It might be better to instead use a spring price minus an "average basis" as a starting point. One of the revenue problems comes in when futures and cash disconnect -- then the harvest futures price doesn't make much sense either. Or, when we have a large, price-depressing harvest the basis tends to widen affecting farmers real cash income. Since the disaster program is supposed to help with that, going to a futures-only fall price would miss that loss.

Marcia: Thanks for the wonderful journalism. Please note that rents from landowners are a function of the price we must pay. As a landowner in Ohio, I need to push my rents higher to reflect the prices I have been paying for property. Good farmland in Ohio is now selling for $5500 per acre. You can't buy it at those prices and lease it out for anything less than $175 per acre. Hey, landowners are taking a lot more risk than the farmers (really!) and we must be compensated for said level of risk. Thanks again!

Tom, I know landowners like to claim that if rents were not so high, it wouldn't pay them to build the land (with their own two hands) , but my guess is that that land was there before you were. And if you weren't there, the land would still probably be there. What the renters can pay depends on their break-even point -- not yours. If their break-even point implies a maximum $130 and yours is $175 -- you overpaid. If you overpaid, that's your problem. The renters don't need to overpay to take the problem off your hands. They don't need your services. When the French cut off the heads of their landlords during the revolution, they saved enough money to go conquer Europe. Landlords are an avoidable expense.

Marcus: You are correct. The breakeven point is very important for the farming business people...and the high grain prices, low glyphosate prices, low fertilizer prices, and stable fuel prices have raised that breakeven point considerably. Landowners have a right to share in the commodity bonanza as well as the producers.

Tom: Perhaps the returns on your farmland investments seem low because you are not factoring in capital gains. When an investor buys stock, they consider two ways the stock may reward them; dividends plus appreciation. Add the two together and you get the total return on the stock. In fact, some stocks pay no dividends at all, so that any return must come strictly from capital gains! Farmland is not all that different, you have rent, which is a stream of current income (similar to stock dividends), plus appreciation. Add the two together and your returns in recent years may be in the double digits!

Marcus: You are indeed right about that. Here in Ohio we have just about doubled in price the last nine years...so about 8% per year on the land appreciation. I can't disagree with you on that one. Combine that with the 4% net that I am getting on the leases...and you are correct, Marcus. Times have been good...for both the owners and the producers. It's the best business I have ever been around...and I have been around a few!

I can't help but wonder what will happen to land prices if we lose ethanol subsidies, and crop subsidies. Our president and congress have spent all the funds this country had, and borrowed from our children and grandchildren. We can't repay this money, its gone forever. Only thing left is to cut spending. The percentage of voters tied to agriculture is in the single digits, the lowest of any voting block. The elderly has to be the largest voting block. Where do you think the cuts will come from, agriculture, or social security? Its a no-brainer! There could be millions of crp acres going into production, slashed ethanol subsidies, and slashed direct payments all hitting about the same time! Worried about high rents? The problem will solve itself. Then again, I'm just a pore dumb farmer. I could be wrong!

I can't help but wonder what will happen to land prices if we lose ethanol subsidies, and crop subsidies. Our president and congress have spent all the funds this country had, and borrowed from our children and grandchildren. We can't repay this money, its gone forever. Only thing left is to cut spending. The percentage of voters tied to agriculture is in the single digits, the lowest of any voting block. The elderly has to be the largest voting block. Where do you think the cuts will come from, agriculture, or social security? Its a no-brainer! There could be millions of crp acres going into production, slashed ethanol subsidies, and slashed direct payments all hitting about the same time! Worried about high rents? The problem will solve itself. Then again, I'm just a pore dumb farmer. I could be wrong!

BD: There would be a temporary dip in land prices, but over time commodity prices would rise to their true market level, far higher than today, and land prices would return to their historical growth rates. I know this is heretical in the world of agriculture, but the economic reality is commodity prices would rise accordingly and the fun would return in a very short period of time. This is just a good, good business!

