To contract, the minds must meet.

Along with consideration and acceptance, a fundamental principle of contract law is “a meeting of the minds”.

You intuitively know what a meeting of the minds is.  It is when the parties have a binding mutual understanding as to the essential terms and conditions of a proposed contract.  Without a meeting of the minds, a contract cannot be formed.

Keep in mind this is about essential terms of the contract.  In other words, a contract must be definite and certain regarding the terms and requirements; it must identify the subject of the contract (e.g. buying a specific tractor) and articulate the essential commitments and agreements about the subject.

Let’s take the example of buying a tractor.  What would the essential elements be?  In other words, what is the consideration?  Price is the obvious element we would need to agreed upon.  Perhaps delivery to your farm is essential; you would not otherwise enter into the contract.  If a certain model of tractor is the only one who can perform a specific function you need, delivery of that model is essential.  Does the color of the tractor matter or whether the radio is on the right or left of the console?  Most likely, not at all because you are concerned only that the tractor can perform the functions as required.

What is most important to keep in mind is that all parties to a contract should have the same, mutual understanding of all the terms in a contract.  The meeting of the minds is another good reason to have a written contract rather than an oral contract — you can review all the terms prior to signing the contract and you can always review of the written contract to refresh your memory  If you don’t understand what a term means, ask.  If you will not agree to a contract without specific requirements, include them in the contract and state that such terms are essential.

The above is a quick overview of the meeting of the minds and there are nuances in the law.   Curious about the nuances?   Or are you a beginning farmer and have further questions about contracts?  You are welcome to contact us — we’re here to help!

The USDA is closed, with a few exceptions.

As you likely know, the federal government shut down as of midnight eastern time.  If you haven’t been to the USDA’s website yet, take a gander and I’ll be right here waiting for your return.

What services are available from the USDAThis chart, if you search for the USDA, outlines what is and is not open.  Of interest to this audience, meat and poultry inspections continue, as does grain inspections, and the loans backed by the Rural Development Division will be monitored.  The Farm Service Agency is shutdown and in operation only for emergency and natural disaster response.   The National Resources Conservation Service is shutdown with the exception of protection of life and property.  The Risk Management Agency is shutdown and no employees will be at their offices.  Market analysis, forecasts, and analysis will not be provided because the Agricultural Statistical Service and Economic Research Service will be closed.

Please keep in mind that the above concerns the government shutdown and as more information becomes available, this post will be updated.  This post does not address the Farm Bill Continuing Resolution which also expires today.  More than the Farm Bill situation Thursday.

Update:  The National Farmers’ Union has a nice rundown of the implications of the shutdown.  Of note:

Farm program payments for crops planted in 2013 would continue after the farm bill expires September 30. However, payments would not be able to be delivered under a government shutdown.

Update 2:  The Wall Street Journal also discusses the implications for farm program payments and market projections, statistics, and analysis.

The importance of persistence

I have been considering a story I heard from a colleague about the beginning farmers who are currently renting his crop land.  The beginning farmers began to cultivate (pun not intended) a relationship with my colleague for a few years.  They would call my colleague, ask if he had any land they could rent without disrupting any current tenants, if he knew of any other landowners looking for a tenant, keeping my colleague up-to-date on their operation and plans, and generally letting my colleague know they were interested should an opportunity ever arise.

The opportunity then came.  My colleague was considering renting his land and, as he had in years past, received a phone call from the prospective tenant.  This time, my colleague indicated he was interested in renting the land and asked for more details regarding the tenants’ operation, their agriculture and educational background, and ideas for maintaining the environmental integrity of the land.  My colleague also discussed the use of the Nebraska Beginning Farmer Tax Credit program and the requirements for both himself and the tenants to qualify.

What have I gleaned from this story from the perspective of a beginning farmer?

  1. Polite persistence is key.  We all know that access to land is the single most difficult barrier for beginning farmers to overcome.  But that doesn’t mean you can’t talk to people in your community, create relationships with landowners, and generally let the word out that you’d like to rent land.
  2. Don’t expect immediate results.  It took the tenants in the above story a few years for their persistence to pay off.  But when my colleague was considering renting his land, the first people he thought of were the people who maintained a relationship with him and let him know about their interest in renting his land.
  3. Have a plan.  Don’t just approach a landowner and state you’d like to rent the land.  Know what type(s) of crops you wish to grow, your ideas on fertilization and pesticide use, whether you wish to pursue cash rent or share rent, your farming background, and any other pertinent details that demonstrate that renting to you is in the best business interest of the landowner.
  4. Be aware of any programs that assist beginning farmers.  A tax credit is a wonderful tool in your plan.  Know about it and discuss it with potential landlords.

