Tag Archive for: Farmers

Nebraska Landowners

It has long been anticipated that the Federal Reserve would be raising the interest rate in the foreseeable future, and last month it finally actualized. Federal Reserve Chairwoman Janet Yellen announced in December that the interest rate would increase from 0-0.25 percent to 0 .25-0.50 percent. While not a large increase, the raise will still impact a great portion of industries across the US. How will the recent increase affect US farmers, landowners, and the agriculture industry?

First, and most obviously, the hike will increase the cost of borrowing money—something with which most farmers are well acquainted. With the current rate increase, producers borrowing money based on prime would pay 0.25 percent more interest annually on their short-term loans, including operating and vehicle loans.

Secondly, the rate increase will add to the downward pressure on the price of farmland.

Lastly, interest rate increases may also contribute to a stronger US dollar. For those in agriculture, this translates to less competitive commodity prices in the world market.

According to Jeffery Dorfman, an agricultural economist at the University of Georgia, one percentage point rise in the interest rate can translate into as much as a 6 percent drop in commodities prices. On the low end, such a move could push prices down by 2 percent, which translates into “a dime or so per bushel for corn and wheat and maybe a quarter for soybeans,” he says.

While that information is sobering, Dorfman is quick to reassure farmers.

“I would not expect the inevitable increase in interest rates to be positive for commodity prices, but the magnitude of the negative impact should be relatively small and fairly evenly spread across the major row crops.”

With all this in mind, it’s important to take into account that more increases are on the horizon. In September of 2015, Yellen said that the rate will likely rise to 1.5 % by late 2016, 2.5 % in late 2017, and 3.5 % in 2018.

The good news is that the very gradual increases will soften the blow for most producers, depending upon their current financial situation.

What is the best course of action for farmers and landowners in response to rising interest rates? It’s best to continually strive to make improvements in efficiency and productivity, both in the fields and financially. Being able to provide detailed cost projections and yield estimates to your lender will put you in a much better position to negotiate better interest rates.

Creighton University economics professor Ernie Goss has his own suggestion.

“If I were a farmer, I would protect myself against rising short-term rates by locking in these very low long-term rates. I would take out equity on the farm, understanding that I may be using the funds for operating,” Goss said.

Do you have concerns about what the interest rate hike will mean for your farming operation? Feel free to contact us with your concerns. We are glad to work with you to keep your operation running strong.

Source consulted: Anderson, Ken. “The Impact of Higher Interest Rates on Agriculture.” Brownfield Ag News. Brownfield Ag News for America. 03 Nov. 2016. Web. 21 Jan. 2016. Howard, Fran. “How a Rise in Interest Rates Could Affect Farmers.” AgWeb.com. Farm Journal. 05 Aug. 2015. Web. 21 Jan. 2016.  Rice, Allison. “If Interest Rates Rise, What Happens to Crop Prices?” Agweb.com. Farm Journal. 15 Dec. 2015. 21 Jan. 2016.

