Melissa O’Rourke, ISU Extension Farm and Agribusiness Management Specialist, shares tips for agricultural employers
The average farm operation does not have an HR (human resources) department. And likewise, many smaller Iowa agricultural service and supply businesses are not able to support an HR management position. Most farm and small ag businesses start as a family operation – but as they grow, it becomes necessary to hire non-family employees. All business owners should have a team of professionals – legal, tax, accounting and insurance – that can provide advice applicable to business HR needs. But to get the farm business owner started, Iowa State University Extension and Outreach provides a resource to guide Iowa farmers and other agricultural employers to key policies and procedures to be considered when hiring employees.
The Checklist for Iowa Agricultural Employers on the Ag Decision Maker website is an overview of points to consider in preparation for hiring one or more employees for a farm or other agricultural operation.
The checklist is organized into categories of factors to check from the start to finish of the hiring process. References for more information are provided throughout the checklist, most of which come from either ISU Extension or other research-based university extension sources. State and federal government agency resources and contacts are included.
The links to resources have been revised and updated recently. We know that website links and resources can quickly become outdated, so we’ve tried to go through the document and bring those connections up to date. Several new resources have been added since the previous version of the checklist.
Worker misclassification has been recognized as a key issue by state and federal regulators. Too many businesses have taken a route to save expenses by wrongly classifying workers as independent contractors rather than correctly recognizing them as employees – so we’ve included resources to guide employers in that regard.
Additional information on job analysis and job descriptions is also included in the checklist. It’s important that farm and ag business employers think about the business needs, and clearly define what skills and qualifications are needed in the operation. Well-written job descriptions can be the key to guiding an effective hiring and employee retention strategy.
Employers should not consider the Checklist for Iowa Agricultural Employers to be exhaustive, or consider it as legal advice. Consult with personal qualified tax, accounting, insurance and legal advisers as they will be familiar with the farm business, and can provide expert advice on specific needs.
Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the March 31, 2021 USDA reports.
For most of the March 31, 2021 stats, USDA’s new numbers were below expectations and that was good news for the markets. Corn and soybean plantings are above last year’s levels, but below trade guesses. Corn stocks were below both last year’s level and trade expectations, while soybean stocks were below last year, but slightly above expectations. The acreage change will drop USDA’s projected corn production by 141 million bushels (now setting at 15 billion bushels) and soybean production by 121 million (new estimate for 2021 is 4.4 billion bushels). The changes will further tighten 2021/22 projected ending stocks. For soybeans, if I held soybean usage to USDA’s earlier estimates, ending stocks fall to 24 million bushels (an incredibly low number). Thus, expect some major shifts in both crop usage and price estimates for the 2021 crops, once USDA starts the monthly projections in May (until then, USDA’s last complete set of estimates is from the Ag Outlook Forum in February).
Contributed by Beatrice Maule, undergraduate research assistant, Wendong Zhang, assistant professor and extension economist, David Baker, Director, Iowa State University Beginning Farmer Center
The loss of farmers that Iowa has witnessed in the past 70 years is strongly linked to the attitudes and mindsets towards farm succession. The number of farms has decreased and their sizes increased. On top of that, the average age of farmers has increased and they progressively started to keep more and more responsibility in the farm, even though their successor was well into adulthood and consistently helped on the farm. This, together with low incentives, has kept young farmers away from the land. However, Iowa’s economy needs young farmers to remain competitive and strong. This article is a short synthesis of a longer policy brief published in December 2020 that examines Iowa farmers’ business and farm transfer plans, retirement plans as well as successors.
In 2019, a survey of family farms in Iowa was conducted with the main scope of comparing dynamics and attitudes behind farm succession. The focus was mostly on intangible assets and one of the key components of the survey was the comparison with the 2006 Iowa Farm Transfer Project. The population of the study consisted of 739 farmers, age 18 and older, who operated the farm in 2019.
The average age of farmers who responded to the survey was 61 and they indicated that they have been responsible for their farm for 40 to 50 years. The average age has increased since 2006, when the average was 56.