What have I gleaned from this story from the perspective of the landowner?

  1. Be receptive to renting to beginning farmers.  Sure, it may be a bit outside your comfort zone to rent to a beginning farmer but it may make business sense as well.  Listen to the ideas and keep them in mind.
  2. Be aware of any programs that assist beginning farmers.  Who doesn’t like a tax credit?  As a landowner, you may qualify for the Nebraska Beginning Farmer Tax Credit.  Calculate the tax credit and consider it in the larger picture of your operation’s financials.
  3. Have a plan.  There may be a time when you can no longer cultivate your own fields.  If that time comes, do you have relationships with other farmers who would be interested in renting your land to maintain your income stream?  More long-term, if you want a successor to the operation, do you have one?  Renting to a beginning farmer may provide you with a mechanism to maintain your operation for another generation.

Ultimately, there are benefits to both beginning farmers and landowners by being persistent and allowing persistence.  You never know — you may just find the perfect fit if you persist.

Pasture, Rangeland and Forage Insurance — A Pilot Project for Nebraska

Cornhusker Economics has a wonderful overview of the new Pasture, Rangeland and Forage Insurance pilot program in Nebraska.  In summary:

  • If you are a Nebraska producer who uses grazing and hay production in your operation, the USDA’s Risk Management Agency is introducing a new insurance product, the Pasture, Rangeland and Forage (“PRF”) coverage.
  • In the 2013 crop year, PRF coverage changes from a vegetative index to a rainfall index.  This means that, instead of PRF coverage based upon satellite imagery to determine the “greenness” of a pasture, PRF will now be based upon the rainfall received in insured area.
  • Insurance (or, in legalese, indemnity) is paid when the rainfall in the insured area is below the guaranteed level, which is determined as a percent of average rainfall.  This means that coverage is determined based upon the rainfall in the insured area, and not upon the production of the operator.
  • An insured area is based upon a grid.  Per Cornhusker Economics, the grid in Nebraska is approximately 13 miles east-to-west and 17 miles north-to-south.  Thus, the rainfall index is calculated for the grid rather than an individual farm or ranch.

But how does it work?  That requires a few steps.

  • First, each grid area has a base dollar value of production determined by RMA for grazing or haying.
  • Next, the producer selects a productivity factor.  The productivity factor adjusts the base dollar value up or down, from 60 percent to 150 percent of the base dollar value.
  • Third, the producer will also select a guarantee level.  The guarantee level is the percentage of average rainfall at which insurance payments are triggered.  The guarantee level can range from 70 percent to 90 percent, ranging in five percent increments (i.e. 70, 75, 80, 85, and 90 percent).  Thus, if a producer selects an 85 percent guarantee level but the grid receives only 82 percent of average rainfall, the insurance is triggered.
  • With the base dollar value, productivity factor, and guarantee level, it is possible to calculate the maximum payout.  Liability is calculated per acre and is calculated as the productivity factor multiplied by the guarantee level.  In other words, if there is a base dollar value of $30 per acre and a productivity factor of 120 percent, the productivity value is $36 per acre.  (30 x 1.2 = 36).  Then you multiply the productivity value by the guarantee level.  Assuming a guarantee level of 80 percent, the total payout would be $28.80 per acre.  (36 x .8 = 28.8)

But wait, there is more!

  • The producer not only chooses the productivity factor and guarantee rate, but the producer must also select time period of coverage called index intervals.  An index interval is two months long.  If PFR insurance is selected, a producer must select two index intervals during the calendar year.
  • Once the intervals are selected, the total payout must be allocated across the intervals.  How does this work?  Well, our producer above has $28.80 of total payout available.  Thus, our producer must allocate part of the $28.80 to separate index intervals.  For example, our producer can allocate 60 percent (or $17.28) to one index interval and 40 percent (or $11.52) to a different index interval.  Keep in mind that if an index interval is selected, at least ten percent of the total payout must be assigned to the index interval and the maximum allocation for any index interval is 60 percent of the total payout.
  • Premiums are subsidized and the amount of the subsidy depends upon the guarantee level.  For a 90 percent guarantee level, 51 percent of the subsidy is paid.  An 80 and 85 percent guarantee level has 55 percent of the subsidy paid.  For 70 and 75 percent guarantee level, 59 percent of the premiums is subsidized.

