Survey Shows Farmland Rental Rates Down

May 14th, 2015

A second year of declining rates for renting land in Iowa

Alejandro PlastinaRental rates for Iowa farmland decreased by 5 percent in 2015, according to results from the Cash Rental Rates for Iowa – 2015 Survey conducted by Iowa State University Extension and Outreach. This is the second consecutive year of declining rates after a 15-year streak of increasing rental rates, accumulating a 9 percent loss since 2013.

“Average rents were lower in all nine crop reporting districts,” according to Alejandro Plastina, assistant professor and extension economist with Iowa State University. “The average estimated cash rent for corn and soybean land in the state for 2015 was $246 per acre, a decrease of $14 per acre or nearly 5 percent from last year. Low crop prices for the 2014 crop and small- to negative-profit margin forecasts for this year’s crop put downward pressure on rental rates,” Plastina said.

The largest decreases in land rental occurred in central and west central Iowa, at $24 and $23 per acre, respectively. Those districts had the highest rents among all crop reporting districts in 2014. Northeast Iowa reported the highest average in 2015 at $273, and the lowest district value was $187 in south central Iowa. Grundy County had the highest average rent in the state, at $316 per acre.

“It isn’t a trend yet, but it certainly is a reversal of the 15-year trend we’ve seen of land rental rate increases,” said Plastina. “Land rates and other input costs take time to adjust to lower levels of crop revenue; so if corn and soybean prices don’t improve soon, we can expect land rental rates to continue to decline.”

Plastina indicated the typical rental rates per bushel of corn yield, soybean yield and the average Corn Suitability Rating 2 points were computed for each county. In addition, typical charges for land growing oats and hay, for grazing pasture and corn stalks, and renting for hunting rights were reported.

Rental values were estimated by asking people familiar with land rental markets what they thought were typical rates in their county. Of the 1,437 total responses received, 49 percent came from farmers, 27 percent from landowners, 12 percent from agricultural lenders, 10 percent from professional farm managers and 2 percent from other professionals.

The Cash Rental Rates for Iowa – 2015 Survey is available online as a downloadable document from the ISU Extension and Outreach Store and Ag Decision Maker website.

Other resources available for estimating a fair cash rental rate include the Ag Decision Maker information files Computing a Cropland Cash Rental Rate (C2-20), Computing a Pasture Rental Rate (C2-23), and Flexible Farm Lease Agreements (C2-21). All documents include decision file electronic worksheets to help analyze leasing questions.

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Old vs. New Crop (5/12/15)

May 12th, 2015

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbWith the May monthly reports, USDA provides an update on old crop data and a forecast on new crop information. For soybeans, the old crop news was mixed. Domestic crush and export demand were both raised by 10 million bushels. That lowered projected 2014/15 ending stocks by 20 million bushels, but that still leaves 350 million bushels in storage as we enter the next marketing year, more than triple what we had to begin this marketing year. But despite the increase in old crop demand, the season-average soybean price for 2014/15 was reduced by 5 cents to $10.05 per bushel. For the 2015/16 soybean crop, the acreage and yield remained steady with earlier USDA estimates. So the market is staring at 84.6 million acres of soybeans with an expected yield of 46 bushels per acre. The combination would produce 3.85 billion bushels of soybeans, the 2nd largest soybean crop on record. And while overall soybean demand is projected to be steady, domestic demand is seen increasing, while international demand is expected to fall slightly. Ending stocks are expected to build to 500 million bushels and the first official estimate of the 2015/16 season-average price is $9 per bushel.

The story for corn is a little different. Old crop demand is shrinking slightly, mainly in the food, seed, and industrial sector. Export demand is up 25 million bushels, but the nearly 50 million bushel drop in food, seed, and industrial use more than offset the international boost. 2014/15 ending stocks now top 1.85 billion bushels and the season-average price was lowered 5 cents to $3.65 per bushel. On the new crop, like with soybeans, the production numbers were unchanged from earlier estimates, 89.2 million acres planted with a yield of 166.8 bushels per harvested acre. So production is estimated at 13.63 billion bushels, projected to be the 3rd largest corn crop. New crop demand is expected to rise, with a 50 million bushel rise in feed demand, a 13 million bushel increase in food, seed, and industrial use, and a 75 million bushel growth in export demand. With the growth in demand, 2015/16 ending stocks are forecast to be roughly 1.75 billion bushels and the first official estimate of the 2015/16 season-average price is $3.50 per bushel.

