Far-Out Farmland Prices

It’s good to be an American farmland owner in the current $136 billion farm real-estate market. For example, two Iowa properties sold for a whopping $16,000/acre this past fall.

Farm value has tripled during the past decade — increasing the third quarter of 2011 by 25 percent in the Midwest — incited by food-price speculation, grain exports, ethanol production and borrowing costs at near-record lows.

“We have set all kinds of records,” said Bruce Brock of Brock Auction Company, Le Mars, Iowa, in author David Hest’s Farm Industry News story.

Between 2008 and 2009, Midwest farmland prices stabilized but then prices quickly increased — culminating in a two-year increase with reports of as much as 50 percent in some areas. Since 2010, Ohio has experienced a per-acre-value increase of $4,300 or 7.5 percent according to the USDA. Illinois has fared best of the Corn Belt states — experiencing a 16.3 percent increase, equating to a per-acre-value increase of $5,700.

However, notable land values bring headaches, such as competing with the emergence of offshore buyers and ensuring the sound transfer of farm estates to the next generation; succession planning becomes significantly more important. Other issues are increased property taxes for owners and land shortage for potential purchasers.

Additionally, many fear that these values won’t last and people with farm investments may endure economic loss.

“But lessons learned in the ’80s, combined with the strong balance sheets of most farmers, weigh against a similar calamity in the near term, observers say,” stated Hest.

Interest rates and commodity prices are the primary factors affecting the price of land and interest in purchasing it. Current commodities are strong and if food prices remain the same, their prices will stay steady. Interest rates are minimal.

The Farm Credit System (RDETCDET), created by Congress in 1916, increased its share of lending in the $136 billion farm real-estate market to 45 percent from 41.5 percent in 2007 and 35 percent in 2000, according to the USDA.

“We continue to see ag lending as a good opportunity for us,” said Robert Merck, senior managing director of real estate and agricultural investments at MetLife in Hest’s article. “It has performed well.”

Farmers would be wise to invest in property after a thorough assessment of current capital, debt and future projections with credible financial advisers.

Photo obtained from: Farm Industry News

Farmers should expect increased property taxes

Some farmers in Ohio may be in for a surprise when they receive their property tax bills and discover an increase from previous years.

Farmers in more than 40 Ohio counties are experiencing increased property values this year because of land reappraisal or triennial adjustments.

According to Ohio tax laws, each county must have a reappraisal of their property taxes every six years with an update every three years.

The agriculture land values changed from the Current Agricultural Use Valuation (CAUV) formula, which enables farmers with land devoted exclusively to commercial agriculture to pay taxes for the value of the land’s current use rather than for its larger fair market value. While the fair market value is based on home value, one acre of land for the home, outbuildings and the land area, the CUAV is based on income and productivity.

The Ohio Farm Bureau Federation (OFBF) states that CAUV values are calculated for each soil type in Ohio (approximately 3,500 soils) by a formula that relies on three crops: corn, soybeans and wheat. Even if a farmer in the CAUV program does not produce any of these crops, the formula used to calculate the values. The formula is then based on five factors:
  • Cropping patterns
  • Crop prices
  • Non-land production cost
  • Yield information
  • Capitalization rate
The calculations are made based on Farm Service Agency yields per acre for each of the crops per soil type.

According to a Wilmington News Journal article, two changes occurred in this year’s reappraisal that significantly affected the CUAV: The capitalization rate decreased as a result of decreased interest rates and crop prices increased. Prices have been increasing steadily, but the average now includes the latest three years of increased prices and dropped the oldest three years of minimal prices, causing the average to increase.

“Any of these changes would have caused the values to increase,” said former OFBF director of local affairs Larry Gearhardt. “Because they all occurred at the same time, the result is increased productivity divided by a smaller capitalization effectively doubling the impact on individual farmers.”

Each county auditor’s office has a property-record card that contains an itemization of soil types, buildings and other value factors. If farmers want to know their property’s information, these cards are available. Auditors advise that any complaints regarding discrepancies should be submitted before March 31, so that the farmer will pay only the appropriate amount of taxes.

Are you affected or do you know a farmer who is affected by increased property values? What are your thoughts about the reappraisal?

Photo obtained from: valleyset.com.

Local Foods Becoming Big Business

Once thought of as the domain of health nuts and hippies, the buy-local movement has gone mainstream and farmers in the U.S. are starting to see some green.

