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Issues to Consider for New and Old Farmers

As mentioned in our post last Friday, farming demographics are evolving. As current owners and potential owners of farm interests plan ahead for their future, seeking the advice of an attorney is well worth the time and effort. It is crucial to get a realistic grasp of both the opportunities available and the pitfalls that can catch the unprepared farmer by surprise. For new farmers, important issues to grasp are the obligations involved with farming contracts, how the IRS is involved with your farming career, dealing with federal and state agricultural and natural resource agencies, or understanding an easement with a neighboring land.

A long-time farmer should be informed about the federal and state (Iowa is one of eighteen states with its own) estate or inheritance tax, about their current estate plan and whether it needs to be updated (e.g., who gets the farm after they die?), and what options exist to keep the farm in the family. Not surprisingly, many clients wish to give their children an interest in the farm, a typically huge asset in Iowa. This distribution is often intensely personal, representing both the years of hard work it took to keep up the property and the caring bond between parents and their children. It is also necessary, however, to realize that this is an extremely important economic decision, and like many business decisions, it can be crafted to best suit particular personalities. The farming operation can be seen as a composite of three key business elements: (1) the capital or wealth provider, (2) the management team that makes decisions on how the farm should be operated, and (3) the labor force for the farm. Traditionally, these three elements were wrapped up into one person (even more traditionally, the oldest son was granted all three roles by default). The farm would be given outright to that person, who would then make all management decisions and provide the labor for the farm, or hire farmhands.

But these interests can be separated into multiple teams or persons, similar to the way a corporation has its own board of directors, officers, and employees. A trust can be created that holds the property, and management decisions can be provided by several or all children, who then vote on decisions impacting the land. For instance, how many acres of corn vs. soybeans will be planted in the upcoming crop-season? Should we rent out acres, or does one of us actually want to provide the labor for the farm? Should some acres be enrolled into CRP? Should we set up some hives and keep bees on the side? The list of possibilities is long and varied.

The bottom line is that for many older farmers, as they realize they won’t be around forever to oversee the continuation of what they’ve put so many years into, a customized estate plan can be created that bucks the conventional single distribution method and helps to provide more security for their intentions regarding their property. And for many younger farmers, it’s great to get a good start on your career by speaking with advisers who can provide some insight from the aglaw view.

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Farming Demographics

Farmers have been featured in a few recent articles and series in the past few weeks. Iowa Public Radio is featuring Harvest Public Media’s series “My Farm Roots,” with family farmers taking center-stage in the installments. A number of millennials and members of Generation X, like Danelle Myer of Logan, Iowa, are either coming back to their farming roots or exploring a career in farming, often using unconventional operations and methods. A number of the farmers are focused on operating smaller businesses, providing a supply to local consumers and businesses. IPR noted that in Myer’s experience, “it took a bit for some of the local farmers to come around,” but her hard work eventually brought respect from her neighbors. Check out all of the installments at Harvest Public Media.

Despite these great stories, younger farmers remain the minority in America. As the Wall Street Journal recently reported, “From Vermont and Michigan to Texas and California, the nation’s long-standing pool of farm labor is graying.” They note that the average age of workers is 37 now, compared to 31 in 2000. A main reason for this aging is that “net migration from Mexico, which has long supplied the bulk of U.S. field workers, has come to a standstill . . . .” The Senate recently passed their immigration reform bill, which created an expedited path to legal residency for many undocumented field workers, as well as created two types of agricultural guest-worker visas. The House of Representatives, however, has yet to pass the comprehensive bill, and many Republican members, most prominently Iowa Congressman Steve King, have significant disagreements with the version passed by the Senate. No one would be shocked if the disagreements ended up delaying new legislation until after the mid-term elections next year.

Next week, we will blog about some of the important demographic changes we are seeing in our own farming community and touch upon some of the key issues to consider when the family farm is being passed down to a new generation.

The 2012 Farm Bill, Part 2

While the drought of 2012 rages on across the country, a drought of another sort has hit the halls of Congress regarding the proposed 2012 Farm Bill. Soon, Congress will head back to their home districts to avoid D.C.’s sweltering late summer weather. Shown on the Congressional calendar as “Constituent Work Weeks,” in an election year, campaigning is the main activity, and it will not cease until after the elections on November 6.

