The PRF (Pasture, Rangeland and Forage Insurance) policy is an area-based insurance plan that covers perennial pasture, rangeland, or forage used to feed livestock. It provides producers a risk management tool to cover the precipitation needed to produce forage for their operation. This policy is available for all counties in Iowa.
Source: USDA Risk Management Agency, Summary of Business
The video presentation below provides an example of how PRF policy coverage can work. NOTE: policy deadlines mentioned at the end are not applicable for current policies. Refer to Table 1 for current deadlines. Additional revisions released in 2021 can be found on the RMA website.
RMA offers seven livestock plans and an annual forage insurance plan. Talk to your crop insurance agent to help you decide the option that is right for your operation, or use the Agent Locator to find one near you.
Ag Decision Maker offers resources to assist landowners and producers with determining fair pasture rent arrangements.
Contributed by Melissa O’Rourke, Iowa State University Extension and Outreach Farm and Agribusiness Management Specialist, morourke@iastate.edu
As cattle producers move cattle off winter feedlots, discussions are taking place regarding pasture rental rates for the grazing season. Iowa State University Extension and Outreach Ag Decision Maker – along with other university extension services – offer guidelines and resources to help Iowa landowners and producers discuss methods to determine appropriate pasture rental arrangements. Especially during these times of increasing land prices and input costs, parties want to be sure that they are having open discussions to arrive at fair agreements for pasture rents.
There is no quick answer to what is the right rent for a given piece of pasture. Parties must discuss and agree on costs and responsibilities such as real estate taxes, maintenance of infrastructure (fence, barns, water), insurance and fertilization. These issues and more are important factors in calculating a fair rental rate.
One key publication is found on the Ag Decision Maker website: Computing a Pasture Rental Rate. When visiting Ag Decision Maker, notice that the publication is available on screen or via download of a PDF document. There is also a Decision Tool spreadsheet that can be used to try out different calculations. The publication starts out by noting:
“Is there a simple and uniform method of figuring a rental rate for pasture and hay land? Probably not, but guidelines are available. There are several methods for computing a pasture rental rate, and several factors that influence the rental rate. Pasture rental rates vary according to the quality of stand, type of forage species, amount of timber, condition of the fences, availability of water, and previous fertility practices on the pasture. A pasture rental rate can be based on [the following]:
– current market rates – a return on investment in pastureland – forage value – rent per head per month (AUM) – carrying capacity – rent per pound of gain”
Colleagues at the Iowa Beef Center post a good discussion of Pasture Rental and Lease Agreements from the Midwest Perennial Forage & Grazing Working Group. Commentary in this discussion explains that the
“right” amount to charge for pasture rent is highly variable: “Both land owners (lessors) and grazers (lessees or renters) need to determine a fair rental or lease rate. What is a fair amount to charge for rent? The answer is always: “It depends”. The devil is in the details and there can be many details to work out.”
Related to the conversation between pasture landowners and tenants is consideration of fertilization alternatives and guidelines. Parties may wish to review information on pasture improvement alternatives (and costs) at two different ISU publications:
Estimated Costs of Crop Production in Iowa (2022): This publication summarizes crop production costs of multiple rotations. In particular, Annual Production Costs for Established Alfalfa or Alfalfa-Grass Hay are provided on page 10; and Annual Costs per Acre to Maintain Grass Pastures are provided on page 11 of the publication.
Fertilizing Pasture: This publication address grass pasture fertilization rates, timing, and soil quality, including: types of nitrogen; nitrogen rates, response, and profits; and phosphorous and potassium (P-K) rates for legume-grass pastures.
Our colleagues at North Carolina State University Extension (NCSU) have a suggestedform for a pasture lease agreement. As with all such templates, this is only a suggested form that the parties can use to start conversation and make decisions about responsibilities. This NCSU lease agreement indicates some of the details to be worked out between a landowner and a livestock producer – such as improvements, seeding, fertilizer, repair of fences or buildings (if any) or water supply improvements. There is not a single “right way” to do things.
The 2022 ISU Cash Rental Rate Survey was recently released (May 2022). Landowners and producers should read the first two pages of the publication describing this opinion survey and definitions of terms used within the report. On the last past of the survey data, readers will find (see bottom of page 12) a summary of typical cash rents from survey respondents on rents for pastures by Crop Reporting District. Remember—these are only the responses of those who completed the survey, and the results can be highly variable and dependent on conditions and the agreement on various items between the landowner and the livestock producer. Note that on page one of the survey, there is a list of variables that may justify a higher or lower than average rent – and one of these is “Other services provided by the tenant.” Again, such services can include stewardship practices (weed control, fertilizer) and repairs (e.g., fencing) – depending on what terms are agreed upon by the parties. It is important for a tenant (livestock producer) to keep track of the costs of services and improvements to the pasture (including labor), and provide that information to the landowner – otherwise, the landowner cannot have a good understanding of these costs.
Overall, communication is key to determining a fair pasture rental rate that works for both the producer and the landowner.
Several states provide farm financial summary data each year. The information available varies by state and the following is an updated summary of what states include farm family living expense data. The original source of this information can be found in the February 2017 Ag Decision Maker newsletter article, Why have farm family living expenses been identified as a problem?.