A temporary dip?? Ethanol isn't economically viable without mandates, subsidies and taxing the heck out of fossil fuels. Take a gander at what happened to biodiesel without their subsidy. When the prices exceed the revenue stream they produce it is overvalued. Remember the Dot.com bubble. Those stocks went wild in value, but there wasn't the assets or revenue to justify the price. How about the current housing bubble. People were buying houses with no down payment on ARMs and Interest only loans. But they had no intention of paying for the house, instead they'd flip it and make a cool 100Grand in a few years. That cycle repeated itself over-and-over until small modest homes that you'd buy $75-100,000 in the midwest where selling for $500,000 or more. in CA, NY, NV, etc. If you bought land in 2005 you look like a genius today, but its easy to forget that I sold corn for $1.50-2.00 back in those days. What's changed? Ethanol mandates and oil prices. I have to totally agree with BD, that the current situation of agriculture is completely dependent on government policy. Political winds change quickly, and all the gains in the value of commodities can be undone with the literal stroke of a pen. BTW, what commodity bonanza??? 2008 took me nearly $500/acre operating expenses to produce the crop, 2009 drying charges and shrink ate up all those extra bushels, and until 3 weeks ago it looked like corn was headed for <$3.

Craig is so right! If you didn't pay people to build tractors, there wouldn't be any tractors. If you didn't pay anybody to build houses, there wouldn't be any houses. But if you don't pay anybody to buy farmland for top dollar and rent it out -- it would still be there and if it is good land, somebody would work it anyway. The land just might be cheaper. Any time an operator makes a good living, rents and land prices go up and the landlord takes it away from the operator again. And if you are worried about subsidies, most people who live in cities don't know that most farmland is rented. They think that ALL American farmers own their own land. They think that farm subsidies are a way to help poor family farmers stay on THEIR land. Once they find out the truth, they will be much less likely to support subsidies.

It is not ironic that North Dakota had a large Sure payment for 2008. Our wheat yields were 20 bushels below my farm averages, is that not why the Sure program was put together?

Larry, I love farmers from North Dakota almost better than any other state and I know you can have some weather challenges up there. So I trust you when you say you had a real disaster and know that a certain percent of people may have suffered one of their worst years. But remember SURE is only supposed to pay on revenue disasters not just a yield disaster. That's price times yield. With record high wheat prices in 2008--and on corn and soybeans--the 500+ farmers in the ND Farm Business Management Association averaged net income of $180,476 in 2008, only slightly down from the record $192,200 they made in 2007. The previous five years they averaged income of about $70,000. Help me explain this to taxpayers.

completely agree Marcia. crop insurance companies/agents have skin in the game and have incentive to get it right. fsa employees, god love them, have nothing to lose if they get it wrong and cost a guy a tremendous amount of money for their failures...

People can complain as much as they like about Wall Street and bankers, but those guys got nothing on farmers. Farmers make their profits two ways: operators' profits and land rents. If the operator is losing money, it's because he's overpaying the landlord. The landlord (whether it's some Chicago hedge fund, a retired farmer, or a dead farmer's grand daughter in Los Angeles) is making the profit. Now sometimes the landlord loses money because he/she borrowed money and overpaid the previous owner -- but the fact remains, somebody makes a profit until the land rent is pretty close to zero. Land rent is profit to any economist in the city. When farmers are "losing" money, that just means that the division of profits is too far in favor of landowners and not operators. Those who own what they farm (and didn't borrow to overpay) are doing just fine now. Those who teach English literature in some fine university on the East or West Coast and collect a check on granddaddy's land are doing just fine too.

I've been farming for about 35 years. I have seen this scenario a couple of times before. Two things concern me in this economy. We are using inflated values on our balance sheets and net worth statements to determine our debt load capacity and our net worth. The debt load may be reasonable, by % But if the value of our assets decline, our ability to handle the debt can erode or disappear rapidly. In the early 80's I bought 40 acres from my grandpas estate for $2750. My dad and I were combining the piece and he told me the land value could go to $1000. In 1985, I had to put it on my balance sheet at $850. I'm glad it was 40 acre and not a larger parcel. The second thing that happened both times, was a substantial increase in interest rates. Everyone agrees that it is harder to afford double digit interest, unless you "own" the cash. If values change in our economy, and cash becomes king, double digit interest and expanded debt do not go well together. I bought a planter in 1979 and paid 19% interest. Things in the rear view mirror may be closer than the appear.