With the likely Congressional failure to pass a new version, the 2008 bill (scheduled to end on September 30) may be extended for another year. While it awaits legislative-limbo, it does give us some more time to parse through the changes the House of Representatives Agricultural Committee has implemented.

In the area of crop insurance complements, the House’s version scales back the Agriculture Risk Coverage (ARC) formula designed by the Senate (for an analysis of that formula, see our first post on the Farm Bill, from July 16). Although it remains an option for farmers, the House’s main complement for risk management is the Price Loss Coverage (PLC).

In order for the PLC to trigger, a commodity’s effective price has to be less than the Congressional reference price, which are set prices contained in the bill (for example, corn is set at $3.70/bu and soybeans are set at $8.40/bu.). The effective price is the higher of either the midseason price or the national average loan rate for a marketing assistance loan for the covered commodity in effect from 2013-2017. Supposing that the midseason price is the higher number for our example, and supposing that the midseason price is $5.26 for corn and $11.35 for soybeans, then no PLC payment is made to the producer. The PLC risk management is supposed to take into account deep, multiple-year price declines that simple crop insurance does not factor in.

The net savings of repealing the direct payments, countercyclical payments, and ACRE and replacing them with the ARC and PLC payments are projected to be around $23 billion, according to the Congressional Budget Office. Another big area of cuts comes in the Nutrition section of the bill, which is where Supplemental Nutrition Assistance Program (SNAP), mostly known as food stamps, is located. By reforms in eligibility and allowances, the House is projected to cut around $16 billion in the program. The Senate’s proposal, on the other hand, sought to cut only around $4 billion in the program. Interestingly, the vast majority of the spending of each Farm Bill is through the food stamp program. In our rough estimates, the total projected spending for the bill over 10 years is somewhere around the $955 billion range, with about $756 billion of that going to food stamps.

As for conservation, our readers might be interested to know that the House’s proposal regarding the CRP program is to make a small and gradual reduction of enrollment to a maximum of 25 million acres, compared to the 32 million acres set as max now. The Environmental Quality Incentives Program, which helps farmers comply with conservation regulations by doing things like wildlife management, controlling soil erosion, and maintaining or improving water quality, will not see any changes in its funding or practices.

If you have any particular concerns about the Farm Bill you would like us to look into, just leave a message to this blog post or send us an email at lawlerandswanson@iabar.org.

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Two other related farm issues our readers might be interested in are worth noting here. One concerns the unpopular proposed regulation from the Labor Department that would extend federal child labor rules to farm activities. Concerns that farm kids would be prohibited either in law or in practice from helping their relatives and neighbors with farm chores led to strong condemnations of the proposal. This proposal was so unpopular that the Labor Department soon after retracted it. Although it won’t be implemented now, Tom Latham, R-Iowa, has since introduced H.R. 4157, which would prohibit the Labor Department from being able to implement such a regulation if they ever decided to bring it up again. Two days ago, Representatives Leonard Boswell, D-Iowa and Steve King, R-Iowa, urged passage of the bill, over protests from one Democratic congresswoman who felt the bill was beating a dead horse. We will keep you updated on H.R. 4157’s status.

Secondly, the non-profit organization Farm Rescue, based in North Dakota and started in 2005, has extended its organizational reach to Iowa. If you’re a farmer and have had a major illness or injury in your family in the past year, or if you have experienced a severe natural disaster in the past year, you may be assisted by the volunteer farmers with Farm Rescue. For more information or to apply, go to http://www.farmrescue.org or call 701-252-2017.

Thanks for reading, and stay hydrated out there.

The 2012 Farm Bill, Part 1

Earlier this month, the U.S. Senate passed its version of the 2012 Farm Bill. Every five years, a new farm bill sets federal agricultural policy in theUnited States. The most recent version, S. 3240, the Agriculture Reform, Food and Jobs Act of 2012, features many similarities to previous bills, with its focuses on insurance, conservation, and public benefits. However, there are some important differences that farmers should know.

