Newsletter | Past Issues

July, 2009

In This Issue:

Improving the Farmer-Lender Relationship

Ohio Law Offers Protection from Liability for Recreational Harm on Farmland

Legal Resources for Landowners on Wind Energy

2009 Wheat Crop and the Average Crop Revenue Election ( ACRE )

Federal Minimum Wage Increase on July 24

Hispanic Farm Labor Availability and Recruitment

Pounds of Milk Sold per Worker--How does your Dairy Farm Stack Up?

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Improving the Farmer-Lender Relationship

Wm. Bruce Clevenger, OSU Extension Educator

With today's costs of production, the majority of grain and livestock farmers have a need to finance the operational costs of the business. This is in addition to the intermediate expenses such as breeding livestock and/or equipment but also long term debt for land and buildings. Both farmers and lenders take risk when borrowing money and the relationship should involve some key elements to support success for both parties.

Dr. Danny Klinefelter, Professor and Extension Economist at Texas A&M University , suggests that farmers be prepared to borrow based on the framework laid out by the following questions:

1. How much money are you going to need? Not just initially, but over a period of time. Lenders don't want to loan all they feel comfortable with and then suddenly find more is need a short while later.
2. What is the money going to be used for? Be specific. Too many operating loans have been used to subsidize lifestyles, refinance and/or pay carryover debt, and finance capital purchases.
3. How will the loan affect your financial position? It's in your best interest to know your net worth, financial structure, historical cash flows, profitability and risk exposure before and after the loan request.
4. How will the loan be secured? The important lending consideration is not what collateral is worth at the time of the loan request, but its expected value at the due date or next payment date. Make clear joint ownership arrangements as well as production and equipment contracts and leases.
5. How will alternative outcomes affect your repayment ability? The importance of making sound projections and analyzing “what if” scenarios is even more important considering the increased price and yield volatility that producers have to deal with.
6. What risk management measures have been implemented? Understand all insurance policies thoroughly by knowing when it will trigger. Grain and livestock marketing is a risk management strategy but incorrect use of futures and options can increase risk and lenders may be unwilling to finance margin calls.

The American Bankers Association says let a farm budget be your financial road map. You are flying in the dark financially if you don't have a budge for all income and expenses. A farm budget helps you maintain the direction of the business and must be updated frequently. Deal with financial problems or concerns immediately. Farmers and bankers must talk early and often.

Klinefelter further advises a lender's request for more accurate and complete information should not be viewed as questioning the farmers character; it's just good business. Being complacent just because your lender has never required all that has been mentioned could prove to be a poor risk management strategy.

OSU Extension can assist farmers in preparing sound financial statements like balance sheets, income statements and cash flows. Contact your local county OSU Extension office.

References:

1. Being Prepared to Borrow; Dr. Danny Klinefelter, Texas A&M Univeristy
2. Ten Tips for Tough Finacial Times on the Farm; American Bankers Assoication
3. A Farmers Guide to Agricultural Credit; Ellinger & Barry, FarmDocs University of Illimois

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Ohio Law Offers Protection from Liability for Recreational Harm on Farmland

Peggy Hall, Director, Agricultural & Resource Law Program, Ohio State University Extension

Summer brings many inquiries from people who want to use farm lands for recreational activities such as fishing, swimming, hiking and camping. Legal liability for injuries is a common concern of landowners faced with these types of recreation requests. To encourage private landowners to open their lands to recreational activities, however, Ohio legislators enacted the Recreational User Statute many years ago. The law limits recreational liability in certain circumstances. Farm owners who allow recreational uses of their property will benefit from understanding how to utilize the law's liability protections.

What the Law Says

The Recreational User Statute states that an owner, lessee or occupant of nonresidential premises does not “owe a duty to a recreational user to keep the premises safe; extend any assurance to a recreational user, through the act of giving permission, that the premises are safe, or assume responsibility or liability for any injury to a person or property caused by any act of a recreational user.” Ohio Revised Code 1533.181.

How the Law Works

By stating that an owner assumes no responsibility and does not implicitly promise or have a legal duty to keep the property safe for recreational users, the statute gives landowners a legal defense against a recreational liability lawsuit. If a landowner successfully proves that the defense applies to a situation, the landowner is immune to the claims in a lawsuit. The Recreational User Statute's legal defense applies to a situation if:

•  A claim is against an owner, lessee or occupant of nonresidential premises .

