No doubt, the war in Ukraine has an impact on ag. As this is generated, India has put in a soft ban on wheat produced that isn’t already under contract. That further tightens global supply which makes wheat and as a result, all of its grain family friends, run higher in the market. John Deere still operates its Russian based facility but used GPS location devices to remotely lock access to looted Ukrainian based John Deere equipment. (That prospect is a whole another article waiting to happen, miss a farm operating note payment and have a new, non-movable yard ornament is something ag finance lawyers would likely love to see be thing).
What might not be the obvious connection to ag is the planning and invasion itself and what lessons can be applied to the ag community. First, I am pro Ukraine on this and have been since my dad went on an exchange trip in 1993 to help them calibrate western farm equipment to make the move from collective farming. Having said that, despite the apparent shellacking that Russia is taking, it wasn’t that stupid of a plan from their prospective. Before the invasion, the Ukrainian President had a 31% approval rating with no military background and no long-standing political training. He was no Winston Churchill. He was saddled with a government that still had plenty of Soviet era corruption. The Ukrainian Army had a lack luster performance in Crimea and was bogged down in the eastern front with a static style defense, not a maneuver-based force that modern warfare generally calls for. Polling indicated that up to 40% of the respondents indicated that they would not take up arms in the event an invasion, many of which didn’t think would actually happen. Many citizens spoke Russian as the primary language and had close relatives in Russia. The Russian Army had undergone modernization following their Georgian invasion in 2008 and the results in Crimea and Syria pointed to them adopting to modern tactics techniques and procedures. The result, on paper, was pre-ordained. The proof in the pudding appears to be quite different. Outstanding performance from the president and its highly trained army, citizens that don’t give an inch of ground and massive aid from a previously somewhat indifferent Western Europe along with inept leadership from the Russians with on overrated under maintained and trained military have shaped a far different outcome so far.
Coming up for air from that geopolitical military analysis, what is the connection to ag. Sometimes, things just don’t pan out the way they should on paper. The best laid future plans on succession of the operation, wealth distribution and expansion can and will hit unexpected. Sons and daughters die, divorce and change career goals. Long term landowners who always treated you right go to the nursing home and promises to be first on the hit list to rent or buy go out the window when the out of state niece shows up with a smart phone and a land value calculator app on the phone. Markets change, tornados touch down and the railroad changes its mind on who gets priority shipping. The list goes on.
The ag operator and farm family must both be aware of the only thing constant in life is change and the only thing certain is death, taxes and change. Take the time to review succession plans now. Consider what assets you truly need to continue to hold onto to maintain your operation and lifestyle and which ones are just more gold on the pile. Consider reducing the pile of gold now by strategic gift giving. Contemplate a disaster and what the alternate plan is. Do you have the resources or access to capital to recover? How much property insurance do you have and what does it really cover? Does skimping on coverage to save premium really make sense? What happens if your daughter doesn’t (or does) want to milk cows when you are gone. Do you really care that much about continuing the farm? Do your kids? Is it reasonable to continue to operate the way you operate?
Wills, trusts, rights of refusal and first rights to purchase, LLCs and corporations all have a place at the table depending on these questions and your response. What you do now to shape your battlefield.
The two classic, Academy of Motion Pictures snubbed films of the late 70s, Convoy and Smokey and the Bandit (but not the sequels which we should never speak of) celebrated the essential portion of the America economy, the over the road trucking industry. The struggles of the trucking industry highlighted in the films, over burdensome regulatory environments and relentless pursuit by multiple enforcement agencies for infractions large and small remains unchanged.
The fight has broadened from speed limits and illicit cargo concerns to environmental concerns. California, the republic’s leader in overburdensome legislative endorsed value signaling, has decreed that starting 1 Jan 2023, with some narrow exceptions, all semi-trucks conducting over 1,000 miles in its state with engines with 2007-2009 emission specs will be prohibited. The enforcement agencies will PRESUME that all 2008-2010 trucks are in violation of the ban. In a perversion of the innocent till proven guilty concept, the citizens can prove their compliance by filling out forms and submitting photo evidence of their compliant engine to the bureaucrats, who suggest such obedience well in advance of the registration date or you will face delays. Out of state vehicles will face fines and impoundment. California officials gleefully pointed out that in state trucks will be policed by registration, leaving more “smokeys” to patrol the boarders of the state to enforce the regulation against out of state trucks.
It would appear that over 75,000 VIN’s with some activity in California would be impacted. This comes at a time when truck drivers are scarce, and the supply chain and its fragility has gone from the visibility of the lone student interested in library science in a small town to the captain of the varsity squad. And it’s in a state where many goods are off loaded into the US economy.
This regulatory action by a sister state will once again throw waves across the entire fruited plain of the US. The result will be higher prices, more delay and additional barriers to entry into the trucking market. I do wonder if the environmental good that the state seeks to promote adequately outstrips the impact on the citizens of the United States.