Marcus and Gary: It seems the folks worse off since 2004 have been those who rent the majority of their acres or who avoided land ownership altogether. Their costs and rents keep edging up; at least the landowner-farmers have fixed their land costs. With the plunge in interest rates, some people have actually cut their mortgage costs by refinancing. Seems like the risk bar is rising for renters.

Marcia, I think that you may have it exactly backwards. The fact that renters are getting squeezed is a bad sign for landowners, especially those that borrowed to buy. If you think that land prices can't go down, remember what happened in the housing market. if renters can't prosper, they can't keep renting and that puts downward pressure on land prices. If a landowner rents free and clear, they can accept a little less income. But if they have mortgage payments to make and overpaid, then they are in trouble. Eventually rents come down enough that the renters can prosper again. And if they keep going down enough, the bank will own the land and sell it cheap. Then maybe the renters can buy.

Marcia: Can you imagine that the federal government would create such a monster that no one understands and certainly does not result in "fairness?" Marcia, when are we all going to learn that the fairest, most efficient, and most rewarding system of all for good farmers is the free enterprise system. Eliminate the subsidies and payouts and let the free market work...and it will reward us and consumers most handsomely!

Crop insurance works better than most FSA programs I have seen through the years. You don't have to buy it, or you can buy from a menu of various plans and coverage levels to meet your risk management needs. Yes, is is subsidized, but better for taxpayers as they pay something into it vs. most farm programs that require no buy-in from the farmer. Ask most farmers what they rely on to keep them afloat in years of poor crops/prices and they will tell you their crop insurance. Same answer will likely come from most ag lenders as it works and is something that you can rely on and make management decisions around.

Eric and Tom, it's no shock disaster programs are a mess--they've been in that state for decades yet powerful interests continue to reincarnate them at every opportunity. I agree that crop insurance is the defacto farm program and safety net for Midwest producers. They've embraced revenue-insurance products over the last 15 years and largely eliminated the huge income variations we experienced in the past. The key is how to tinker with insurance to get more southern and high-risk growers to cover a larger percentage of their income base at reasonable prices? 'Cause without the South on board,Congress is never going to wean farmers off annual infusions of disaster aid. Anybody else have ideas

Received a phone call from a farmer in Van Buren County, Iowa who dittoed complaints about the administrative headaches associated with SURE. He's in one of the counties flooded in 2008 and suffered major quality losses on alfalfa, but because FSA set the actual value of alfalfa at $149 a ton--about $70 more than what he received--he couldn't trigger a payment. Two appeals to Washington didn't help. "It's disgusting when we do what's expected to reduce erosion [grow permanent crops] but those who plant hilltop to hilltop get rewarded," he said. Just curious, but is anyone else having trouble with alfalfa payments under SURE?

By the way, Kansas State University economist Art Barnaby outlined some interesting scenarios of how FSA could handle GRP/GRIP policies more equitably under SURE in a recent e-mail. He points out that under these county-yield indexed plans, it's nearly impossible to get a zero yield like it is on individual poicies, so accommodations must be made in price to equalize insurance levels.For comparision sake, he says a 90% GRIP policy could be treated like an 80% CRC policy, and a GRP policy like a 75% MPCI policy--for SURE calculations only. I think this would be viewed as a fairer arrangement than the zero payments most 90/100 GRP policyholders are getting now.

I believe this is called redistribution of wealth, aka socialism. Now those who work hard can pay for those who don't.

Marcia Zarlely Taylor writes: "Biebl expects "the tax increases will then be enacted very late in 2010, leaving little time before December 31 to accomplish transactions at today’s lower rates, and of course too late to affect voting."" A smart electorate will vote them out of office in November anyway.

