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Volume 2, Number 11 - November 1996

This Month in Ag Connection

County Concentrated Animal Ordinances?

"Concerned citizens groups" in five Central Missouri counties -- Henry, Benton, Morgan, Pettis and Saline -- have proposed more restrictive county animal waste ordinances than are required by Missouri State Regulations. Other counties may face similar proposals.

Henry, Benton and Morgan County Commissions have not approved an ordinance. Pettis County did approve an ordinance. Saline County is considering an ordinance and is currently doing an economic impact analysis.

Why Should Farmers be Concerned?

  1. Livestock cash receipts are 61% of the total cash receipts in the 14 Central Missouri counties. Many crops are marketed through livestock.
  2. Compliance with one of the proposed county ordinances would greatly increase production costs. On a 70 sow farrow to-finish unit, the estimated break-even cost would increase to$75.38 per hundred weight from about $40.00 without the ordinance.
  3. County ordinances usually increase the required distance between concentrated animal feeding operations and nonowner dwellings or businesses.
  4. Smaller operations, which have a state exemption, may be required to obtain county operational permits.

Environmental concerns are an issue!

Odor and water quality are the major environmental issues facing livestock producers. If you pollute water and it leaves your property, below or above ground, you are in violation of state law. Livestock producers need to present a positive image of their environmental practices. The following are a few suggestions:

Be a good neighbor. Do unto others as you would have them do to you.
Increase your knowledge of current animal waste regulations.
Evaluate your current environmental techniques.
Understand the impact of manure management on water quality.
Inform the general public and elected officials about your environmental practices.
Work with citizen groups in your county to develop acceptable solutions for environmental concerns.
Learn ways to reduce manure management costs and increase manure nutrient utilization.
Explore techniques to improve odor management.

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Resources Available to Help You

Author: Bill Buehler, Farm Management Specialist

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Rents -- Have the Lessons of the 80's Been Forgotten?

High land prices and grain prices during the 1970's pushed land rents higher and contributed to the farm crisis of the 1980's. Have these lessons been forgotten?

Higher land values, government program payments and record grain prices have some landowners and farm management firms considering higher rental rates or shares.

Leasing arrangements should consider price and production risk. A fair lease should be based on both parties' contributions to the arrangement. Returns should be shared equitably, but this does not necessarily mean returns should be shared equally.

High risk ventures traditionally offer higher returns while less risky or "safe" investments generally provide lower returns. This same principle should apply to risk in farm lease arrangements. Crop share leases usually share the risks according to each party's contribution. With a fixed cash lease, since the landowner avoids both production and price risk, rent should be less than expected average returns from a crop share lease.

Use caution when including increased land values into cash lease negotiations. Farmland has historically offered lower annual returns on investment than many other capital investments. However, appreciation in value has compensated for the lower annual return creating higher net returns which has made farmland a more attractive long term investment. The landowner takes the long term risk and receives the long term gains in the form of increased value. Trying to increase annual returns by adding inflated land values, which don't represent added productive value, to a lease may create an unfair burden on the tenant.

Landowners wanting to increase their share of crop share leases should use caution. USDA statistics indicate that a majority of recent gains in total assets used in agriculture have been increases in real estate value. These tend to be inflation increases and do not represent investment in new productive assets, since very little new land is added to agriculture. The non-real estate investment, such as machinery, technology, etc., has shown only small increases. Much of the older machinery being used, is depreciated out and has not been replaced in recent years. The real estate value is increasing, but the 'factory' equipment is wearing out!

Some have argued that higher grain prices have been needed for some time in order to encourage investment in the non-real estate productive assets. Adjusting crop share lease divisions in favor of inflated land value could discourage operators from investing in machinery and technology upgrades. The longer term result could be lower returns for both the landowner and operator!

The new government program has added new questions to lease negotiations. The seven year transition payments represent a payment for risk resulting from no longer having government supported pricesafety nets. In the case of crop share leases, these payments are made to both landowner and tenant using the same division as the crop shares.

Some cash rent landlords see these payments as a windfall to their tenants who receive the total payment because they get the total crop. Since payments do compensate the producers for risk, there is some justification for considering this in the cash rent agreement. However, with the freedom to plant provisions, these payments may not relate to the actual acres planted or all of the risks. Negotiations on this point should consider all of the factors involved as well as the government program intentions and requirements.

Cash rents should not be based on short term prices or the farm's best yields. A lease shouldn't be based on $3.00 corn or $8.00 soybeans. Food and Agriculture Policy Research Institute (FAPRI) outlook projections through 2005 estimate average annual corn prices of $2.23 to $2.57 and soybean prices of $5.54 to $6.26. Returns to high prices represent returns to risk (low prices are the risk taken) and should not immediately be built into cash rent. Yields vary too. Both tenants and landlords tend to remember the good yields and forget the not-so-good yields. Recognize that yields have trended upward, but leases should be based on realistic yield expectations.

If landlords want to participate in higher prices or above average yields, variable cash rent arrangements can be developed. These agreements typically have a base rent and then use a formula to calculate an adjusted rent based on actual yields and/or actual prices. Remember this increases the landlord risk because a fair variable rent arrangement also means the landlord will participate in low prices and poor yields.