Iowa Farm Business Association (IFBA)
Iowa State University Extension and Outreach reports summarized Iowa Farm Business Association data in AgDM File C1-10, Farm Costs and Returns. However, family living expenses are no longer broken into a unique category in revisions dated after 2009.
Illinois Farm Business Farm Management Association (Illinois FBFM)
The Illinois FBFM uses the Owner Withdrawal approach. FarmDocDaily’s When Creating 2021Budgets, Keep In Mind Family Living Costs include a summary separating family living expendables, capital purchases for family living, and income and social security tax payments. The 2019 averages were $78,894 for noncapital, $5,446 for capital items “such as the personal share of the family automobile, furniture, and household equipment,” and $24,525 for income and social security taxes. The 2017 averages were $79,798 for noncapital, $5,744 for capital items “such as the personal share of the family automobile, furniture, and household equipment,” and $28,435 for income and social security taxes. The totals are useful, but the single category of noncapital does not provide much detail on categories of spending.
Farm and Family Living Income andExpenditures reports high and low third costs of living for a family of three to five in 2019 on the final page. Expendables is expanded to four categories. The categories are Contributions, Medical, Insurance (life and disability), and Expendables. Summing the noncapital and capital living expenses, the low third had a total cost of living of $57,337 and the high third was more than twice as much at $143,785 before income and social security taxes.
In this report, three categories are added. The same categories are used in the full report. Twenty-three percent of the 5,500 Illinois FBFM members provide the information necessary to report Owner Withdrawals with the additional detail.
Thirty-seven percent, of the 898 KFMA members analyzed, reported family living expenditures in 17 categories. Figure 2 gives the family living expense categories from that report and provides a visual realization of the changes in expenditure for the nine largest categories. A farm family looking at the graph may be able to think about changes in their own expenditures, and areas where costs could be cut. Home repairs, contributions, recreation, and household all increased dramatically beginning in 2006 through 2014, and have declined or remained steady since. Total family living expenses have remained fairly flat since 2015, with an average change of just 0.3% over the past 6 years. Large increases in the category of health insurance have been off-set by declines in categories such as home repairs and recreation (categories also strongly impacted by COVID-19 in 2020).
In An Analysis of Family Living ExpenseCategories, the correlation between net farm income and family living expenses is explored. Greg Ibendahl writes, “Family living is correlated to net farm income (correlation 0.62) but it appears to have a lag as the jump in family living expenses happened after the jump in net farm income. In publication GI-2016.7, we hypothesized family living was based on a four- year average of net farm income. Also, while net farm income in 2015 declined to near zero, family living is only starting to show a decline. Although total family living expenses declined slightly… some expense categories showed steeper declines…home repairs, contributions, medical, gifts and auto all showed declines in 2015.” This hypothesis is supported by the flat total family living expenses from 2015 to 2020 while net income rose substantially (26% average increase each year).
Southwest Minnesota Farm Business Association, Missouri Farm Business Management Association, and Nebraska Farm Business Incorporated
The Minnesota, Missouri, and Nebraska associations use the same family living expense categories. Page 22 of the Southwestern Minnesota Farm Business Management Association Annual Report and page 15 of the Missouri Farm Business Management Analysis Record Summary show the allocation of Owner Withdrawals. Nine percent of the 109 Missouri FBMA members reported family living expenditures in detail and 32% of the 108 Southwest Minnesota FBMA members reported family living expenditures in detail.
The 28 categories used by the Minnesota, Missouri, and Nebraska associations may be a sweet spot between the 17 categories used by the Kansas Farm Management Association, and the 103 categories used by the Bureau of Labor Statistics (Table 1). If the Kansas Farm Management Association categories are used, be sure to add personal taxes, purchases of personal assets, and other non-business expenditures to get to the total Owner Withdrawals.
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.
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.
Background
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.
Figure 1. Source of income for farmers who plan to retire or semi-retire, 2019 (percent)
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.
Figure 2. Who is the successor of the farm business, 2019 (percent)
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)
2006
2019
Farmer > 70, 2019
Successor > 35, 2019
Plan day-to-day work
18%
54%
32%
41%
Make annual crop/livestock plans
19
54
38
42
Decide long-run mix and type of enterprises
16
54
36
41
Decide input level use
25
58
42
47
Decide the timing of operations
15
54
34
42
Decide when to sell crop/livestock
27
64
45
49
Negotiate sales of crops/livestock
31
64
46
49
Decide when to pay bills
44
71
55
59
Decide type and make of machinery and equipment
16
52
39
40
Negotiate purchase of machinery and equipment
23
58
38
44
Decide when to hire more help
21
59
45
46
Recruit and select employees
24
60
46
45
Decide amount and quality of work
24
59
42
44
Supervise employees
25
57
43
43
Decide work method/way jobs are done
18
50
32
37
Decide and plan capital projects
24
55
43
44
Identify sources and negotiate loans
47
66
47
51
Livestock management
19
56
47
50
Keeping farm records
45
65
53
53
Decide whether to participate in conservation programs (and, if so, which options to take)
—
61
42
46
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.