Importantly, the proposed bill would repeal the current direct payments to farmers in an effort to scale back federal spending. It also repeals the counter-cyclical payments (which were made when the marketing year average price was less than an arbitrary target price set by Congress), and the average crop revenue election program (ACRE), which was a more advanced regime that took into account production risk and the actual number of crops or acres grown by a farmer.

In their place, the bill introduces Agricultural Risk Payments. Payments are made to farmers if the actual crop revenue for a covered commodity (corn and soybeans) for the crop year is less than the agricultural risk coverage guarantee for the crop year.

Actual crop revenue is the product of the actual average individual yield or the actual average county yield, depending on the producer’s election, multiplied by the midseason price.

The agricultural risk coverage guarantee is 89% of the average yield for the most recent five crop years, excluding the highest and lowest yields, multiplied by the average national market year average price for the most recent five crop years, excluding the highest and lowest prices.

To put this into practical terms, suppose a farmer elects to be covered based on the actual average county yield. Next, suppose that the actual average county yield for corn was 180 bu/acre and for soybeans was 52.45 bu/acre. Those were roughly the actual average county yields forButler County,Iowa in 2011 according to the National Agricultural Statistics Services. A rough estimate of the midseason price, using previous years’ midseason prices can be set at $5.26 for a bushel of corn and $11.35 for a bushel of soybeans. This would bring the actual crop revenue for purposes of the 2012 Farm Bill to $946.08 for corn and $595.20 for soybeans.

Now, we have to figure out the agricultural risk coverage guarantee. Once again, we start with the actual average county yield, but now we have to multiply it by .89. This brings a total of 160.20 bu/acre of corn covered and 46.68 bu/acre of soybeans covered, using the Butler County 2011 average yields. Next, multiply that by the national average market price for the past five years, excluding the lowest and highest. For corn, that is roughly $4.26/ bushel and for soybeans, that is roughly $10.29/bushel. The total for the agricultural risk coverage guarantee is thus $682.45 for corn and $480.34 for soybeans.

Now we can bring this all back home under the Agricultural Risk Payments. As stated above, payments in the proposed 2012 Farm Bill crop insurance regime are made to farmers if the actual crop revenue for a covered commodity (corn and soybeans) for the crop year is less than the agricultural risk coverage guarantee for the crop year.

If a producer’s average corn yield is 180 bu/acre, the Midseason price would have to be below $3.79 to collect an Agricultural Risk Payment. For soybeans at 52.45 bu/acre, the Midseason price would be below $9.16. In our example, because the Midseason price was at $5.26 for corn and $11.35 for soybeans, the actual crop revenue ends up greater than the agricultural risk coverage guarantee, so no payments would be made to the Butler County farmer there.

We will be paying close attention to the development of the 2012 Farm Bill and will try to keep the blog updated on significant happenings as it makes its way through the legislature. Stay tuned for further updates.

Butler County Info for the 2012 Congressional Election

After the 2010 census, Iowa lost a congressional seat in the U.S. House of Representatives. As a result, Iowa’s statutory timetable for redistricting sprung into action. The enacted redistricting plan now features four districts, roughly split into the four corners of the State.

For residents of Butler County, this development made a significant change. Instead of being in District 1 (currently represented by Rep. Bruce Braley-D), Butler County will be voting in District 4. The 2012 congressional election for District 4 will be between current Rep. Steve King-R, and Democratic candidate Christie Vilsack, the wife of former Iowa governor and current Secretary of Agriculture Tom Vilsack.

Steve King, from Kiron, started King Construction in Northwest Iowa. He served in the Iowa State Senate and, in 2002, was elected to Congress. His voting record can be found at: http://projects.washingtonpost.com/congress/members/K000362/votes/.

Christie Vilsack, from Mount Pleasant, is a career educator, teaching at the middle school, high school, and collegiate levels. This is her first campaign for public office.

Butler County residents can find their voting precinct locations at this website: http://www.butlercoiowa.org/citizenscenter.

For voter registration information, including a downloadable Registration Form, Iowa residents can learn more at this website:  http://sos.iowa.gov/elections/VoterInformation/VoterRegistration.html.

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