According to a recent USDA report, in 2008 American farmers made nearly $5 billion selling fruits and vegetables at farmer’s markets and to local supermarkets and restaurants. While they remain just 2 percent of the nation’s agricultural sales, locally grown foods are continuing to grow in popularity among the public and farmers as awareness grows about the benefits of buying local.

Agriculture is the top industry in Ohio — contributing more than $107 billion annually to the state’s economy. The Ohio Department of Agriculture showcases locally made and grown products — everything from fruit to eggs to wine — with the “Ohio Proud” program. The program, which launched in 1993, has grown from 180 participants in 2008 to more than 470 today.

“The growth is attributed to the fact that consumers are very much interested in buying local products because they want to know who is growing their food and where it comes from,” said Lori Panda, senior manager for the Ohio Proud program in a recent Columbus Dispatch article. “Not only do Ohio consumers want to support Ohio businesses, they’re also concerned about food safety.”

According to Food Routes, a national nonprofit organization dedicated to promoting local foods, the benefits of buying and eating locally grown or produced foods are many and include:
  • A stronger local economy — Buying local keeps dollars circulating in your community
  • Fresh products — Local food is fresher than food shipped long distances from other states and countries and many believe the taste is better, too
  • Supports family farms — With each local food purchase, you ensure that more of the money you spend for food goes to the farmer
  • It’s good for the environment — Local food doesn’t have to travel far, so there’s less carbon dioxide emissions and packing materials
  • Knowledge of how your food is grown — Knowing where your food comes from and how it’s grown, i.e., organic, pesticide-free, etc., enables you to make personal food choices for your family

Photo obtained from: portlandmonthlymag.com

More fuel from the cob

Everyone understands the benefits of getting more from less — especially regarding energy production. America is seeking a reliable, domestic fuel base and numerous sources have been tested and employed, including corn ethanol.

Corn ethanol is a clean-burning fuel additive made from corn-kernel starches and is regularly blended with petroleum to diversify the fuel supply and decrease America’s dependence on foreign oil to offset the cost of standard gasoline.

The ethanol sector is one of the corn industry’s chief markets, and the future of the U.S. ethanol industry depends on its ability to increase yields, be competitive with fossil fuels and fill a growing need for energy independence.

Ethanol production is accomplished either after a wet or dry milling process, though dry milling is most common and is explained as follows: (National Renewable Energy Laboratory)

“Corn grain is milled then slurried with water to create ‘mash.’ Enzymes are added to the mash and this mixture is then cooked to hydrolyze the starch into glucose sugars. Yeast ferment these sugars into ethanol and carbon dioxide and the ethanol is purified using a combination of distillation and molecular-sieve dehydration to create fuel ethanol. The byproduct of this process is known as distiller’s dried grains and solubles (DDGS) and is used wet or dry as animal feed.

An emerging technology called hydrodynamic controlled-flow cavitation is advancing the capabilities of ethanol production.

According to an Ethanol Producer Magazine story, hydrodynamic cavitation is the process of “passing a liquid through a constricted channel at a specific velocity. The formation and implosion of bubbles in the liquid releases tremendous localized energy in the form of shockwaves. Controlled-flow cavitation technology controls the location, size, density and intensity of the implosion of bubbles in the zone to create optimum process conditions”.

The following diagram from a Ohio State University Ohio Agricultural Research and Development Center (OARDC) story illustrates how cavitation "liberates" more starch from milled corn before it's fermented and distilled to ethanol (courtesy of Arisdyne Systems Inc.).

"Corn grain containing between 70 and 73 percent starch is distilled to ethanol," said Fred Michel, an OARDC biosystems engineer. "While the recovery of starch in commercial ethanol plants is high, as much as 4 percent of the starch remains in the byproducts after fermentation. We are targeting that 4 percent from the use of cavitation."

With support from a $1 million Third Frontier grant awarded in 2008, OARDC has partnered with Arisdyne Systems Inc., a Cleveland-based company, to test cavitation technology:

  • The project generates 13 Ohio jobs
  • Cavitation helps increase ethanol yield by 2 to 3 percent
  • A 3 percent yield boost can increase the revenue of a 100-million gallon ethanol plant by approximately $3.75 million annually
  • If the entire U.S. ethanol industry (13.2 billion gallons in 2010) were to use cavitation, the revenue increase could reach at least $500 million annually
“We need to be looking at yield enhancement as a top priority,” said Fred Clark, executive vice president for Arisdyne.

Yield enhancement has always been and will continue to be a major industry goal for the profitability of U.S. corn. Cavitation has the promise to improve corn farmers’ financial success and the energy security of the country simultaneously.