% $595 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 2006-2015 Average 35% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 5 Average Yield) Cash Rent as a % of Gross Revenue $900 $800 $700 $600 $500 $400 $300 32% $449 23% $600 32% $767 25% $887 31% 48% $590 50% 45% 40% 35% 30% 25% 20% 15% 2006-2015 Average 34% $200 10% $100 5% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 6 Average Yield) Cash Rent as a % of Gross Revenue $900 $800 $700 $600 $500 $400 $300 $200 35% $441 31% $606 $765 26% $832 30% 44% $614 45% 40% 35% 30% 25% 20% 15% 10% 2006-2015 Average 33% $100 5% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 7 Average Yield) $800 $700 $600 $500 $400 $300 $200 $100 30% $413 $541 30% $717 $703 25% Cash Rent as a % of Gross Revenue 35% 43% $582 45% 40% 35% 30% 25% 20% 15% 10% 5% 2006-2015 Average 32% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 8 Average Yield) Cash Rent as a % of Gross Revenue $700 $600 $500 $400 $300 30% $385 34% $457 $539 28% 35% $557 37% $543 40% 35% 30% 25% 20% 15% 2006-2015 Average 31% $200 10% $100 5% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Gross Revenue to a 50/50 Rotation (Marketing Year Average Price times Crop Reporting District 9 Average Yield) Cash Rent as a % of Gross Revenue $800 $700 $600 $500 $400 $300 $200 30% $412 $765 $585 $593 28% 29% 28% 37% $617 45% 40% 35% 30% 25% 20% 15% 10% 2006-2015 Average 31% $100 5% $- 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0%

Interactive Decision Tool http://card.iastate.edu/tools/ag-risk/cash-rental-rates/

Interactive Decision Tool http://www.card.iastate.edu/ag_risk_tools/cash-rental-rates/

Landlord-Tenant Communication: It s a 2-way street Farmland owners need to be open to learning about current farming challenges, conditions, costs of productions Producers need to listen to the interests and goals of farmland owners; and be willing to share information about inputs, yields, and crop plans

Communication Methods: Newsletter E-mail Facebook, Twitter, blog Phone calls Stop by for a cup of coffee Annual or periodic meetings KEY: Don t limit communication to annual rent payment and rent negotiations.

More farmland owners require written annual report as a lease condition. Owner agrees: Information provided by the Tenant (such as yields, management practices) is kept confidential. Proprietary business information needs to be shared to negotiate lease terms but it is not to be shared in the coffee shop.

Winning Communication Strategies: Communicate regularly, not just once a year Producers: Take time to share and education Owners about current trends in agriculture, farm costs Provide regular crop reports during growing season Maintain farm appearance Treat landowners like family with respect and kindness.

Communication Process Start early Use data Know your own break evens and overheads Know your own ability to handle burn rate. Separate business from family/friends Understand challenges landowners face with declining revenues Sell your benefits -

Communication Based on Facts Yields Prices Government payments Crop insurance Soil maps Fertilizer application records Satellite pictures drainage, other issues

When Communication Fails Ask for more time Be aware of your non-verbal communication Focus on what the other person is saying and what they really mean Ask for more information to clarify points. Ask if there are issues that the other party is willing to compromise on or can be negotiated further. Stick to building trust, using tact, and logic Try to understand the other party s perspective new truck May need to bring in a third party - mediator

Farm Lease Basics: A Few Pointers Strong preference for written leases Legal issues, including lease termination Communication fundamentals

Why should a farm lease be written? Provides more assurance that the parties understand one another. Lease of more than 1 year must be in writing to be enforceable. Lease of 5 years or more must be in writing and recorded at the county recorder s office.

Shouldn t a handshake be good enough? Don t rely on selective memory. Be sure that you cover all the provisions that you intend to cover. Define meaning of terms. Put things in writing because you value the relationship... and because you don t want there to be later misunderstandings!

A Few Examples.... Fencing Hunting rights Crop residue (stover)

Assuring the Rent is Paid How can parties assure one another that the rent will be paid?

First Step? -- Use a written lease. And, be sure that: (1) The legal description and parcel number in the lease is accurate. (2) The parties to the lease are properly identified. (3) The lease terms are clear.