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Crop Outlook

Ready to Plant

March 31st, 2015

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbFarmers provided their first outlook on the 2015 crop year with the release of USDA’s Prospective Plantings report. And the general shift is along the lines that the market expected. Corn planting intentions came in at 89.2 million acres. That’s 200,000 acres more than USDA’s early estimate and a half of million acres more than the average trade guess, but it’s still 1.4 million acres less than was planted last year. Illinois, Indiana, and Iowa all reduced corn intentions slightly, but there are offsetting increases on the fringes of the Corn Belt. The largest moves are in Minnesota, up 300,000 acres, and South Dakota, down 600,000 acres. Soybean planting intentions are at a record 84.6 million acres. That is well above USDA’s early estimate of 83.5 million acres, but below the average trade guess at 85.9 million acres. The I-states all increased soybean intentions, with Iowa topping 10 million acres. The big movers are Nebraska, down 300,000 acres, and Ohio, up 250,000 acres. Given USDA’s trend yields, the acreage numbers imply expected crops of 13.625 billion bushels for corn and 3.85 billion bushels of soybeans.

These projected large crops are coming on top of last year’s record crops. The Grain Stocks report was also released today and it showed more crop still sitting in storage. Soybean stocks came in at 1.33 billion bushels, up 34 percent from last year, even though disappearance was slightly higher. Corn stocks stand 7.74 billion bushels, up 11 percent from last year, as disappearance was basically flat. The main punchline from today’s reports is that supplies continue to build and while demand is growing, it will take a while to work through the expected production. Prices have lowered to reflect this and these reports don’t change that dynamic.

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Ag Decision Maker website updates for March 2015

March 17th, 2015

Finding a Little More Demand for Corn (3/10/15)

March 11th, 2015

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA report.

Hart_Chad-thumbWith the mid-March USDA supply and demand report, the corn picture is a little brighter today. Feed demand was increased to 5.3 billion bushels as the expansion in the livestock sector continues. Corn demand via ethanol was lowered 50 million bushels, but still stands at 5.2 billion bushels.  Processing efficiency at ethanol plants has improved and USDA incorporated that efficiency change in this update. So the feed and ethanol changes offset each other. But with corn exports also shifted up 50 million bushels, the overall demand structure for corn continues to grow. With total use now estimated at just under 13.7 billion bushels, corn demand is at record levels. And while ending stocks are projected to increase from last year, the growth in stocks is not as large as once feared. Given the improving demand, USDA increased the midpoint of its season-average price range 5 cents, to $3.70 per bushel.

For soybeans, this was a very quiet report on the domestic front. There were no changes to the U.S. soybean balance sheet. Domestic crush demand is projected at 1.795 billion bushels. Soybean exports are set at 1.79 billion bushels. Ending stocks are estimated at 385 million bushels, up from 92 million the year before. And the midpoint of the season-average price range is set at $10.20 per bushel. Globally, soybean production is at record levels as well. But global soybean trade is growing to work through the large supplies.

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Tax Planning for 2014

February 4th, 2015

Contributed by Charles BrownFarm Management Specialist, Iowa State University Extension and Outreach, crbrown@iastate.edu641-673-5841

charlesBrown2014 has ended, but that doesn’t mean that some things can’t be done to increase or decrease taxable farm income. Again, late in the year Congress passed legislation that affected 2014 taxable income. Section 179 Expense Election and bonus depreciation were extended for 2014, but 2014 only. In 2015, the Section 179 Expense Election is back to $25,000 with phase-out starting at $200,000 of qualifying assets and bonus depreciation is gone.

For 2014, the Section 179 Expense Election is $500,000 with the phase-out starting at $2,000,000 of qualifying new or used asset purchases. Section 179 can generally be used on 15-year property or less, which would include farm drainage tile, single purpose ag buildings (confinement buildings), grain bins, machinery, breeding livestock and many farm pickups. You can choose any amount from $0 to $500,000 to be used as a fast write-off in the year of purchase of a single asset or multiple assets, but the aggregate total can’t exceed $500,000. Section 179 can be used on the cash difference paid for the asset. Section 179 must be reduced dollar for dollar for every $1 spent on qualifying assets exceeding $2,000,000. Section 179 reduces both Federal and Iowa taxable income and can reduce business and wage income to $0, but not below $0.

Bonus depreciation can only be used on new, not previously used, asset purchases. Fifty percent of the cash purchase price plus the basis left on any trade-ins can be used in the first year of purchase to reduce Federal taxable income. Iowa does not allow bonus depreciation, so you may reduce your Federal income tax to $0, but could still get hit with a sizeable Iowa income tax. Unlike Section 179, bonus depreciation can create a net operating loss. Also there is no phase-out for the bonus depreciation.

