Nebraska

September 1st and your leases

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An oldie but goodie post as Nebraska farmers approach September 1st:

There is evidence that in Nebraska, most farm leases are oral year-to-year leases.  This is important because Nebraska law governs how to terminate such leases and September 1 is a critical day should a landowner wish to terminate an oral lease.

First, the law:

The Nebraska Supreme Court has ruled that a farm lease begins on March 1 for oral year-to-year leases.  To terminate an oral year-to-year lease, however, the Court has ruled that six months notice must be given prior to March 1.  In other words, to terminate an oral year-to-year lease, a notice to quit must be received by the tenant prior to September 1 of the preceding year.

Second, some examples:

Example 1:

The landowner as an oral year-to-year tenant.  Landowner decides she wants to terminate her lease with Tenant because she wants her nephew to rent the land beginning March 1, 2014. Landowner sends a letter to Tenant and Tenant receives it October 30, 2013.  Is the lease terminated so the nephew may rent it on March 1, 2014?

No, the lease is not terminated because an oral year-to-year lease requires a tenant to receive notice by September 1, 2013.  Here, Tenant received noticed from Landowner on October 30, 2013.  This means that Tenant may lease the farm land until August 31, 2014.

Example 2:

Same facts as above except now, Landowner sends a notice to quit to Tenant, which Tenant receives on August 30, 2013.  Is this lease terminated so the nephew may rent it on March 1, 2014?

Yes, the lease will terminate as of February 28, 2014.  Keep in mind the lease between Landowner and Tenant continues through February 28, 2014 but the Tenant has received a proper six months notice of termination, which is required under Nebraska law.

Third, some gotchas:

The above represent the default rules in Nebraska for termination of unwritten year-to-year leases.  The landowner and tenant can come to a mutual, voluntary agreement to modify the default rules.  Thus, if both the landowner and tenant agree, an unwritten year-to-year lease may end in June with 30 days notice.  The key is that there must be a mutual, voluntary agreement to do so.

If a landowner is terminating an unwritten year-to-year lease, it is advisable to do so with a letter and not in-person.  Additionally, it is best to send the notice to quit with time to spare from the September 1 deadline, as the tenant must receive the notice by September 1; it is not relevant when the landlord sends the notice.

Moreover, the above rules do not apply to written leases.  To terminate a written lease, the landowner and tenant must merely review what the lease states about termination and follow the lease provisions.

If you need clarification or just want to ask about dates and deadlines, you are welcome to contact us.  We’re happy to help Nebraska and South Dakota’s farmers and ranchers (both landowner and tenant!).

Nebraska Personal Property Tax Exemption for Beginning Farmers Due November 1

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Nebraska’s beginning farmers and ranchers have a tax program available to them, the Personal Property Tax Exemption.  Applications are due by November 1, 2014 for the 2015 tax year.  The Personal Property Tax Exemption is for beginning farmers, defined as those farming for ten years or less out of the past fifteen.  What the tax exemption provides is:

  • A three year tax exemption on tangible personal property up to $100,000 per year; for
  • Tangible personal property is agricultural or horticultural machinery and equipment.

How do you apply?  The application can be found at the Nebraska Department of Agriculture’s website.  (Note the application is the same as the Beginning Farmer Tax Credit — just check the box for the personal property exemption in the upper-right hand corner.)  You must apply by November 1 of the year preceding the year in which the exemption is to begin.  This means for an exemption starting in 2014, you must apply by November 1, 2013.

Does this mean the Beginning Farmer Tax Credit and Personal Property Exemption must be applied for at the same time?  No!  Does it also mean you must be a beginning farmer throughout the three year exemption?  No — you must only be a beginning farmer in the first year of the exemption.  However, the exemption is a one-time only proposition — you cannot keep applying for it.

This means that you can plan ahead for the optional time to apply for the tax exemption.  If your operation’s business plan is to purchase equipment in years five through seven (and you remain a beginning farmer at year five), you would want to apply for the tax exemption at that time, rather than applying for it immediately.

If you have any questions or require any assistance in applying for the personal property tax exemption, feel free to contact Legal Aid of Nebraska at 855-660-1391 or online here.

Nebraska Begining Farmers Network

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There is a little known group in Nebraska that is working together on beginning farmer and rancher issues.  The group, known as the Nebraska Beginning Farmers Network, brings together state, federal, and non-profit agencies to discuss and advance the number of beginning farmers in Nebraska.  What agencies are involved and how can they help?

Nebraska Department of Agriculture:

The Nebraska Department of Agriculture administers the Nebraska Beginning Farmer Tax Credit and the Beginning Farmer Personal Property Tax Exemption.

Farm Service Agency:

A federal organization which is part of the USDA, the FSA assists beginning farmers with both direct and guaranteed operational and ownership loans.  The FSA has also recently introduced microloans.  The FSA places an emphasis on assisting beginning and socially-disadvantaged farmers.