Additional tools to assure rent payment may include: Require all rent paid on March 1. (Reduction for interest paid by the borrower may be a consideration.) Require irrevocable letter of credit from the Producer/Tenant s lender. Require Landlord s name be included as Payee on checks for crops. File and perfect a Landlord Lien this includes recording the lease seek professional legal assistance for this.

Farm Lease Termination: Does lease termination mean the end of the Owner Tenant relationship? Not necessarily but it means either the Owner (or the Tenant) want to make some changes for the next year. Without written notice of termination, lease automatically renews under the same terms and conditions for the following crop year.

Farm Lease Termination: Iowa Code 562.6: Amended in 2016 to clarify that whether the lease is oral or written, the termination notice must be in writing! Notice cannot be contained within the lease it must be a separate written notice. Serve written notice on or before September 1 (this terminates the current least on the following March 1). Serve in person (have them sign the notice and keep a copy); or by Certified US Mail (keep copy of receipt, return receipt optional); or by publication if neither in-person or mail can be accomplished.

Projected 2016 ARC-CO Payments Corn Lyon Sioux Plymouth $72 $64 $72 Woodbury $12 Monona $67 2016 Corn ARC-CO Payment $50 - $76 $25 - $50 $1 - $25 $0 - $1 No Data Harrison Osceola O'Brien Cherokee $42 Mills $60 $76 $46 Ida Fremont $72 Crawford Pottawattamie $0 Shelby Clay Buena Vista Sac $55 Dickinson $73 Montgomery Page Carroll Audubon Cass Emmet $25 $21 $61 $41 $25 $30 Palo Alto Pocahontas Calhoun $35 $52 $29 Adams Taylor $64 $34 $30 Guthrie Adair $49 Greene $14 Kossuth Humboldt Webster $42 $26 Union $62 $27 $37 Ringgold Dallas $25 $57 $0 Boone $37 Madison Winnebago Hancock Wright Hamilton $48 $16 Clarke Decatur $35 $52 $27 $13 Polk $0 $0 Story $20 Warren $0 Worth Cerro Gordo Franklin Hardin $48 Lucas Wayne $36 $36 $46 $57 Jasper $0 $0 Marion Marshall Mitchell Floyd Butler Grundy $70 $11 Monroe $35 $54 $73 $75 Appanoose Tama Mahaska $60 Davis Chickasaw Bremer Poweshiek Howard Black Hawk $23 Wapello Benton Iowa Keokuk $67 $1 $13 $0 $6 $0 $15 $39 $37 $34 $49 Winneshiek Fayette Buchanan $32 Jefferson $72 $71 $0 Van Buren $0 $60 Linn $72 Johnson $70 Washington $0 Henry Lee Allamakee $67 Clayton $72 Delaware $0 $32 $72 Louisa Jones Cedar $71 $73 Muscatine $48 Des Moines $45 Dubuque $63 $71 Jackson Clinton Scott $53 $74 $40 *Payments based on yield and price projections as of 7/13/2016

Projected 2017 ARC-CO Payments Corn Lyon Sioux Plymouth $8 $31 $51 Woodbury $52 Monona $44 2017 Corn ARC-CO Payment $50 - $76 $25 - $50 $1 - $25 $0 - $1 No Data Harrison Osceola O'Brien Cherokee $63 Mills $46 $68 $55 Ida Fremont $54 Crawford Pottawattamie $42 Shelby Clay Buena Vista Sac $65 Dickinson $68 Montgomery Page Carroll Audubon Cass Emmet $48 $60 $66 $61 $62 $59 Palo Alto Pocahontas Calhoun $62 $65 $63 Adams Taylor $65 $66 $63 Guthrie Adair $58 Greene $58 Kossuth Humboldt Webster $63 $57 Union $66 $65 $67 Ringgold Dallas $60 $53 $47 Boone $63 Madison Winnebago Hancock Wright Hamilton $65 $57 Clarke Decatur $65 $66 $67 $62 Polk $47 $51 Story $61 Warren $55 Worth Cerro Gordo Franklin Hardin $62 Lucas Wayne $64 $63 $68 $65 Jasper $47 $51 Marion Marshall Mitchell Floyd Butler Grundy $54 $66 Monroe $49 $64 $67 $68 Appanoose Tama Mahaska $63 Davis Chickasaw Bremer Poweshiek Howard Black Hawk $66 Wapello Benton Iowa Keokuk $63 Winneshiek Fayette Buchanan $66 $60 $65 $61 $54 $47 $48 $59 $63 $66 $65 Jefferson $44 $66 $53 Van Buren $51 $66 Linn $66 Johnson $68 Washington $63 Henry Lee Allamakee $28 Clayton $67 Delaware $58 $43 $66 Louisa Jones Cedar $65 $68 Muscatine $63 Des Moines $61 Dubuque $63 $47 Jackson Clinton Scott $65 $69 $67 *Payments based on yield and price projections as of 7/13/2016