You can use both Section 179 and bonus depreciation on the same asset, but must first use Section 179 and then use bonus on the remainder. For example; confinement building costing $1,000,000, the first year depreciation could be Section 179 of $500,000, bonus depreciation of $250,000 (50 percent of $1,000,000 – $500,000) plus $18,750 (7.5 percent x remaining $250,000) of MACRS depreciation. On the Federal income tax return the total depreciation would be $768,750.

What if you had purchased assets in 2014, but not knowing if and when Section 179 and bonus depreciation would be extended you had deferred some of your grain income to 2015 to keep your taxable income down for 2014? If you are a cash basis taxpayer and have deferred payment contracts, you can pull some or all of those contracts back into 2014 and declare the income for 2014 instead of 2015. It has to be a full contract, you can’t pull back part of the income on a contract.

At this time, we don’t know if Section 179 and/or bonus depreciation will be extended again for 2015, so if you have the capital purchases in 2014 to use the Section 179 and/or bonus, you may want to raise your income in 2014 to take advantage of the accelerated methods of depreciation.

Another option that can be applied after the end of the year is whether or not to expense fertilizer and lime costs or amortize them over a period of years. Expensing them at the time of purchase would decrease taxable income and amortizing them over a period of years would increase taxable income for 2014.

As always, visit with you tax preparer to see what your options are, even though 2014 has ended there are certain tax planning strategies that can still be applied.

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2014 Farm Bill: Noninsured Crop Disaster Assistance Program

January 13th, 2015

Contributed by Kristen SchulteFarm Business Management Specialist, Iowa State University Extension and Outreach, kschulte@iastate.edu, 563-547-3001

schultek_finalThe 2014 Farm Bill extended the Noninsured Crop Disaster Assistance Program (NAP), and the program expanded its coverage by allowing producers to purchase additional coverage. Producers have the opportunity to make this change for policies set for the 2015 crop year until January 15th, 2015.

What does NAP cover?

  • Crops (not livestock) that are commercially produced for food and fiber for which catastrophic coverage under Federal Crop Insurance is not available.
  • Losses due to damaging weather (drought, hurricane, freeze, etc.), adverse natural occurrences (volcanic eruption, flood, etc), and other adverse natural occurrences (ex. excessive heat, insect infestation, ect.).

Signing up for NAP?

  • Producers must apply by application closing date; application is completed with form CCC-471. Application closing dates may vary by crop.
  • To be eligible for NAP, producers must report crop type and variety, location of acres, producers and related shares of crop, growing practice, crop planting date, and intended use of crop commodity. After planting or harvest, producers must also report acres planted, quantity of harvest, and disposition of crop. Production records may be required by FSA.
  • Application must also include service fee. Service fee is $250 per crop or $750 per producer per administrative county. Premiums are also due if electing buy-up coverage.
  • Beginning, limited resource, and traditional underserved farmers are eligible for a waiver of the service fee and 50% premium reduction (file form CCC-860).

What are the NAP coverage levels?

  • Catastrophic Coverage (CAT) covers losses greater than 50 percent at 55 percent of the commodity price.
  • Additional coverage, with premium, is available from 50 to 65 percent in 5 percent increments for production loss at 100 percent of average market price.
  • Premiums for additional coverage is equivalent to 5.25 percent of calculated crop covered value (accounts for share of crop, eligible acres, approved yield, coverage level, and average market price)

Crop losses and NAP?

  • When a loss occurs, notify the FSA office within 15 days of the natural disaster occurrence, prevented planting due to natural influences, date damage is apparent, or normal harvest date (whichever date comes first).
  • For hand-harvested crops that require a timely assessment of loss before deterioration, notify FSA of losses within 72 hours for certain crops.
  • Losses must be verified by the producer by completing form CCC-576, additional documentation/evidence may apply.
  • Average market values are used. At the state level, FSA may set separate market prices for a crop based on represented farming practices or sales to different markets within the state.
  • Retroactive pay for 2012 NAP assistance is available for losses to fruit crops (trees or bushes) in counties that had Secretarial disaster designations due to frost or freeze are available.

Additional Information

  • Grazed acres can only participate in NAP at the CAT level; however, these acres can only participate in either NAP or Livestock Forage Disaster Assistance Program
  • Annually, payments are limited to $125,000 per individual or entity.
  • Additional information can be found at fsa.usda.gov/nap.
  • A decision tool is available through FSA and collaborating universities, http://fsa.usapas.com/

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