Sixty-five percent of respondents indicated that they grow corn and/or soybeans in their farm, and 60% consider farming their primary occupation, a moderate change since 2006, when 54% indicated the same answer. On average, they indicated that they mostly are not first generation farmers and that the farm has been in the family since 1927.
It is interesting to note that the majority of respondents acquired their farm by purchasing it from family members. However, 79% of respondents indicated that they receive some sort of off-farm income. Almost as many respondents acquired their farm in other ways, including by purchasing it from non-relatives. Most farms are largely a sole proprietorship, with a partnership with a spouse the second most common response. It is important to note, however, that the number of farms that are in a partnership are almost half that of sole proprietorships.
Eighty-seven percent of respondents indicated they have a will, a slight increase since 2006, and 28% have a trust. Overall, 57% also stated that they have considered estate taxes when making a decision about succession, and a little less than 35% consider estate taxes extremely important.
When asked about their highest education level achieved, 41% of respondents indicated that they have a high school degree, 25% had a 4-year college degree and 26% had a technical degree. These have all seen a significant increase since 2006.
Lastly, farmers mostly get their succession information from their banker or accountant, followed by ISU Extension and Outreach and from their attorney. Not extremely significant but well-worth noting, there is also a number of respondents that stated they get most of their information from magazines and articles.
Retirement Plan Analysis
When asked about retirement plans, 56% of respondents indicated that they will semi-retire, 23% stating that they will completely retire and 20% that they will never retire. It is important to note that, when comparing these responses with the 2006 Farm Transfer Project, the number of farmers who will retire has remained unchanged, while the number of those who indicated they will never retire decreased significantly. On average, farmers plan to retire at 67 years old. When asked the main reason why they would retire, respondents indicated that it would be because they are “getting too old.” A further analysis indicated that, among those who indicated “getting too old” as a reason for retiring, the majority indicated they would retire between 70 and 79 years old. When asked what type of involvement on the farm they would have upon retirement, 25% indicated they would have the same as now, just less intense, followed by “helping out during busy times only.” Close to 7% indicated they would have no involvement on the farm in retirement. The majority also stated that they wouldn’t move from their current residence upon retirement.
When asked how they plan to finance their retirement, Figure 1 shows that almost 58% indicated that they will rely on Social Security and 52% on income from the farm. It is important to highlight that in both 2006 and 2019, the sale of property, farmland, livestock and other farm assets was the least common answer. The majority of respondents indicated that they will rely on income from the farm to support between 50% and 75% of their total retirement income, immediately followed by 25% to 50%. This shows that the majority of farmers plan on relying heavily on this source of income which results being mostly in the form of a formal cash rent farming agreement.
When asked what they will miss the most about farming once retired, 76% of respondents said that they would miss the “way of life.” Additionally, 36% indicated that they will be pleased to give up the long hours on the farm and 34% were happy to give up the manual work that their profession requires.
It is important to note that 66% of farmers do not have a formal succession plan and 40% have identified a successor. Sixty-two percent of respondents have discussed succession with their spouse and 48% with their children. Around 22% haven’t discussed plans with anyone and 31% haven’t identified a successor. Among the respondents who have not identified a successor, the majority are confident that a family member will inherit and keep the farm; very few indicated that it will be sold. When it comes to identifying a successor, Figure 2 shows that a little under 58% of respondents indicated their son or sons will take over the farming operation and 8% indicated their daughter or daughters will. The latter has been a decrease compared to 2006, when 16% indicated their daughters. Other common answers are niece/nephew(s) and non-relatives. The average age of the identified successor is 33. The majority of respondents indicated that the successor already works on the farm, either part-time or full-time; however, 63% of respondents stated that they have family members who will inherit part of the farm but will not run it.
Decision making and the role of the successor on the farm
When it comes to making decisions on how to run the farm and the business, 59% of farmers responded that they make decisions alone, without any successor input, an increase since 2006. Nothing stood out as being run by the successor alone, and, on average, only 18% indicated that they make decisions with some successor input. Both have seen a decrease from 2006.
