Category: Farm Management

Forest-based carbon programs are gaining momentum and offer opportunities for woodland owners in the Southeast to receive payment for sequestering carbon. While many carbon programs in agriculture have focused on generating carbon credits in row crop production, most verified carbon credits in global registries were generated from forest-based carbon projects. However, family forest owners have had limited access to such programs until now. Across the Southeast, there is an average of 16.5 million acres of forest land per state, of which an average of 85% is privately owned. Figures 1 and 2 illustrate total forest land and the percent privately owned for each state in the Southeast. Offering carbon programs to family forest owners provides ample opportunities to generate carbon credits from previously untapped resources. Two forest-based carbon programs of interest to woodland owners are The Natural Capital Exchange (NCX) and the Family Forest Carbon Program (FFCP). NCX and FFCP programs differ in a number of ways, including contract length and forest management approaches. For example, NCX offers a one-year harvest deferment contract, while FFCP is a long-term contract that pays for implementing forest management practices. Before enrolling, it is crucial to understand the differences between the two programs. Visit their respective websites for more information. Furthermore, ask questions, read the fine print, and consult with a lawyer to ensure the carbon program is right for you.  

Figure 1. Total forest land by state in the Southeast

Figure 2. Percent of forest land privately owned by state in the Southeast 

Shockley, Jordan. “Carbon Program Opportunities for Woodland Owners in the Southeast“. Southern Ag Today 2(41.3). October 5, 2022. Permalink

Agricultural producers use various resources to continue learning and implementing new practices and technologies. Peer advisory groups are an essential tool for progressive and business-minded farmers or ranchers who seek continuous growth and improvement of their ag businesses.

Like most family businesses, agricultural managers make most business decisions alone. The lack of challenging and diverse ideas often means that producers miss business opportunities or fail to implement beneficial changes for their operations. A peer advisory group serves as a reciprocal advisory board that helps farm businesses generate knowledge and improve management strategies that can impact their operation. 

A peer advisory group is formed by ranchers and farmers willing to share their experiences and make the most of each member’s talents to solve problems and make business decisions. They constantly exchange information, knowledge, ideas, experiences, and opinions. Each group usually consists of 8-12 producers who periodically meet on each member’s operation. This group size helps maintain the intimacy and trust necessary to obtain the best results from each group member.

There are several peer group systems with methodologies for agricultural producers to achieve their goals. Argentina’s CREA groups are among the oldest and most experienced peer group associations (Regional Consortiums of Agricultural Experimentation). This association has more than 2,000 members and 60 years of using and perfecting the peer group methodology. CREA members have continuously improved their productivity and are at the forefront of new technologies and management practices. Thanks to the business management mindset generated within these groups, its members are among the top 20% of their country. 

Although not as popular as in Argentina, a few agricultural companies use this methodology in the U.S. and several private consulting companies offer these services. Through the leadership of the Texas A&M AgriLife Extension Service and funding from Southern Risk Management Education, a peer advisory group has been developed with ranchers from North Texas and Oklahoma, using a similar methodology as CREA groups. This peer advisory group focuses on the production risk associated with new production systems and the business’s economic, financial, and organizational aspects.

Abello, Francisco “Pancho”. “Peer Advisory Groups“. Southern Ag Today 2(40.3). September 28, 2022. Permalink

As more aggressive action has been taken to confront the climate crisis under the Biden Administration, environmental sustainability issues have become more relevant. Interest in the value of cover crops as a means to preserve and improve cropland has continually increased. Cover crop use has once again been on the rise (2017 Census of Agriculture) as our producers continually seek a balance between environmental and financial sustainability. Among the challenges reported by producers, cover crop seed availability is an issue. Many producers have also said cover crop seed costs are too high and that the additional cost of planting and managing a cover crop stymies cover crop adoption.

The University of Georgia Cooperative Extension Service conducted a cover crop survey with cotton, corn, and peanut producers throughout Georgia, Alabama, and Florida, from January 28, 2021, to March 31, 2021. Figure 1 illustrates the cost of cover crop seed based on the number of species in the cover crop blend. The average seed cost of single specie cover crops was $23.53 per acre, and for multi-species cover crops, it was $25.88 per acre. Most producers using cover crop monoculture indicate their seed cost ranges from $10 to $19 per acre. For mixed cover crops, there is more of a spread in the responses, with the $20-$29 range being the most common.  

To solve the challenge of the availability of cover crop seed, some producers reported that they harvested their cover crop seed to either sell it or plant it the following year. However, most farmers were not harvesting their cover crop seed. A few possible explanations for not harvesting and selling seed could be machinery related, time, seed germination, or understanding the value of the seed if they were to sell. Another possibility for not keeping seed is that they have chosen either not to plant a cover crop the following year or to plant a different type. One last explanation could be that farmers participating in a cost-share program could not harvest the cover crop. Most conservation cost-share programs won’t allow producers to harvest seed to sell or save for seed. 