I am not going to have any sympathy for farmers who don't want to pay tax. Boo, hooo. What makes farmers more special than other wage earners in town that have to pay tax on their 401K's when they retire. Some farmers need to get off their high horses and realize that there is nothing wrong with paying your fair share. I hate paying taxes as much as the next guy but why should I (or my kids) get off the hook while my friends who work in town are stuck paying an inordinate amount of the burden?

Art's land is worth millions, how sad can he be? Do a tax free swap and you can own half of Mississippi! Agree with Bill, quit whining. He is the type of farmer that has America turning against agriculture.

True, it may be hard to feel sorry for someone who's trying to farm in America's pricey resort areas, but I have even less sympathy for the nonfarm billionaires whose heirs escape estate taxes from here to eternity. I've always wondered how the champagne rich made their wealth last for generations, and seemed to pay little estate tax in the process. A CPA and specialist on estate tax planning emailed that "yes the article is pretty factual. In fact you can actually leverage insurance to a higher level with these trusts." Assume an insurance trust bought a policy with a $20 million death benefit and a premium cost of $300,000 per year, he adds. If a death occurs in five years, the full $20 million escapes estate tax. This is how the rich are different than you and me--they can afford good consultants!

Perhaps for Art and his family, passing on his land as a farm is more important to than being rich. Selling enough of his land to cover the 55% estate tax might leave a farm that is too small to be viable for the next generation. That is precisely what happened to my own family's farm (in the great plains) - instead of selling of the land, we opted to get a bank loan to cover the taxes and keep the farm intact - at the time interest rates were 21%. You can probably guess the rest. Are 401ks taxed at 55%? And how do you even compare a a 401k to a farm where you've had your family's roots? I don't see the quote where Art is refusing to pay taxes, but I do understand his desire to pass on his family farm, and how a 55% estate tax will make that impossible for some farmers. And really, are we to the point that we think the concept of passing along your farm to your kids is the reason America is turning against agriculture? I think Marcia is nearer the mark with the non-farm billionaires.

It's time for state governments to start protecting people's rights since the federal government continues to attack them. Why shouldn't someone be able to pass on an asset to anyone they wish without their being a tax levied? Are we not entitled to life, liberty and property (earned or inherited)? Did you know income tax was ruled unconsitutional before it was finally ratified? STOP SPENDING!

one more thing about ACRE is that if a payment is finally triggered you don't receive any payment for more than a year. That is a long time to wait if things are not going well with price or yield.

In thinking about ACRE you must compare to the differences with DCP as that is the choice. With DCP you also do not get your final payment, if any, until a year later although their are some estimated payments with DCP. I would much rather wait for something than wait for nothing. ACRE or DCP does not replace crop insurance which pays relatively soon after harvest. (payment time depends on type of coverage, I.E. CRC or GRIP) I find that much of the discussion about ACRE inappropriately misleads folks by talking about all of the possible negatives often referring to improbable situations or "other states". ACRE is targeted to help minimize risk and risk deals with the unexpected and unknown. DCP deals only with price where ACRE deals with revenue created from both price and/or yield. With ACRE you are giving up 20% of the Direct Payment ($3 to $5 per acre) to be eligible for payments that could be over $100 per acre. This payment occurs when revenue falls, although it is delayed but at least it is coming. Payments start at 90% of expected revenue. In Michigan, 2009 wheat ACRE payment will be around $55/ac. Their are many other items that can favor ACRE that are not talked about much. ACRE payments are much more closely tied to what crops the farmer actually grows and the actual yields. Depending on your particular program base acres and your actual planted acres you could have more payment acres with ACRE. ACRE will pay much sooner as prices decline than what DCP does. The Counter-Cyclical payments do not start until the National Farmer Market Year Average (MYA) price falls below $2.35 for corn, $5.36 for Soys and $3.40 for MI wheat. The prices used for calculations of ACRE and DCP are the same. ACRE adds a component for Yield at the "state level". IF the state's current year's revenue (per acre) as determined by "the MYA price" times "the state yield" falls below 90% of moving historic revenue, "the guarantee", then a payment is triggered. Their is also a 2nd "producer trigger" at 100% of the historic "producer revenue". The second trigger is relatively easy to trigger as the same price is used and you add the cost of crop insurance (not required) to the revenue base. If the state triggers, you would have to have a yield higher than your 5 year Olympic average to not trigger. The bigger the state payment, as caused by low price, the higher your yield can be before you do not trigger. ACRE provides much better producer risk protection than does DCP. It provides big dollars to the producer when revenue falls. True, their is a lower loan rate and that can effect cash flow and income tax planning (if you use that tool). The interest expense on the difference in cash flow is very minor and other income tax management strategies may work to offset the tax planning issues. If we were to have MYA prices on corn below $1.65/bu or so then DCP starts to pay more than ACRE. Most would agree that this is fairly unlikely.