Decisions taken by farmer alone (percent)
Farmer > 70, 2019
Successor > 35, 2019
Plan day-to-day work
Make annual crop/livestock plans
Decide long-run mix and type of enterprises
Decide input level use
Decide the timing of operations
Decide when to sell crop/livestock
Negotiate sales of crops/livestock
Decide when to pay bills
Decide type and make of machinery and equipment
Negotiate purchase of machinery and equipment
Decide when to hire more help
Recruit and select employees
Decide amount and quality of work
Decide work method/way jobs are done
Decide and plan capital projects
Identify sources and negotiate loans
Keeping farm records
Decide whether to participate in conservation programs (and, if so, which options to take)
Table 1 indicates the percent of respondents that make their decisions alone without successor input. In the first column there is a list of decision-making areas, the second and third column are a comparison between 2006 and 2019 on the percent of farmers that make decisions alone. Lastly, the final two columns show farmers get less involved in solo decision making when either they are over 70 years of age or when they have a successor who is 35 or older. Even in these cases, the farmers are making decisions and not necessarily involving their next-generation successors 40% of the time in the farm business activities. It is also important to note that the number of successors that are employed on the farm rose from 21% in 2006 to 28% in 2019.
Only 35% of respondents said that their successors had total responsibility for the farm. Among those who said their successor had total responsibility of an enterprise, it is indicated that the majority owns or rents their own farm, sometimes from their parent. Other activities include daily or seasonal jobs and responsibility for cattle and livestock. Furthermore, the percentage of successors that had at least a college degree increased significantly from 2006, as well as the number of those who have a postdoctoral degree. The number of successors who left high school before graduating has significantly decreased.
Future plans for the farm
When asked what their plans for the farm are, most respondents agreed that it is best to keep it in the family no matter what. However, the majority indicate that the inheritance should be fair to the successors, but not equal. In particular, the vast majority suggested that they’ll give most, if not all, the property to the farming heir. More specifically, some respondents suggested that they’ll give most shares to the farming heir and give cash, life insurance or rental payments to non-farming heirs. Other stated that they do not want the farm to be sold or rented out, and suggested that they will split equally among heirs and let the farming heir buy or rent-out the land from non-farming heirs. Another possible solution that has been suggested is to put the farm in a trust and clearly state in their will that their land shall not be sold, only possibly rented out.
Some also believe that renting the farm out for cash, both as a whole or by splitting it, would be a good investment and a great additional source of income, regardless of whether the heirs farm or not, and allowing the family to retain ownership.
Respondents also indicated feeling the need to give the whole farm to only one successor because of the very high land values and rental rates—they feel the heir will not succeed otherwise. Another solution suggested is to put the farm in a corporation and gift shares to the heirs. Few, but definitely present farmers said that they have no choice but to sell the farm; either because none of their heirs would farm or because it wouldn’t be a great source of income, but they are heartbroken about it. It is important to note that it is not uncommon to see comments such as: “Waiting to see if daughter marry [sic] someone who might want to farm (plenty of people to rent to)”, or some stating that the daughters would end up renting the farm out. One comment particularly stood out: “A leading factor in the decline of rural communities is absentee landowners with no interest in the farm other than the income from cash rent. Farm management companies and outside investors exacerbate the problem.”
In conclusion, it is safe to say that farmers and farming families, differ somewhat from other professions, are very attached to their land and their way of life, to the point of working the land for their entire lives. Often this makes it harder for a newcomer to start their own farming business, this is an important aspect to take into consideration when creating new policies and solutions that target inheritance and beginning farmers.
Corn and soybeans futures prices have recently rallied to their highest levels in years, providing hope for a market-driven profitable 2021 crop year. However, the only certainty about future prices is that they will continue to change until their expiration date, and they could plummet as fast as they rallied. Unless farm operators use futures or options to create a floor for their crop prices, current future prices might foster a false sense of security.
