Despite the push to cut federal spending…
The Kiplinger Agriculture Letter
The new farm bill will be loaded with goodies. Congress will pass the five-year measure by autumn.
Expect a big expansion of crop insurance.
Also new supplemental crop insurance,
More support for fruit and vegetable growers, too,
Decades-old dairy programs will be scrapped in favor of a new approach.
Congress’ past moves to limit any one farm’s subsidies will reverse course.
Meanwhile, lawmakers will affix one leash to cash paid to all sizes of farms: Violators of mandated conservation practices could lose USDA subsidies. Copyright 2013. The Washington Kiplinger Editors, Inc. Login to Member Resources to download the latest edition.
Farm Bill Moves Forward
By Stephen Frerichs
The House and Senate Agriculture Committees held mark-up sessions last week on their respective versions of the farm bill. The Senate Committee passed its bill (S. 954) on a vote of 15-5. Four Republican Senators Johanns (NE), McConnell (KY), Roberts (KS), and Thune (SD) and one Democrat Sen. Gillibrand (NY) voted against it. The House Committee passed its bill (H.R. 1947) by a vote of 36-10.
The full Senate is considering the farm bill this week. Debate started Monday afternoon and is expected to continue throughout the week. The House will likely take up its bill on the House floor sometime in June.
Both the House and Senate versions are largely identical to the respective versions passed during the last session of Congress. The Senate bill contains changes to its commodity title to accommodate the new Ranking Member, Senator Cochran (R-MS), but still saves nearly $24 billion over 10 years. The House bill contains larger cuts to the Supplemental Nutrition Assistance Program than in the previous version to achieve nearly $40 billion in savings over 10 years.
During the House mark-up an amendment by Representative Gibbs (R-OH) was adopted by voice vote. The amendment’s intent is to prohibit any Federal agency, contractor or cooperator from releasing private information regarding farmers, ranchers or agricultural land that is submitted to USDA by producers in order to participate in commodity or conservation programs. It is unclear at this time how this language interacts with current prohibitions that resulted from Section 1619 of the 2008 farm bill. ASFMRA is working to ensure that the amendment does not make it even more difficult to attain information for farm managers and appraisers than it already is. The Senate bill has no similar provision.
A comparison of the major provisions of the Senate and House commodity title can be found in this table: 2013 Description of Major Features of Senate and House Commodity Title for Program Crops
Both bills are similar to their respective versions last session. Both bills create three new major plans of insurance: Supplemental Coverage (SCO), Stacked Income Protection Coverage (STAX) for cotton and a peanut revenue plan of insurance. Both bills changed the subsidy structure on SCO to accommodate new budget costs. Both bills would subsidize SCO at 65% instead of 70%.
SCO allows producers the option of purchasing additional coverage based on an individual yield and loss basis, supplemented with coverage based on an area yield and loss basis to cover all or a part of the deductible under the individual yield and loss policy. Coverage is triggered only if losses in the area exceed 10% of normal levels. In the case of a producer who participates in the Senate ARC program, the deductible is 21% of the expected value of the crop of the producer covered by the underlying policy. Subject to the trigger and the deductible, SCO covers the first loss incurred by the producer, not to exceed the difference between 100% and the coverage level selected by the producer for the underlying policy. The A&O reimbursement rate for SCO is 12%, same as existing area coverage.
Both bills require that the Risk Management Agency (RMA) make available an additional policy to upland cotton producers — STAX, which provides coverage consistent with GRIP and the associated Harvest Revenue Option Endorsement. STAX is provided in addition to all other coverage available to producers of upland cotton, except that a producer who participates in SCO cannot participate in STAX. The Senate bill assumes RMA can make STAX available to cotton growers starting in 2014, while the House bill assumes RMA cannot put STAX in place immediately and so it provides a 2 year transition period to cotton growers. Direct payments would continue for cotton growers while STAX is implemented during the transition period.
Beginning with the 2014 crop year, the two bills require that RMA make available a revenue crop insurance program for peanut producers. This program and the MPCI program are required to use the Rotterdam price index for peanuts, as adjusted to reflect the farmer stock price of peanuts in the United States or the loan rate, whichever is higher.
Both Senate and House Conservation titles are similar. Both versions consolidate numerous conservation programs and create 4 major conservation program “legs:” Cost Share, Easements, Partnerships and the Conservation Reserve Program.