•  Note that the law protects lessees and occupants as well as the actual landowner. A farmland tenant, for example, receives the law's liability protection.

•  The law only applies to “nonresidential premises,” which includes privately owned or leased lands, ways and waters, and nonresidential buildings and structures. If the alleged harm occurs inside or around a residence, the law is inapplicable. At least one court has determined that a backyard swimming pool is residential, and does not fit within the statute's definition of nonresidential premises.

•  A claim is based on harm caused to or by a recreational user, which is a person who has permission to engage in a recreational activity and does not pay for the right to do so. This definition of a “recreational user” includes several important provisions:

•  The person has permission to enter the premises. The owner, lessee or tenant must grant the person permission to be on the property. At least one Ohio appellate court has stated that “permission” does not need to be expressly stated, and can include acquiescence to a recreational activity that didn't have prior verbal permission. In that case, the court determined that a landowner who stood by and allowed snowmobilers to use his property had granted permission for the recreational use.

•  Recreational activities mentioned in the law include hunting, fishing, trapping, camping, hiking, swimming, operating a snowmobile, all-purpose vehicle, or four-wheel drive motor vehicle, or engaging in “other recreational pursuits.” Courts have stated that “other recreational pursuits” can include horseback riding, watching others swim, motorcycle riding, swinging, merry-go-round rides, watching others play baseball, and playing softball.

•  The law does not apply if the owner charges a fee or requires a benefit in exchange for the right to use the property. There are two exceptions to this rule: a lease fee paid to the owner of privately owned lands and a fee paid to the state or its agencies. For example, a landowner operating a private fee-based campground business does not receive the liability protection, but a landowner leasing land for hunting or fishing rights does have the statute's protection.

Ensuring the Law's Protections

Property owners who allow persons to use their land for recreational activities can follow several guidelines to ensure that the Recreational User Statute will provide liability protection if there is an injury on the property:

•  Give permission to the user . Expressly stated permission is preferred, since it is more easily proven. If possible, give written permission, document verbal permission in writing or have a witness present.

•  Don't charge a fee or accept a payment or benefit. With the exception of a leasing situation, don't require a payment or accept a benefit in exchange for the recreational activity.

•  Limit the recreational uses to nonresidential premises. Activities in or immediately around a residence are not covered by the statute.

•  Respond to a lawsuit. The Recreational User Statute provides a defense to a liability claim, but the landowner must formally raise and prove the defense in court. Don't ignore a legal complaint and assume that the statute applies. Take the complaint to an attorney so that he or she can file the appropriate paperwork to assert the Recreational User Statute defense.

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Legal Resources for Landowners on Wind Energy

Peggy Hall, Director, Agricultural & Resource Law Program, Ohio State University Extension

Wind energy development presents many legal issues, regardless of the size of the project. Two publications by Farmers Legal Action Group provide valuable assistance to landowners considering wind development projects. The Farmers' Guide to Wind Energy: Legal Issues in Farming the Wind includes information on negotiating wind property agreements, siting a wind farm, liability risks associated with developing and operating wind turbines, project financing, choice of business structure, government incentives for wind development, and tax consequences. The guide addresses farmer-owned large utility-scale wind farms as well as smaller on-farm and residential wind turbine projects. Negotiating Wind Energy Property Agreements is a compilation of important legal issues to consider when negotiating wind energy property agreements. Both publications are available on the FLAG website at http://www.flaginc.org/topics/pubs/index.php#wind .

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2009 Wheat Crop and Average Crop Revenue Election (ACRE)

Chris Bruynis, Extension Educator, Ohio State University Extension

The decision to select the Average Crop Revenue Election is challenging since the future price and yields of crops are unknown. Without price and yield knowledge, farmers are simply speculating on which government program might be most beneficial to their farm business. There is some expectation that wheat acres will receive significant ACRE payments in 2009. Although there may be ACRE payments, farmers need to think through the program parameters before spending the cash.

The ACRE program parameters state the State ACRE Revenue Guarantee is calculated by multiplying the average cash market price for wheat times the Ohio five year Olympic average. This average cash market price for wheat contains all wheat, not just soft red winter wheat and is currently estimated at $6.67 per bushel. Likewise, the 2009 average cash market price is for all wheat, not just soft red winter. So using the local Ohio wheat price will underestimate the wheat price and conversely over estimate the potential ACRE payments for wheat.