Winter is a great time for farm operators to concentrate on calculating their own costs of crop production, not only because they have more control over costs than crop prices, but also because knowing their break-even prices might ease the struggle to lock-in profits before harvest time. The latest issue of the ISU Extension and Outreach, Estimated Costs of Crop Production, reports average cost estimates for Iowa farms in 2021, and provides guidelines to help farmers calculate their own costs of production.
Total costs of corn and soybean production per acre are expected to increase, respectively, by 2.1% – 3.4% and 2.6% in 2021. However, higher expected corn yields over a 30-year trend for 2021 suggest that on a per bushel basis, costs would increase by 1.0% – 2.6% to remain below their 2019 marks (Figure 1). Fuel and insecticide costs, interest expenses on pre-harvest input financing, and crop insurance premiums are projected lower in 2021.
The estimated cost of production for continuous corn is $3.88 per bushel for a target yield of 166 bushels per acre, and it goes down to $3.82 for target yields of 184 and 202 bushels per acre. The estimated costs of production per bushel for corn following soybeans are $3.34, $3.31, and $3.32 for target yields of 181, 201, and 221 bushels per acre, respectively.
Cost of production estimates for herbicide tolerant soybeans amount to $9.16, $8.94 and $8.74 per bushel for target yields of 50, 56, and 62 bushels per acre, respectively. The total cost per bushel of soybeans is projected at $9.04 for non-herbicide-tolerant beans at 56 bushels per acre, according to the report.
The cost estimates are representative of average costs for farms in Iowa. Very large or small farms may have lower or higher fixed costs per acre. The full report is available online through the Ag Decision Maker website. The publication also includes budgets for alfalfa hay establishment with an oat companion crop and by direct seeding. Annual production costs for established alfalfa or alfalfa-grass hay as well as a budget for maintaining grass pastures are included. Actual costs can be entered in the column for “Your Estimates”, or by using the electronic spreadsheet Decision Tools on the Ag Decision Maker website.
Breakdown of costs for 2021
For corn, land costs account for about one-third of total costs of production (Figure 2). Values of $187, $222, and $256 per acre rent charges for the low, medium, and high quality land were assumed. Variable costs represent just over half of the costs of production, and nitrogen and seed costs account for about 43% of the variable costs. Nitrogen price is projected stable at $.34 per pound in 2021, but total nitrogen costs are projected to go up by 6 to 11% reflecting the higher application rates recommended by the ISU Corn Nitrogen Rate Calculator. Corn seed costs are expected to increase by 2% to $262 per bag.
Land costs account for 44% of total costs of soybean production, and variable costs account for an additional 42%. Seed and fertilizers amount to 44% of variable costs. Phosphorus and potassium were charged, respectively, at $.39 and $.30 per pound. Machinery costs are projected to decline by 6% primarily due to lower diesel costs: $2.02 in 2021 versus $2.53 in 2020.
Profitability Prospects for 2021
There is substantial uncertainty regarding crop prices in the coming season. The most recent USDA projections for 2021/22, published in October 2020, put the average US farm prices for corn and soybeans at $3.65 and $10.00. In this scenario, production of herbicide tolerant and non-herbicide tolerant soybean would be profitable for all target yields considered in the report. Net returns per acre to herbicide-tolerant soybean production would range from $42 to $78 per acre, depending on target yield and tillage practice.
Corn production would not be profitable in a continuous corn scenario if the price per bushel is $3.65. Net returns to corn following soybeans would range from $55 to $74 per acre under conventional tillage, and average $82 and $75, respectively, under strip tillage and no-till.
Current futures prices seem to indicate that corn and soybean prices might average $4.45 and $11.40 per bushel in 2021/22, respectively. In this optimistic scenario, corn production would generate profits north of $95 per acre in a continuous corn rotation, and above $200 per acre following soybeans. Profits from soybean production would exceed $110 per acre. However, futures prices are currently reflecting a market reaction to unexpected USDA production and stocks figures, and they could retrench fast once the market reassess the real impact of the new information. In any case, farm operators can always improve their profitability or limit losses by focusing on managing costs and using their break-even estimations to implement a tailored marketing plan.