Keep in mind that any indemnity paid is based upon the grid system and the index interval selected.  That means it may not rain adequately on your acres but the grid may have enough rain that coverage is not triggered.  Also keep in mind that two index intervals must be selected.  Cornhusker Economics suggests selecting the two index intervals in which precipitation has the greatest impact upon production.

If you are curious as to your grid, click here.  Also feel free to contact your crop insurance representative or, if you have any other questions, you are welcome to contact Legal Aid of Nebraska!

A short guide on South Dakota law for leasing agricultural land.

South Dakota has a few wrinkles in their laws that are unlike Nebraska’s laws regarding the lease of agricultural land.  What do you need to know?

  1. South Dakota does permit oral leases, but those leases are only year-to-year leases.  South Dakota does not permit an oral multi-year lease.
  2. If there is no contract or usage to the contrary, rent is payable yearly at the end of each year.
  3. If your oral lease is for forty acres or more, special provisions apply to terminate the lease.  A landlord must give written notice on or before September 1 to terminate the lease or it is renewed automatically.  If notice is given on or before September 1, the lease terminates on March 1.  This is applicable to tenants leasing crop land and grassland, either native or tame.
  4. If you have a written lease, the above provisions regarding notice to terminate are not applicable.  The termination provision(s) in your written lease determine how and when the lease is terminated.
  5. If you are seeking a multi-year lease, it must be in writing.  Keep in mind that any lease for agricultural or wildland may not exceed twenty years.

The takeaways from above?  While oral leases are permitted in South Dakota, it is only on a year-to-year basis.  Further, if more than 40 acres is leased, notice to terminate the lease must be given prior to September 1st.  Written leases are preferred in the law, although a lease for agricultural land may not last longer than twenty years.

What Are the Numbers Telling Us?

I have been reading a very interesting report from the USDA’s Economic Research Service, “Farm Size and the Organization of U.S. Crop Farming” by James M. MacDonald, Penni Korb, and Robert A. Hoppe published in August 2013.  What do I think I’ve learned that is useful to beginning farmers (beyond our previous discussion of the factors of beginning farmer success?)

First, there is no doubt that farming consolidation is happening.  Farms are getting bigger.  But, farming is also getting smaller.  There are a number of small farms in the United States, with niche or specialty products.

But here’s what really caught my attention: the return on investment for fruits, vegetables, berries, and nuts.  It is staggering, especially compared with “traditional” crops of corn, hay, soybeans, and wheat.  As the report notes, vegetables and melons; fruits, nuts, and berries; and greenhouse/nursery crops accounted for nearly 37% of all cash receipts from crops in 2007 but less than 4 percent of harvested acreage.

What does that mean in Nebraska, a state where consolidation doubled?  A cynical view of the numbers could mean that the opportunities for entering farming as a profession have decreased.  Or, it could mean there are opportunities for beginning farmers with a little ingenuity, imagination, and a business plan.  What does the beginning farmer need to know?

  • In order to know, research, research, research.  This doesn’t necessarily mean hiding your nose in a book all day, but it does mean knowing the return on investment for commodities you are interested in selling.  It also means knowing whether you can even grow/produce those commodities with the land you have available.  For example, as great as it would be, I don’t think cranberries are going to be successfully grown in western Nebraska.  (I am welcome to be proven wrong, however!)  So, talk to producers who have similar operations.  Take farm tours.  Check out webinars.  Take a class.  Do a small experimental patch for the commodity you are thinking of growing.  Learn how to market your commodity.  In short, keeping learning, because even when you think you know it all, there is something else to learn.
  • Be willing to change tactics and add enterprises.  Okay, so maybe your dream blueberry operation isn’t possible with the resources you currently have possible.  But perhaps a niche operation growing hops is possible.  Or you grow some great fruits and veggies and now, can expand to value-added enterprises such as jams and jellies.
  • Learn from failures.  So that value-added enterprise of making jams and jellies didn’t work out like you anticipated.  That’s okay so long as you learn from it and incorporate that knowledge into your next strategy.
  • Know that you will have to provide labor and physical capital to gain income.  I know of no other way but I’m happy to be proven wrong.