A cover crop is relatively expensive to plant. Most farmers who responded to our survey in these three states do not currently graze or harvest their cover crop, which would help to offset some of that expense. It is important for farmers to find and adopt the most beneficial cropping practices, which may include cover crops. As more producers become interested in planting cover crops, emerging local business opportunities may materialize for specialized seed companies to identify and stock the cover crop seed mixes that are of interest.   

Figure 1. Number of producers reporting specified ranges of cover crop seed cost per acre for single specie cover crops and multi-species cover crops for cotton, peanut, and corn producers in Georgia, Alabama, and Florida. Total respondents are 40. 

References and Resources:

USDA National Agricultural Statistics Service, 2017 Census of Agriculture. Complete data available at www.nass.usda.gov/AgCensus.

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Harkins, Madison, Yangxuan Liu, Alejandro Plastina, Guy Handcock, and Amanda Smith. “Cover Crop Seed Availability Hinders Cover Crop Adoption by Agricultural Producers.” Southern Ag Today 2(39.3). September 21, 2022. Permalink

Economic depreciation is often overlooked when it comes to the profitability of a farming operation since it is a non-cash expense. One reason is when farmers hear depreciation, they think of tax depreciation. Tax depreciation is an essential tool to lower before-tax income (Tax depreciation and guidelines can be found through the IRS, and application of tax depreciation methods should be discussed with a tax professional). However, the tax depreciation value does not accurately reflect the “real” annual value loss of an asset. For this reason, using tax depreciation to assess profitability will lead to inaccurate calculations. Instead, economic depreciation should be used for farm financial statements. 

Economic depreciation differs from tax depreciation by estimating the actual reduction in the value of an asset over time. The value lost depends on use, wear and tear, age, and technical obsolescence. Annual economic depreciation will also vary based on purchase price, the estimated value when sold, and the length of ownership for each asset.  

An example of the difference between tax and economic depreciation is when looking at an operation’s purchase of a new grain truck. For tax purposes, the farmer can use Additional First-Year Depreciation (Section 179), which will allow them to deduct the entire cost of the truck within the year of purchase. However, if the farmer wanted to sell that truck after one year, it would still have considerable value. The difference between the purchase and resale prices is the value lost for that one year of use. This difference is the economic depreciation and should be used in farm financial statements to more accurately determine profitability.  Figure 1 illustrates how economic depreciation on farm machinery has increased over time for grain farms in Kentucky.  On average, machinery depreciation represents eight percent of the total cost of production (variable and fixed costs) for Kentucky grain farms.

A more in-depth discussion of tax depreciation vs. economic depreciation, and comparing depreciation for new or used machinery with guided examples can be found here.

Figure 1. Average annual machinery depreciation for Kentucky grain farms by size ($/ac)

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Ellis, Robert, and Jordan Shockley. “Economic vs Tax Depreciation: Understanding Which to Use for Determining Farm Profitability.” Southern Ag Today 2(38.3). September 14, 2022. Permalink

Farmers and ranchers have been leasing land as a strategy to expand their operations for generations. Today, approximately 39% of farmland operated in the United States is leased, with most farmers operating a mixture of leased and owned land (Bigelow 2016). Leasing farmland is also an affordable way for young and beginning farmers to get started and gain economies of scale in a capital-intensive business where they may not have enough money to buy farmland early in their careers (Katchova and Ahearn, 2016).

While advantageous from a financial standpoint, the actual process of getting in touch with landowners and developing relationships with them can be a daunting task. Many young farmers develop a relationship with a landowner through parents and grandparents, who facilitate “handing down the farm” from one generation to another within the leasing relationship. Other young and beginning farmers contact potential landowners directly and propose to build a business relationship that starts from scratch.

The most common claim that young and beginning farmers make about entering the land leasing market is that it is all about being price competitive. In other words, you have to have the highest bid to win over a landowner. But that turns out to be only part of the picture. Information gathered from talking to landowners in focus groups about their preferences for leasing their land suggests that many are interested in helping the next generation of farmers and are just looking for the right fit. 

As a complementary strategy to being competitive with their lease bids, farmers must consider marketing themselves as a quality tenant to landowners. One way to do that is by building a resume with your farming credentials presented in a professional way (see example). Resumes should include personal and business references, farming experience, and your farming philosophy (e.g., conservation practices you want to employ, and improvements you could contribute to the land). Presenting a resume to the landowner as part of your negotiation strategy could be the effort that makes the leasing relationship happen.

References:

Bigelow, D., A. Borshers, and T. Hubbs. (2016) U.S. Farmland Ownership, Tenure, and Transfer. Economic Research Service, Bulletin Number 161.

Katchova, A. L, & Ahearn, M.C. (2016). Dynamics of Farmland Ownership and Leasing: Implications for Young and Beginning Farmers. Applied Economic Perspectives and Policy, 38(2), 334-350.

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Arnold, Chelsea J., and Mykel R. Taylor. “Farmland Leasing for Young and Beginning Operators.” Southern Ag Today 2(37.3). September 7, 2022. Permalink