Nebraska Investment Finance Authority:

NIFA is a Nebraska agency which provides numerous financial resources, including the Beginning Farmer/Rancher program.  The Beginning Farmer/Rancher program allows for the purchase of land or livestock and machinery/equipment.  The Beginning Farmer/Rancher program works with banks and private sellers/lenders to facilitate loans up to $500,000 for land and $62,500 for livestock and machinery/equipment.  The loans are at below market interest rates because NIFA provides a bond to make the interest tax-exempt on both state and federal tax returns for the lender.

Other financing programs:

Other programs and agencies, such as Farm Credit Services and the Nebraska Department of Revenue, also have programs for beginning farmers.  Additionally, while programs such as EQIP and Value Added Producer Grants cannot be used for ownership, they are nonetheless powerful tools to start and/or expand your operation.

Other Network Participants:

The Network also includes organizations and agencies which provide non-financial assistance.   For example, the Center for Rural Affairs has a LandLink program to match established farmers with beginners as well as other information for beginning farmers.  Interested in learning the latest and greatest in farming innovations or just about an aspect of farming you are unfamiliar?  Check out the Institute of Agriculture and Natural Resources at the University of Nebraska-Lincoln.  Nebraska’s NRCS program also provides technical assistance to beginning farmers and ranchers.

There are other members of the Network which are listed on the Network’s webpage.   Take a look at it and I’m sure one or more of the participants will be able to provide you some knowledge, assistance, or other information that is useful to your operation.  And as part of the Network, you are always welcome to contact us!

Cover Crops and Crop Insurance — What do you need to know?

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It is no secret that, year after year, more farmers are considering the possible benefits of cover crops for their cash crops.  But the question for many farmers is whether they can terminate the cover crops without sacrificing crop insurance coverage.

To help answer that question, USDA personnel who helped craft the new cover crop termination policy will be speaking at a webinar on January 23, 2014 from 2:00 to 3:30 p.m. E.S.T..  The webinar, hosted by the National Center for Appropriate Technology and the National Sustainable Agriculture Coalition, looks to be a valuable resource for farmers trying to determine the best path forward for their operation.

However, if attending the webinar is not your cup of tea, the cover crop termination policy is also available.  What are the highlights?

  • The linked policy is applicable only to non-irrigated land.  If the land is irrigated, the cover crop must be terminated prior to the cash/insured crop emerging.
  • The policy uses zones to determine when cover crops may be terminated.  Roughly speaking, western Nebraska is in zone 2 and eastern Nebraska in zone 3.  Most of South Dakota is in zone 2, with the exception of a small sliver of eastern South Dakota in zone 3.
  • For zone 2, late spring to fall seeded crops require cover crop termination 15 days or earlier prior to planting the cash crop.  Early spring seeded crops require termination of the cover crop as soon as practicable prior to planting the cash crop.
  • For zone 3, the cover crop must be terminated at or before planting the cash crop.
  • An early spring seeded crop are crops planted as early as possible after the spring thaw.  Examples would be spring wheat, spring barely, sugar beets, and corn.  Later spring planted crops are crops such as soybeans and dry beans.

The policy statement covers frequently asked questions, as well as some technical details.  You are also welcome to contact your resources at the USDA if you have questions about the new policy.  You are also welcome to contact us if you have any questions.

Checking in on the FSA’s microloan program

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We’ve previously discussed the FSA’s microloan program, with its possibilities for beginning farmers.   With the end of the year approaching, there is now data concerning how many loans have been made, along with information on how many of the loans went to beginning farmers, veterans, or socially disadvantaged producers.

The National Sustainable Agriculture Coalition has an interesting article that delved into the microloan statistics.  Most pertinent for Nebraska and South Dakota producers is that both states have made microloans, just not to the extent of other states.  NSAC suggests multiple reasons: total number of producers, acreage size of operations, type of operations, FSA outreach and training on microloans, and other factors.

But what I find most interesting about the article is that promise that microloans hold for beginning farmers.  Of all microloans issued, 68% went to beginning farmers.  These microloans can (and did) cover many different operations, production methods, and producer needs.  Of particular import, the microloans covered these expenses without need to resort to higher-interest options such as credit cards, lines of credit, or high interest loans.  Less money paid in interest means more money for the operation and/or living expenses for the beginning farmer.

Ultimately, it is for the beginning farmer to determine whether microloans are a good fit for the operation and farming plans.  If you want someone to discuss your operation with and whether microloans are a good fit, you are welcome to contact us.  We’re happy to help!

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

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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!

Resources for the ag community about the Affordable Care Act

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Well, after a two week vacation, the blog is back and we’ll ease back into the conversation.  As we approach October 1st, there have been some questions from the agricultural community about the Affordable Care Act, aka Obamacare.  While I am no expert concerning this topic, there are some new resources that you may find helpful as you think about the Affordable Care Act.  First, the University of Nebraska-Lincoln’s Institute of Agriculture and Natural Resources has launched a resource center about health care decision making for small businesses.  You can find forms, regulations, information videos and factsheets, and other resources.  You will also find a section devoted to farm and ranch employment and the requirements under the Affordable Care Act.