Another misconception is the time period that is used to determine the 2009 average market price for wheat. The 2009 wheat market year begins July 1 2009 and concluded on June 30, 2010. So estimating the average market price requires predicting market prices for the next 12 months. The USDA farm Services Agency posts an estimate for all program crops on their webpage http://www.fsa.usda.gov/FSA/webapp?area=home&subject=dccp&topic=landing which is updated monthly.

Using results from the University of Illinois ACRE comparison calculator, the following graph displays the projected ACRE payments under several different yield and price assumptions. In order for these payments to be made the state's actual average revenue and the FSA farm actual revenue need to be below the state revenue guarantee and the farm revenue guarantee levels. In this example, the assumption was the farm's average yield was identical to the state's average yield of 68 bushels per acre.

The forecasted price from the USDA FSA website estimates the average cash market price for all wheat to be $5.40 for the 2009 wheat crop. Using the $5.40 wheat price, ACRE will be similar to DCP-CC in payment levels if the average Ohio wheat crop is 72 bushels per acre. If the average Ohio wheat crop is 60 bushels, the expected ACRE payment increases to approximately $75.00 per acre resulting in a ~$55.00 better payment compared to DCP-CC. Since farmers have until August 14, 2009 to make the ACRE election, they have time to wait for the actual wheat yields. Following wheat harvest, farmers with significant what acres will be in a better position to determine if signing up for ACRE in 2009 is a good decision for their farm business.

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Federal Minimum Wage Increases on July 24

Dianne Shoemaker, Extension Dairy Specialist, Ohio State University Extension

Currently, Ohio 's minimum wage rate is $7.30 per hour. However, employers who gross under $267,000 annually, or employees under the age of 16 were only required to pay at least the Federal Minimum wage rate of $6.55 per hour. Effective July 24, 2009, the Federal Minimum wage rate will increase to $7.25 per hour.   If you are currently subject to, or choose to pay employees at least Ohio 's minimum wage rate of $7.30 per hour, no payroll changes are needed at this time.

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Hispanic Farm Labor Availability & Recruitment

Francisco A. Espinoza, Ag & Hort Labor Education

As a season develops, producers often wonder who will show up as a workforce, given the immigration situation, the weather and the very nature of migrating labor. This year, hard rains bogged down early planting, but crops have emerged and seem promising. Can harvests be far behind. And has the labor shown up.

But grower considerations for labor availability and recruitment should be planned and started early, rather than be left to fortune, chance and even immigration enforcement. Here are some factors to consider in attracting and hiring your Hispanic labor.

Wages & Work Conditions

- Production & profits are the bottom line for both employers & Hispanic workers.

- Decent wages & work conditions increase chances for positive recruitment results.

- Interstate Clearance Orders can clarify and   set employment terms & conditions.

- During the season is no time for bargaining. Maintain worker contact in the off-season.

Crop Calendar/Season Length

- Recruiting for dairy, nursery or landscaping can offer labor extended work and profits.

- Field crops, berries and tree fruit alone offer a shorter season and less profit.

- A variety of crops and a longer growing season will be more attractive to labor.

- Coordinate labor with other producers to provide more work and retain the labor.

Interstate Travel

- Labor's choices can be influenced by costs of food, gas and lodging along the way.

- Some employers provide travel cash grants or loans as incentive for recruitment.

- Workers prefer destination states that also provide for their social and personal needs.

  (See Migrant Labor Resources, OSU Ag Manager, June 2008)

- Labor may choose to work in nearby states rather than incur risks in traveling.

Maintaining contact with your good labor during the off-season can also prove beneficial to your efforts in recruiting and maintaining a productive and profitable workforce.

Something to remember:

If you don't identify and hire good labor --- or if you lose it during the season, such shortages will certainly damage your chances for success. A lack of good labor will ruin a potentially good year.

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Pounds of Milk Sold per Worker--How does your Dairy Farm Stack Up?

David Marrison, Extension Educator, Ohio State University

Plummeting prices in the dairy industry are creating critical cash-flow and long-term survivability issues on Ohio 's 3,328 dairy farms. Cost-cutting decisions must be made with full awareness of both short and long-term production and economic consequences. Many farms are analyzing every aspect of their business to see where money can be saved. The cost of labor and its impact on the overall cost of production, means a dairy manager needs to measure, evaluate, and monitor labor efficiency. An excellent way to accomplish this is by calculating the pounds of milk sold per full-time worker. This efficiency factor combines labor efficiency and dairy herd productivity into a single indicator.