Projected 2016 ARC-CO Payments Soybeans *Payments based on yield and price projections as of 7/11/2016

Projected 2017 ARC-CO Payments Soybeans *Payments based on yield and price projections as of 7/11/2016

Projected 2016 ARC-CO Payments Crop Reporting District 1 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016

Projected 2016 ARC-CO Payments Crop Reporting District 2 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016

Projected 2016 ARC-CO Payments Crop Reporting District 3 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016

Projected 2016 ARC-CO Payments Crop Reporting District 4 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016

Projected 2016 ARC-CO Payments Crop Reporting District 5 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016

Projected 2016 ARC-CO Payments Crop Reporting District 6 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/11/2016

Projected 2016 ARC-CO Payments Crop Reporting District 7 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016 2015 Yield data not available for Mills or Taylor Counties

Projected 2016 ARC-CO Payments Crop Reporting District 8 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016 2015 Corn yield data not available for Union or Monroe Counties

Projected 2016 ARC-CO Payments Crop Reporting District 9 $/Base Acre Corn Payment Soybeans Payment *Payments based on yield and price projections as of 7/13/2016

www.extension.iastate.edu/agdm/crops/xls/a1-33farmbilldata.xlsx

What is the Iowa Nutrient Reduction Strategy? Voluntary, science-based program to reduce Nitrogen and Phosphorous impact on water Includes cities, industry and agriculture A practice-based approach to show meaningful and measureable progress A framework for innovation and verification of new practices and technologies

Partial Budgeting Changes that Increase Revenue + Changes that Reduce Cost Increased Profits Changes that Decrease Revenue + Changes that Increase Costs Decreased Profits

Decision Making Decisions always involve both facts & values Human-agriculture-environmental relationships are systems with multidirectional feedback loops Farmer s have feedback loops that influence social learning with beneficial or inadequate outcomes

Financial Impact If cover crops result in a decreased level of profitability, will you decrease the cash rental rate to provide an incentive to your tenant to adopt the strategy? $-50 $-40 $-30 $20 $-10 $0 $10 $20

Questions to ask your tenant(s) Are you raising cover crops? Yes How many acres? Why? Does it work financially? What s happening with your production (yields, weed pressure, burn down, differences from year to year)? Are there social pressures?

Farm Profitability Economic profits don t last long in a competitive market Economic profits destroyed by: Falling output prices due to increases in production Increased costs Production costs Land prices/rents Number of producers

What is cost of production? - Preharvest machinery - Seed, chemicals, etc. - Harvest machinery - Labor - Land

Corn following Soybeans Land, $266.00 Preharvest machinery, $36.90 Labor, $33.80 Harvest machinery, $89.85 Seed, chemicals, etc., $292.46

Cost per Acre Preharvest machinery Fixed Variable Total Tandem disk $3.80 $2.60 $6.40 Apply nitrogen $5.10 $5.00 $10.10 Field cultivate $2.70 $2.40 $5.10 Plant $6.20 $4.90 $11.10 Spray $2.30 $1.90 $4.20 Custom hire $0.00 $0.00 $0.00 Other $0.00 $0.00 $0.00 Other $0.00 $0.00 $0.00 Total per acre $20.10 $16.80 $36.90

Seed, chemicals, etc. Fixed Variable Total Seed ---- $111.20 $111.20 cost per 1000 kernels $3.71 kernels per acre 30,000 Nitrogen ---- $52.40 $52.40 price per pound $0.40 pounds per acre 131 Phosphate ---- $30.60 $30.60 price per pound $0.45 pounds per acre 68 Potash ---- $18.90 $18.90 price per pound $0.35 pounds per acre 54 Lime (annual cost) ---- $8.80 $8.80 Herbicide ---- $38.10 $38.10 Crop insurance ---- $12.20 $12.20 Miscellaneous ---- $10.00 $10.00 Interest on preharvest variable costs ---- $10.27 $10.27 length of period (months) 8 interest rate 5.2% Total ---- $292.46 $292.46