DTN/The Progressive Farmer has been running an interesting series of articles about the Affordable Care Act.  The latest article discusses whether the health care exchanges may save farmers money on health insurance and the questions farmers may want to ask regarding the health insurance exchanges.  Additionally, the Center for Rural Affairs has a series of common questions and answers about the Affordable Care Act.

This blog is not offering legal or financial advice about your specific situation, but rather, providing resources for you to learn about the Affordable Care Act and then bring legal and financial questions to your trusted legal and financial counselors.  Legal Aid of Nebraska’s Farm and Ranch Program is happy to help with any questions you may have.  Feel free to contact us!

Update:  The website for the healthcare exchange is now open at healthcare.gov.

What Are the Numbers Telling Us?

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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?

Timing the Nebraska Personal Property Tax Exemption

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We previously discussed the math of the Nebraska Beginning Farmer Tax Credit.  Nebraska also offers a personal property tax exemption to beginning farmers for the purchase of personal property, such as machinery, used in the production of agriculture or horticulture.  Unlike the Beginning Farmer Tax Credit, the Personal Property Tax Exemption is provided to the beginning farmer, not the owner of agricultural assets (i.e. the person a beginning farmer leases from).

We have discussed the requirements for eligibility of the personal property exemption previously, but nonetheless, the requirements for the beginning farmer are the same as for the Beginning Farmer Tax Credit, with one exception: the personal property tax exemption does not require the beginning farmer to rent from someone to be eligible.

Why is timing important for the personal property tax exemption?  It is because the personal property tax exemption allows for a personal property tax exemption up to $100,000 a year for three years.  Once a beginning farmer is uses in the program, the beginning farmer may not use it again.  Thus, the beginning farmer should time when they apply for the tax exemption so as to maximize its potential.

Lets say that you are a beginning farmer.  Your business plan is to grow your business slowly but steadily.  Your business plan calls for you to steadily purchase equipment and machinery throughout your ten years as a beginning farmer.  You may begin with a drill or small tractor.  You plan to expand to a larger tractor and perhaps haying equipment.  Or, your operation may require specialized equipment.

Knowing this, it is best to plan when to apply for the personal property tax exemption at a time in your operation when you plan to outlay the most money on personal property purchases.  That way, the beginning farmer can use the personal property tax exemption to the maximum effect, helping the cash flow of the operation.

Keep in mind that the application for the personal property tax exemption is due by November 1st of the year prior to the year the exemption is sought.  For example, to apply for the exemption for 2014 through 2016, a beginning farmer must apply to the Beginning Farmer Board by November 1, 2013.  Then, to claim the exemption, the beginning farmer must present the eligibility certificate issued by the Beginning Farmer Board to proper county assessor by December 31 for approval.

Have questions?  Or just want to talk about the math?  Feel free to contact us!

Women Landowners

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This week, I’ve attended a workshop sponsored by the University of Nebraska – Lincoln Women in Ag and scheduled another workshop for women landowners in south-central Nebraska in mid-August (more info in a future post!).  The workshops have got me thinking about women landowners, the possibility for beginning farmers to rent from a woman landlord, and if there are any differences between renting from a woman or renting from a man.  These workshops, and previous workshops I’ve attended, demonstrate what the numbers bear out:  there is a growing segment of landowners in farming and ranching and it is women.

Women landowners are a growing group and control significant amounts of farmland.  In Iowa, women wholly or partially own 51% of the farmland.  Some of the women landowners are non-operators, meaning have not operated the farming operation.  The converse is that some women landowners are operators.  What does this mean for the beginning farmer and for women landlords?

For the beginning farmer, it means that your landlord may be a woman.  (And that’s okay!)  A woman who likely spent years helping her father and/or husband with their farming operation.  A woman who may, it turns out, be a source of immense knowledge of the land, its production history, and farming or ranching in general.  A woman who may need a successor.  Or a woman who is interested in helping beginning farmers get up off the ground.

For the women landlords, it means that you may have a younger person who may some new ideas they want to try.  Maybe the operator wants to expand into value-added agriculture or specialty crops.  A person who is invested in the idea of farming or ranching and wants to succeed.  A person who may need and want a mentor.

Moreover, there is some evidence that women landowners have different goals and values with regards to use of the land than men.  Knowing the goals and values of both the farmer and landowner is critical to creating a long-lasting, stable relationship.  So beginners, ask what goals and values the landowner has!  Landowners, don’t let someone farm your land without an understanding of your goals and values.

As with all landlord/tenant relationships, the key is communication.  Women landlords should communicate what goals and values they have to the land.  Tenants should decide if they want to work towards those same goals and if they can operate a successful business with the lease terms offered.

Want someone to further discuss the above issues with?  Contact us!  We’re happy to help if you are a beginning farmer or a landowner looking to create a business plan and/or succession plan.