Other lease forms are being explored in an attempt to solve some of the problems. Privilege rent or up-front payments to rent farm land is one example sometimes being used to cope with the new government program payments. Bonus rents or additional cash rent paid when prices or yields are high, allow the landlord to receive some of the benefits of the good years. A bushel rent lets the landlord assume some of the price risk along with the benefits of higher prices. Custom-blended share rent is a variation of custom farming where the custom operator shares in the crop. These and other new leases should be considered carefully based on each party's contributions. Most of them shift risk. Make sure the party that assumes the risk has the opportunity to be rewarded!

The hard lessons of the 1980's shouldn't be forgotten. Operators should avoid bidding up rents just to get control of more acres. A break-even arrangement, with no allowance for risk, can become a disaster when prices or yields fall. Cash rents based on inflated land values, instead of economic returns, can create a vicious circle. Higher rent increases the return to land, which in turn increases land value, followed by another increase in rents, . . . . . . and so on until the bubble bursts.

Landlords demanding high rents may also lose good tenants and their long term profitability and the condition of their farm resources may suffer.

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Available at University Extension Centers and on the Internet

Author: Melvin Brees, Farm Management Specialist

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Found on the Internet

FAPRI - Food and Agriculture Policy Research Institute Home Page. Contains reports FAPRI has done that relate to Agricultural Policy.

FAPRI article on corn and soybean predictions referenced in the rental rates article on this page -

Farm Bill -USDA site with fact sheets and updates on the farm bill

Income Tax Information - Essential Links to Taxes. Taxpayer tips and online resources to information on income tax preparation, rules, tax code, etc. Includes information on federal, state and international taxes.

Internal Revenue Service - Has tax forms, IRS publications, etc.

Social Security Online -

Author: Don Day, Agricultural Engineering/Information Technology Specialist

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Federal Retirement Benefits

Graph of Social Security Funds

Most working Americans understand that they contribute to Social Security fund. But understanding how it all works is another story.

Who qualifies for Social Security retirement benefits? Anyone who has paid social security (sometimes called FICA) taxes for 40 credits. A maximum of four credits may be earned per year.

Age 62 is considered early retirement for social security, which means monthly payments are lower than if an individual waits until the full retirement age of 65. For persons born in 1938 or later, full retirement will be gradually increased to age 67.

Note: Husband-wife teams who are both self-employed in the same business, such as farming, but have no formal partnership agreement and file joint tax returns, will not both earn credits. If both of them want to receive social security credits, each must file a separate self-employment return (Schedule SE) each year. This should be carefully analyzed on a case-by-case basis.

Persons receiving social security retirement benefits can continue to work, but their benefits may be reduced. In 1996, the earned income limits are $8,280 per year for people under age 65 and $12,500 for people age 65-69. Monies earned in excess of those amounts will be subject to benefit reductions: under age 65 - deduct $1 in benefits for each $2 earned above $8,280, for those age 65-69 benefits are reduced $1 for each $3 earned above $12,500. If a person is over age 70 there are no earned income limitations!

Medicare - Medicare and Medicaid are two separate programs. Medicaid is operated on a state level and Medicare is a federal program. This article will only deal with Medicare.

Medicare is a health insurance plan for people who are age 65 or older. A person is eligible if he/she or their spouse has worked at least ten years in Medicare-covered employment.

Medicare is divided into two parts: Part A (Hospital Insurance, covers inpatient hospital care, home health, etc.) and Part B (Medical Insurance, helps pay doctor bills, outpatient hospital care and some other services not covered by Part A).

Part A can be obtained at age 65 with no monthly premium, if a person is receiving or eligible to receive social security benefits - even if they are not retired. Part B is elective and requires a monthly premium. The 1996 monthly premium is $42.50. The majority of the eligible U.S. population have both Parts A and B.

If a person is receiving social security retirement payments prior to age 65, he/she will automatically be enrolled in both Parts A and B. If the individual does not want Part B, follow the directions on the card when it comes in the mail. Even if a person is not planning to receive social security retirement benefits at age 65, he/she still needs to apply for Medicare by contacting Social Security three months prior to reaching age 65.

Author: Mary Sobba, Farm Management Specialist

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Applying for Social Security Benefits

You should:

  1. Apply for benefits about 3 months before you want to start receiving Social Security benefits.
  2. Call 1-800-772-1213 to make an appointment for your office visit.

Take the following items when applying for benefits:

  1. Your Social Security card and those of other family members for whom you're applying.
  2. Proof of your age and other family members included in your application.
  3. Documentation to evidence the relationship of other family members to you.
  4. Income tax returns and W-2 forms for the past two tax years.
  5. Information on your checking or savings account where benefits will be directly deposited.

Even if you do not intend to start receiving benefits at age 65, you should enroll in Medicare Part A three months before your 65th birthday.

Author: Parman Green, Farm Management Specialist

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Publishing Information

Ag Connection is published monthly for Central Missouri Region producers and is supported by University of Missouri Extension, the Commercial Agriculture program, the Missouri Agricultural Experiment Station and the MU College of Agriculture, Food and Natural Resources. Managing Editor: Kent Shannon.