The CRP will become smaller dwindling to 25 million acres by 2017 in the Senate version and 24 million acres in the House version. The current CRP is authorized at 32 million acres. Changes are made to allow for more frequent haying and grazing with reduced rental rates. In addition, a landowner can take a reduced rental rate in the final year of the contract in order to begin land preparations to place the land back into production.
The Wildlife Habitat Incentive Program (WHIP) will be merged with the Environmental Quality Incentive Program (EQIP). The Conservation Stewardship Program remains as a stand-alone program, albeit with smaller enrollment levels.
Grassland, farmland and wetland easements (GRP, FRP and WRP) are consolidated into one easement program with two legs: Agricultural Land Easements (ALE) and Wetland Reserve Easements (WRP). WRP is virtually identical to the existing program. ALE is the combination of GRP and FRP but will look very similar to the existing FRP where all easements are permanent and run through an approved 3rd party entity.
ACRE and DCP Sign-up Deadlines at FSA
By Stephen Frerichs
The deadline to sign up for ACRE is fast approaching; it is June 3, 2013. The DCP sign up period ends Aug. 2, 2013. Recall, the 2013 DCP and ACRE program provisions are unchanged from 2012, except that all eligible participants in 2013 may choose to enroll in either DCP or ACRE for the 2013 crop year. This means that eligible producers who were enrolled in ACRE in 2012 may elect to enroll in DCP in 2013 or may re-enroll in ACRE in 2013 (and vice versa).
CRP Sign-up Started
By Stephen Frerichs
USDA is conducting a four-week CRP general sign-up beginning May 20 and ending on June 14. Offers for general sign-up CRP contracts are ranked according to an Environmental Benefits Index (EBI). The FSA collects data for each of the EBI factors based on the relative environmental benefits for the land offered. FSA uses the following factors to assess the environmental benefits for the land offered:
Wildlife habitat benefits resulting from covers on contract acreage; Water quality benefits from reduced erosion, runoff and leaching; On-farm benefits from reduced erosion; Benefits that will likely endure beyond the contract period; Air quality benefits from reduced wind erosion; and Cost.
CRP soil rental rates for non-irrigated cropland were updated this year to better reflect location and market conditions.
USDA has also started sign-up for continuous CRP, including the Conservation Reserve Enhancement Program, State Acres for Wildlife Enhancement Initiative, the Highly Erodible Land Initiative, the Grassland Restoration Initiative, the Pollinator Habitat Initiative and other related initiatives. Sign-up for continuous CRP began on May 13 and will continue through Sept. 30, 2013.
FASB, IASB Propose Major Changes to Lease Accounting
Press release from FASB
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) today published for public comment a revised Exposure Draft outlining proposed changes to the accounting for leases. The proposal aims to improve the quality and comparability of financial reporting by providing greater transparency about leverage, the assets an organization uses in its operations and the risks to which it is exposed from entering into leasing transactions. Read the press release: http://www.fasb.org/cs/ContentServer?c=FASBContent_C&pagename=FASB%2FFASBContent_C%2FNewsPage&cid=1176162614474
Comments from ASFMRA Members: Clay Caver, AFM, ARA, RPRA (TN); Jim Cannon, ARA (KS); and Ben Slaughter, ARA (CA) and JoAnn Wall, ARA (CA)
Clay Caver, AFM, ARA, RPRA (TN) - From a mortgage lender’s perspective, this change would be welcome since it will bring additional transparency to financial statement analysis. Like other areas of the country, many Delta farming operations hold capital leases, often in significant amounts, on farm equipment and machinery. Normally, these are “off balance sheet” items which can represent significant current and/or intermediate liabilities that are typically not reported. So, again from a lender’s perspective, requiring reporting of these lease terms and obligations would be beneficial.
Ben Slaughter, ARA (CA) – From an agricultural real estate appraisal perspective, implementation of these changes may propel landowners toward shorter term leases on farm and ranchland in order to stay under the reporting threshold (leases exceeding a 12-month term, right?). From a strictly local view, long-term leases on Delta Region farmland – those exceeding three year terms – are atypical, so the net effect on the interest being appraised in my area will be minimal. -In my view, this could potentially have a significant impact on those of us that include mark-to-market type appraisals in our practices. In my experience, farming and processing operations on the West Coast use leases in a variety of ways from equipment leases, to inter-family (trust to corp) property leases, to third-party land leases. The accounting discipline should be encouraged to seek the guidance of valuation experts when dealing with these leases. They can become quite complex, and handling them improperly could lead to bigger frustrations down the road. -
JoAnn C. Wall, ARA (CA) - As Ben mentioned, for us in California and more specifically, those in viticultural regions, this could have a significant impact. Perhaps one of the most prominent trends here is the use of long-term ground leases for vineyard development. Not sure what the RE value impact would be, but it could be substantial for these folks.