It is possible to become a successful farmer — after all, everyone begins somewhere.  But don’t just begin somewhere randomly.  Have a plan, know the markets, and use all the help you can get.  That help includes this program.  If you have financial or legal questions about beginning a farming operation or just want to discuss ideas, you are welcome to contact us.  After all, it is free of charge — why not take advantage of it?

Noxious Weeds Are Obnoxious

When I was growing up, my Dad’s favorite reward for unacceptable behavior was tell my brothers and me that we had to spend an hour in the pasture digging up musk thistle.  To this day, I can spot a musk thistle from 300 feet away and feel compelled to dig it up.  This wasn’t a fruitless exercise invented by my Dad.  It was also his method of controlled a noxious week in our pasture.

What are the laws on noxious weeds?

The Nebraska Department of Agriculture operates the Nebraska Noxious Weed Program.  The Program is to control invasive weeds that are dangerous to the humans, livestock, and compete with crops and pasture, substantially reducing yields.

What weeds are classified as noxious?

  • Canada Thistle
  • Leafy Spurge
  • Musk Thistle
  • Plumeless Thistle
  • Sericea lespedeza
  • Giant Knotweed
  • Purple Loosestrife
  • Spotted and Diffuse Knapweeds
  • Saltcedar
  • Phragmites
  • Japanese Knotweed
  • Bohemian Knotweed

If you need help identifying any of the above, pictures of each are here.

But what responsibilities do you as a farmer or rancher have with regards to noxious weeds?  First, it is the duty of any person to control the spread of noxious weeds on lands owned or controlled by him or her.  See Neb. Rev. Stat. § 2-952.  A person is not limited to an individual; it includes partnerships, firms, limited liability companies, corporations, companies, societies, or association.  Land is controlled by a person when the person has the authority to operate, manage, supervise, or exercise jurisdiction over or any similar power.  To control noxious weeds means the prevention, suppression, or limitation of growth, spread, propagation, or development or the eradication of weeds.  Neb. Rev. Stat. ¶ 2-953.

If a person fails to comply with controlling noxious weeds and the weed control authority finds that prompt control of weeds is required, a notice shall be given.  The person is provided fifteen days to control the weeds and a conviction of noncompliance may result in a $100 per day fine not to exceed $1,500.  If more immediate action is required, the weed control authority may proceed as necessary and place a tax lien on the property for the expenses of controlling the weeds.

Long story short?  Keep in eye out for noxious weeds and keep them under control.  You want to maximize the growth in your pastures and fields; one of the ways to do so is keeping the noxious weeds under control.

Agricultural Libraries

There are several online library resources that you may find useful as you consider starting or building your farming or ranching operation.

First, the USDA’s National Agricultural Library provides a wonderful resource for beginning farmers: Start2Farm.  Start2Farm is an online database of organizations, programs, and events directed towards beginning farmers.  You can find information on education and training, technical assistance, financing your operation, and networking opportunities.  The site allows you to drill down via categories of information to find exactly the information you want.

Second, the University of Minnesota hosts the Ag Risk and Farm Management Library.  The Ag Risk library hosts information on risk management, marketing, financial management, legal concerns, and more.

If you are interested in agricultural and food law, the University of Arkansas National Agricultural Law Center provides a wealth of information, covering everything from current and previous Farm Bills to summaries of various state laws concerning agriculture.

The information in these libraries and resources is extensive and covers a wide variety of topics — it is worth just wandering around the digital bookcase to learn some new information that may be pertinent to your operation.  If you have any questions about anything you read, feel free to contact us — we’re happy to help!

Friday Facts, Fun and Food

Another week has passed and it seems like it was just Monday.  However, it has been a fairly slow news week which is understandable — everyone is working on the farm!  If you have a moment this weekend for some reading, here are some ideas:

The Omaha World-Herald published an interesting article on value-added agriculture.

Want some practical information about crop insurance?  Click here and here.

Have a photograph of a national wilderness area you want to enter into the 50th Anniversary National Wilderness Planning Team?  Winning photographs will be displayed at the Smithsonian.  Find out more information here.

ArtPlace America recently awarded grants for Using Art To Bring New Life To Rural Communities.  The projects funded look fascinating and a wonderful opportunity for the cities selected.

And for Father’s Day, just try to get Dad to say no to a Roast Beef Sandwich with Melted Cheese and Caramelized Onions.