The calculation of this measure is significantly influenced by your definition of an full time equivalent worker (FTE). In Ohio , an FTE is often defined as an adult who works 50 hours per week for 50 weeks (allowing two weeks of vacation per year). This translates into 2,500 work hours for each FTE. It is vital that you include all paid and unpaid labor in this calculation. Smaller dairy farms are more likely to have some unpaid family labor from a spouse, children, or the operator who likely works more than 2,500 hours per year. When analyzing and comparing your farm to other benchmark data, it is important to determine how the reporting agency defines a full-time worker.

To calculate milk sold per worker:

1. Calculate total FTE on the farm per year. Divide total hours of paid and unpaid labor for producing your dairy's feed crops and for operating the dairy herd by 2,500.

2. Divide total pounds of milk sold by total FTE per year. Total pounds of milk sold should be taken from the milk checks. Herd average figures from dairy record systems are not an accurate reflection of milk sold because they include fresh cow milk, milk discarded from treated cows, and milk fed to calves. The pounds of salable milk fed to calves should be added to pounds of milk sold to reflect total potential milk sales.

Pounds of milk sold per worker is an important tool for evaluating the productivity of workers and cattle. It combines efficient labor utilization with good to excellent herd production. If all feed is purchased, the general rule is to double these benchmarks.

Because free-stall parlor systems can handle more cows, these systems allow more pounds of milk per year per worker than tie stall or stanchion systems. Tie stall or stanchion barns entail considerably higher costs per cow than large, modern free-stall facilities. The combination of lower investment per cow and more efficient labor utilization make free-stall parlor systems much more economical, because they generally result in lower costs for producing each unit of milk. However, existing tie stall or stanchion facilities may be able to compete with free-stall parlor systems if the operation carries little or no debt.

Competitive Level:

Fewer pounds of milk per worker will likely be sold per year for small vs. large breed herds, but the value of the milk sold per year may be similar under similar management systems. This can occur because of the higher value per cwt of milk for the small breeds of dairy cattle (milk is higher in concentration of fat and protein). However, because the value of milk sold is affected by milk price fluctuations, it is not very useful for measuring labor productivity trends over time.

If the pounds of milk sold per worker is below the competitive level:

1. Evaluate herd productivity. To achieve the desired level of pounds of milk sold per worker, cows will most likely need to be above average in production for their breed. Many competitive farmers implement strategies to increase herd productivity. Some strategies include feeding balanced rations, optimizing cow comfort, using proven milk production technologies, filling facilities to above 100% of capacity, and milking more than two times per day.

2. Evaluate labor efficiency. Antiquated facilities and uncomfortable working conditions reduce labor efficiency. Careful hiring also plays an important role in labor efficiency. Employee training, motivation, and pride in doing a job well help workers to be more efficient and effective, whether they are family members or unrelated employees. Workers in tie stall or stanchion systems should be able to handle 30 to 35 cows per FTE, including raising crops. Workers in free-stall systems should be able to handle 40 to 50 cows per worker.

Bottom Line: An excellent way to examine labor efficiency is by calculating the pounds of milk sold per full-time worker employee. In free-stall and parlor facilities, a dairy should produce over 1 million pounds of milk per FTE for large breeds and over 750,000 pounds of milk per FTE for small breeds. In tie stall or stanchion facilities, a large breed dairy should produce over 600,000 pounds of milk per FTE or over 450,000 per FTE for small breeds. If the pounds of milk sold per worker is below the competitive level, managers should evaluate herd productivity and labor efficiency with farm advisors.

Author: David Marrison, Extension Educator, Ashtabula County

Contact at marrison.2@osu.edu , 440-576-9008.

More DIBS are posted on-line at http://dairy.osu.edu .

Reference:

15 Measures of Dairy Farm Competitiveness (2008). Available at: ohioline.osu.edu/b864/pdf/864.pdf

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The Ohio Ag Manager newsletter is published in collaboration by OSU Extension Educators and Faculty members of Ohio State University's Department of Agricultural, Environmental and Development Economics.

Ohio Ag Manager Team Leaders: Chris Bruynis & David Marrison

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Information presented above and where trade names are used, they are supplied with the understanding that no discrimination is intended and no endorsement by Ohio State University Extension is implied.

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Keith L. Smith, Ph.D., Associate Vice President for Agricultural
Administration and Director, Ohio State University Extension
TDD No. 800-589-8292 ( Ohio only) or 614-292-1868