Jim Cannon, ARA (KS) – I agree with Clay that the change is good. We also have very few term leases in our area. When we do, it tends to be of ranches rather than farmland.
How would this affect appraisals in your area or business? Join in on the discussion on AgProLink: http://www.agprolink.org/Blogs1/BlogViewer/?BlogKey=6ed5763b-1326-4c3d-9065-71bce9936425
Appraisals Prominent in 2013 Farm Bill
By Bill Garber
The 2013 Farm Bill is taking shape in both the House and Senate, with the full Senate slated to vote this week on its version (S. 10, the Agriculture Reform, Food, and Jobs Act of 2013). This bill contains several appraisal related programs and provisions of note, below.
• The bill proposes to establish an Agriculture Land Easement (ALE) program (Sec. 1265), which is a consolidation of existing easement programs into one, with a maximum 50 percent federal cost sharing. Valuation policies remain unchanged from the previous Farm Bill, which allows fair market value to be established through a USPAP-complaint appraisal or area wide market analysis; a geographic cap established by the Department of Agriculture by regulation; or an offer made by the landowner. A permanent easement program relating to wetlands utilizes the same valuation options in establishing compensation to landowners, taking the lowest option while still encouraging participation in the program.
• The bill proposes (Sec. 3103) a 75 percent loan guarantee program for conservation loans, which can be used for such things as creating pastures, installing waste management systems, or establishment of forest cover for timber management. Value of the farm for loan purposes would be established through the use of appraisals prepared by competent appraisers. A provision also prohibits mineral rights from being considered as part of any appraisal considered for loan purposes.
• A debt adjustment program (Sec. 3408) would rely on current appraisals for loan restructuring and farm property disposition. The value of land would also be considered in any debt cancellation measure agreed upon by the Department of Agriculture. Appraisals would also be used in loan principle write downs, with the average of two corresponding appraisals being used to establish a final value amount.
• The Stewardship End Contracting Project (Sec. 602) is authorized to use the value of timber or other forest products as offsets to participate in the program. Value is established through appraisals that use appropriate methods commensurate with the quantity of products to be removed. The valuations may be determined using a unit of measure appropriate to the contracts or valuing products on a per-acre basis.
A Senate Agriculture Committee prepared summary of the bill is available at : http://www.ag.senate.gov/newsroom/press/release/senate-agriculture-committee-approves-farm-bill. The House Agriculture Committee approved its version of the bill on May 16. A summary of the major provisions can be found at: http://agriculture.house.gov/press-release/house-ag-committee-approves-farm-bill-significant-savings-reforms
7 big questions for the farm bill debate
Gary Schnitkey, University of Illinois and Carl Zulauf, Ohio State University
This article is co-authored by ASFMRA academic member, Gary Schnikey, Ph.D. – Farm Bill markup likely will begin soon in both the Senate and House Agricultural committees. Much of the focus for traditional program crops will be around three programs: a revenue program, a target price program, and a supplemental crop insurance program. Read the original article on the Western Farm Press website: http://westernfarmpress.com/government/7-big-questions-farm-bill-debate?NL=WFP-01&Issue=WFP-01_20130513_WFP-01_433&YM_RIDemail@example.com&YM_MID=1393095&sfvc4enews=42
New Eminent Domain Ruling Wyoming Supreme Court
Wyoming member Theo Hirshfeld writes about this ruling and Eminent Domain Act of 2007
After discussing the new ruling in Wyoming on the eminent domain case, Barlow Ranch vs Greencore, as well as the recent changes made on the Eminent Domain Act of 2007 in the Wyoming Legislature we find that the Ruling confirms the act and that means we appraisers have our work cut out for us. The Eminent Domain Act and Ruling means the land owner has more ‘power’ in negotiating with the mineral companies seeking access (right-of-way and pipeline access) through the Eminent Domain procedure. Download a copy of the ruling: Barlow v Greencore 2013 WY 34