Roger, you have just given the most concise, persausive case I've heard yet for ACRE. What ACRE advocates like Carl Zulauf have long argued is to think of ACRE as a risk management plan, not an investment. If someone simply compares ACRE to DCP they will ditto your analysis. But the other important point you mention is how relatively easy it is for an individual who bought crop insurance to trigger a payment IF his state triggers. Thank you for articulating -- once the ACRE checks start rolling in October, more folks might be persuaded. But 2009 was a good time to sign up for ACRE, given the big cliff we saw in price drops. Folks at USDA say wheat prices enjoyed a once-every-30-year experience in 2008, and it might not get better than that in our lifetimes!

Marcia---Thanks, you only forgot one thing, to credit Alan Roebke (REB-key) for the story idea and bi-line source. But it shows the real challenges U.S. family farmers face. With Collin Peterson favoring ending payment limits and already allows unlimited crop insurance premium subsidies with one farm in N.D. receiving $552,000 in 2008 in Crop Insurance subsidies. So with that in play, big, bigger, biggest is headed our way boy's! Alan

Thanks for calling the Amber Waves article to my attention and for staying on topic, Alan. The authors at USDA get the credit for the wheat report, but we're in agreement that US agriculture's competitors are scaling up big time. It will be interesting to see if they have staying power or are just a temporary phenomenon.

Technology advances have far more to do with farm size than government programs. Reduced tillage, biotechnology, larger machinery, remote sensing, cell phones, the internet, and GPS based guidance and monitoring systems are making it possible for one person to cover ever increasing acres. Add to that agriculture's widening adoption of corporate style management systems and farms have the ability to grow to 40,000 plus acres. If anything farm programs tend to hold back farm size. The safety net helps to keep farms profitable at a smaller scale. The big grain companies, farm machinery manufacturers, and other large agri-business concerns are already tracking and courting the largest players for each commodity. If the government safety net disappeared tomorrow or payment limits render the programs useless, I am convinced these companies will step in with input and production contracts that will take the place of the farm program. They are not going to play with every producer counted by USDA however, instead they are going to seek out the top 20-50 farms in each commodity. Couple this with technology and at that point you will see mega farms in the U.S. similar to what has developed in Brazil and FSU nations.

Land ownership is different around the world and may play a role in what size farms grow to.

But in the last 24 months, rents have plunged from $1,500 to $2,000 per hectare to a mere $200 (about $8 per acre per year!), other speakers told Global AgInvesting attendees. Could you explain the math above. I am not following.

No hint of being objective here, but our Mississippi Delta farm land has a lot to offer. I am a landowner, real estate broker, and former farmer in Indianola, Mississippi. What Mr. Taylor describes, we have all of the above. Please contact us and let us prove it. Check us out with no obligation expressed or implied on your part. Come on down!

Burke, I think you're right--there's more promise for returns outside the prime corn belt now. Gary Taylor says that investors demand that 5% cash return, and it's getting harder to show that in Iowa.