Couple-by-field-small

After a decade of burgeoning land values, it appears as though the price of land is leveling off. While the factors that led to such pricey acres across the state of Nebraska and the entire Midwest are varied, it’s also an interesting exercise to explore the demographics of the average land owner. Who owns Nebraska farmland? If prices continue to level off and perhaps even decrease, will this have an effect on those demographics?
The USDA conducts a land ownership survey every ten years that seeks to answer these types of questions. Due to budget cuts, the 2009 survey was postponed. However, looking at the previous survey’s findings sheds some light on who owns the bulk of Nebraska farmland.
There continue to be two main types of landowners, according to a research article by University of Nebraska-Lincoln Ag-Econ professor Bruce B. Johnson. The first are owner operators (farmers and ranchers) who operate at least some of the land they own, and the second are non-operator owners (landlords) who rent all of the land they own to others to farm.
Of these two groups, in Nebraska, the owner operators just barely edged out the landlords by a margin of 52.1 to 47.9 percent. In his study, Johnson also found that 15,000 of the owner operator class also rent out some of their owned land to others. As a result, nearly 55 percent of all agricultural land in Nebraska was being rented out by its owner at the time of the last USDA survey.
Another interesting discovery reveals that, despite edging out the landlord class in acreage, the type of land owned by landlords tends to be cropland—54 percent as contrasted to 45 percent—and thus higher in value. Conversely, over half of the owner operated base is pasture, compared to less than 42 percent of the landlord land. Consequently, landlords own relatively higher-valued land, and in total, held nearly 54 percent of the total value of agricultural real estate in Nebraska.
As far as leasing patterns, the last USDA survey found that, of the ground that was being rented, 41.9 percent were cash leases, 41.7 percent were share leases, and the remainder a cash/share combination. Over time, the trend has been a shift from share to cash leases, and even more to flexible lease agreements. While cash leases comprise the majority of pasture rental agreements, cropland rental agreements at the time of the survey were cropshare, 58 percent; cash, 41 percent; and other, 1 percent.
Finally, Johnson’s study found that the rental market was comprised of more than 63,000 landlords and 34,000 tenants. Of the landlords, there are those who rent out to others all of the land they own, as well as those owner-operators who also rent out (to others) at least some of the land they own. Of the tenants, some were full tenants who only operate land rented from others, while the rest it also includes part-owner operators who farm at least some rented agricultural land as well as land they own themselves. In short, both classes are wide-ranging and varied.
It will be interesting to see what the next survey finds in light of the high priced commodities and land values that characterized the last several years, and their subsequent leveling off.

Source Consulted: Johnson, Bruce B. “Agricultural Land Ownership and Tenure Patterns in Nebraska.” DigitalCommons@University of Nebraska – Lincoln. University of Nebraska-Lincoln Agricultural Economics. 01 Jan. 2003. Web. 03 Jun. 2015.

Time is running out for Congress to vote on a newly proposed version of the farm bill, leaving some farmers and landowners in limbo when it comes to making decisions regarding varying aspects of their farming enterprises. The farm bill is renewed every 5 years, and has already seen a 1 year extension after it had been set to expire in 2012. The new extension expired September 30, 2013.

Earlier this summer, the House and Senate hammered out new versions of the Farm Bill. The Senate passed their version in June, and on July 11th, the House passed a so-called “Farm Only” version of the bill, seeking to separate out the supplemental food program (SNAP) from the bill and place it in separate legislation.

The Senate version of the farm bill is similar to the last extended 2008 legislation and includes the food program. It also retains the permanent farm laws of 1938 and 1949. The proposed House bill signals a shift in farm law policy by eliminating the supplemental food program from the farm bill, as well as eliminating the farm laws of 1938 and 1949. Eliminating these permanent farm laws would discontinue direct payments and make other adjustments, thereby saving money on commodity programs in the long run. The permanent farm laws in the proposed House legislation would be replaced with a new Title I, which would ensure that farm commodity programs would continue in the event that a new farm bill is not enacted or renewed.

At any rate, how would the proposed farm bill affect farmers and landowners? At the very least, they will face a bit of uncertainty until a farm bill is passed or renewed. The most immediate effects would be a possible end to direct payments and other various subsidies should some form of the House bill pass Congress.  Many area farmers wonder how proposed changes might affect the crop insurance industry, and how these changes may affect their risk management decisions.

On September 19th, the House succeeded in passing another bill that attempts to address the SNAP benefits portions that has traditionally been included in the farm bill. As separate legislation, it contains $40 billion worth of cuts, out of $80 billion. These cuts would be spread out over a period of 10 years.

Now, the House and Senate need to go to Conference Committee and attempt to meld together the Senate’s version and the two separate House versions and then agree on passage of a new bill.  Will they have the votes, and if so, will President Obama sign it into law, should portions of the House version pass committee containing cuts to the food stamp program?  Time will tell, but these proposals will make for interesting political dynamics in an age of huge deficits and amid calls for fiscal responsibility.

To learn more about how the next farm bill may affect your land and tenants and to learn ways to minimize risk, set up a free consultation with one of our experienced farm mangers.