Harvest machinery Fixed Variable Total Combine $19.90 $9.10 $29.00 Grain Cart $6.20 $2.70 $8.90 Haul $7.74 $5.35 $13.09 Fixed- price per bushel $0.04 Variable- price per bushel $0.03 Drying $9.00 $23.76 $32.76 Fixed- price per bushel $0.05 Variable- price per bushel $0.13 Handling $3.11 $2.99 $6.10 Fixed- price per bushel $0.02 Variable- price per bushel $0.02 Custom hire $0.00 $0.00 $0.00 Total per acre $45.95 $43.89 $89.85

Labor Fixed Variable Total Operator $33.80 ---- $33.80 Hours 2.6 Rate per hour $13.00 Hired ---- $0.00 $0.00 Hours 0 Rate per hour $0.00 Total $33.80 $0.00 $33.80

Total fixed, variable and all costs Fixed Variable Total Per acre $365.85 $353.15 $719.01 Per bushel $2.03 $1.96 $3.99 Return per Acre Over Variable Costs All Costs Gross returns Expected selling price $3.93 ---- $707.40 Government payments ---- $0.00 Effective LDP rate $0.00 ---- $0.00 Total returns ---- $707.40 Net returns $354.25 -$11.61

Soybeans following Corn Land, $266.00 Preharvest machinery, $38.50 Seed, chemicals, etc., $162.63 Labor, $29.25 Harvest machinery, $36.95

Direct Corn Expenses $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 Seed Insecticide & Fungicide Herbicide Fertilizer & Lime Drying & Storage 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Direct Bean Expenses $60 $50 $40 Seed Insecticide & Fungicide Herbicide Fertilizer & Lime $30 $20 $10 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Soybean Costs of Production $300 $250 $200 Land Seed, Chemicals, Fertilizer, etc. Machinery for Growing and Harvesting Labor $266.00 $150 $100 $155.00 $107.58 $162.63 $50 $0 $46.76 $75.43 $26.95 $29.25 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Corn Costs of Production $350 $300 $250 $200 $150 $100 $50 Land Seed, Chemicals, Fertilizer, etc. Machinery for Growing and Harvesting Labor $195 $155 $101 $292 $266 $127 $0 $29 $34 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$800 $700 $600 $500 $400 $300 $200 $100 $0 -$100 2016 Cost Estimates: Corn following Soybeans, 180 bu/acre $719 $266 $292 $127 $34 $630 at $3.50/bushel Costs Predicted Revenue Margin Land Crop Inputs Machinery Labor (-$89) or ($0.49)/bushel Source: Plastina, ISU Ext. Economics, FM-1712, Jan 2016

$600 $500 2016 Cost Estimates: Soybeans following Corn, 50 bu/acre $533 $445 at $9.50/bushel $400 $300 $200 $100 $0 $266 $163 $75 $29 Land Crop Inputs Machinery Labor (-$58) or ($1.16)/bushel -$100 Costs Predicted Revenue Margin Source: Plastina, ISU Ext. Economics, FM-1712, Jan 2016

Estimating a Cash Rental Rate Ag Decision Maker information file C2-20 Decision Aid file C2-20 (spreadsheet) Flexible Cash Leases Ag Decision Maker information file C2-21 Decision Aid file C2-21 (spreadsheet)

Influences on 2017 Rental Market Grain prices Number of acres, weather Price of crude oil (ethanol demand and price) Export demand exchange rate Livestock feeding cattle, pigs, birds Reduced profits in 2016 Farm Bill payments Financing Supply and demand will ultimately set the rents.

Beginning Farmer Tax Credit - Program Purpose Encourage agricultural asset owners to lease to qualifying beginning farmers Provides owner a credit on Iowa income taxes owed 7% on cash rent 17% on crop share 1% additional first year if BF is a military veteran

Thank You! Tim Eggers Field Ag Economist (712) 542-5171 teggers@iastate.edu

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