Knowing costs is key, as it is to understand the assumptions behind the budgets used in the calculations. When using the ISU cost of production estimates for 2021, keep several things in mind. First, fertilizer and lime costs include volume and early purchase discounts. Second, farmers paying land rents higher than the ones projected in the report might face higher costs of production. Operator landowners on fully paid land will have much lower accounting costs, since the cash rent used in the report will only be an opportunity cost and not a cash cost (as it is for tenants).
Reference yields for corn and soybean budgets in the annual Iowa State University Extension and Outreach report reflect 30-year trend yields. In the latest projections used for the 2021 report, corn yields are 2 bushels higher than for 2020, while soybean yields remained unchanged.
Starting in 2021, the amount of nitrogen applied to corn production follows the recommendations from the ISU Corn Nitrogen Rate Calculator. The projected corn-to-nitrogen price ratio used in the calculator amounted to 12.35. Such methodological adjustment resulted in an average 6% increase in the amount of nitrogen applied to corn following corn, and an 11% increase in the amount applied to corn following soybeans.
Producers must have a strong grasp of their own production costs, and the ISU Extension report provides a step-by-step guide to help them estimate break-even costs, and serves to benchmark operations and trigger relevant questions on how to better manage enterprise costs.
Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports: WASDE, Annual Crop Production, and Grain Stocks.
As the market reaction shows, today’s release was a set of favorable reports. In the Annual Crop Production report, USDA ended up reducing 2020 crop plantings by roughly 200,000 acres and the national corn yield estimate by 3.8 bushels per acre. That reduced 2020 estimated corn production by 325 million bushels. Soybeans saw a similar drop, with the national yield estimate down 0.5 bushels per acre and estimated production lowered 35 million bushels. Looking at the state-level data, the corn production losses covered most of the Corn Belt, from the Dakotas to Ohio, with only the southern states (Kansas and Missouri) seeing an increase in the yield estimates. Iowa’s corn yield estimate was lowered 6 bushels, to 178 bushels per acre. For soybeans, the state-level data showed more variability, with Illinois, Missouri, and North Dakota gaining in yield, while most other states declined. Iowa’s soybean yield estimate was lowered by a bushel, to 53 bushels per acre.
The December crop stock levels came in at or below expectations. While USDA’s estimate of soybean stock levels landed well within the trade range of estimates, the corn stocks were estimated at least 250 million bushels below any of the published trade guesses. Crop usage for feed and exports has continued to chew through this year’s crop quickly.
Turning to the WASDE report, USDA bumped up 2019/20 corn feed usage by roughly 75 million bushels, which lowered 2019/20 carryout. For 2020/21, plugging in the 325 million drop in production (from the Annual Crop Production report), total supplies were lowered by 400 million bushels. To partially offset, USDA lowered expected feed (down 50 million), export (down 100 million), and ethanol (down 100 million) usage, based on higher expected prices. But that still implies a 150 million bushel decline in 2020/21 ending stock, dropping the estimated stocks to 1.55 billion, which would be the lowest level we’ve seen in several years. With all of these corn changes, USDA raised its 2020/21 season-average price estimate by 20 cents, to $4.20 per bushel. The changes to the soybean balance sheet mainly concentrated on the 2020/21 outlook. Given the smaller crop, USDA raised soybean imports by 20 million bushels, partially offsetting the yield loss. But soybean usage continues to expand. Domestic crush was raised 5 million bushels. Exports were raised 30 million bushels. The only soybean usage category that declined was seed and residual, by 13 million. Overall, 2020/21 soybean ending stocks were lowered 35 million bushels, to 140 million bushels in total, continuing the trend of tightening over the last several reports. USDA’s 2020/21 season-average price estimate was increased 60 cents, to $11.15 per bushel.