In other transportation news, Union Pacific railroad is announcing that because of delays, non-UP cars are going to be limited on its lines. They did this back in 2008 prioritizing rail space to the fracking areas to haul out product over grains and fertilizer transport. Ag depends on the rail system, the trucking system and the waterways of the US to move its products. The industry needs to remember that the railroads are also a verb (railroading) that has negative impacts on Ag and its ability to thrive.
Farmland auctions are a popular way to dispose of property. It clearly establishes the market price between the seller and the buyer, no appraisal needed. Like flavors of ice cream, everybody has a preferred auction method and understanding why one person’s rocky road is another person’s cookies and cream helps you understand exactly what is going on.
First some concepts. Reserve is a minimum price that the seller has in mind and once the reserve is off that is an indication that the sale will happen. Terms announced on the day of the auction generally prevail over any prior published terms. Buyers are responsible for doing their own research on a parcel. The auctioneer works for the seller, not the buyer no matter how friendly or helpful they are. Letters of credit are notes from backers indicating that purchaser is “good for it”, as auctions are not contingent (aka dependent) on financing post auction. A Buyers premium is an additional fee above the auction price that is assessed to the sale price.
The traditional open cry auction has the pageantry, the free donuts and the crowd spectacle that Hollywood loves. Anybody can register and, in most cases, anybody can be the successful bidder. The social impact of an open auction works both ways. The seller may accept a lower price than they would otherwise because of the perception of “letting down” the crowd and the public review. Conversely, the bidders may extend past their budget to “prove themselves” in the public spotlight against real and perceived competitors. Knowing who you are bidding against can sometimes prematurely end bidding if the competitor is well funded, an associate or sometimes, a distant relative.
Online bidding creates a much more analytical event where bidders sit in their own machine sheds and check the current posted bid and make a calculation on raising the same. This goes out the window in the closing minutes of the auction, as most of these events have a floating or soft close that essentially extends the auction close by a set time following each raise. What is posted as a 2 PM bid close may result in a 3:30 PM actual end of bidding. Online bidding allows participants from a wide location to participate, and it removes the social conventions some follow of not bidding up your neighbor as online bidding is generally anonymous.
A sealed bid auction creates a situation where a seller can review all potential bidders and review the offers in detail. This allows for a further “final bid” or additional negotiations to reach a price. The Seller has more control over the who they treat with. They are more likely to reject bids in this setting.
A “Dutch” auction is a reversed concept where a price is set and then lowered until it gets a bid, who then gets the item at the lowered price with the accepted bid.
An Invite only auction is just what is sounds like. The format at that private event can take the form of any of the types of auctions previously discussed.
Many times, buyers encounter a hybrid of these auction types, with a seal bid offer in the paper followed by a private invite only in person auction a classic example of the use of multiple techniques to seek and discover the high price for the land.
Within the context of the auction itself, parcels may be grouped into different lots such as bare ground and building site and then the whole farm offered as additional lot. Bidders may be successful on a building site bid, only to lose out on the combination of the land and building site to another bidder. A Choice auction is where several parcels that are similar are all up for offer and the top bid gets to pick the parcel they want (and sometimes as many parcels as they want for that strike price), then the process is repeated until the seller runs out of parcels.
What’s old is new again. In January, the Supreme Court is once again hearing Sackett v. EPA. This gun battle is about a wetland with a proposed house development on it in Idaho near a body of water that the EPA regulates. Really, it’s about how far the federal government’s reach goes and what set of rules it should apply when extending is grasping, overbearing, federal reach. The first Supreme Court battle was over whether or not the Sacketts could even challenge the EPA. Now that that was settled, they are back to fight over what rule is applied.
The fed’s derive their authority from the Clean Water act passed in 1972 by requiring permits for discharging into a “navigable water.” Makes you think that means you can float a boat in it or otherwise “navigate” on the water. Nope, it means “waters of the United States” and territorial seas. No further guidance issued from our friends in Congress. They left it to the administrators in the EPA to develop their own rule. They have tried three times and had two of them invalidated by court challenges.
When this all started, the EPA’s take was that wetlands near (adjacent) other waters that they had jurisdiction on also fell onto them to regulate, Based on 1980s regulations and a 1985 ruling. By 2006, the court was asked if the EPA can regulate close but not touching waters. The lack of a clear court decision resulted in a position that a clear connection or nexus meant the EPA had control. What was a nexus or a clear connection, the answers are as many as the starts in the sky and the alligators in a Florida swamp? Sometimes, the courts use the nexus idea and sometimes the clear connection. The EPA seems to like the nexus approach. However, whatever administration is in the White House has colored the flavor of enforcement technique. For example, the EPA put out rules in 2020 and then under a presidential directive, said they were redoing them in 2021 and reissued them in Dec 21.
The fight is which rule from the 2006 case controls, nexus or connection. The Sacketts say the nexus system is a “wait and see” type system that is never clear and makes it hard to make decisions on land use and investments. The EPA told the Supreme Court not to worry about this question, they were going to make more rules that were backed up by lower court rulings they won in and not to worry.
If you think this is going to be resolved anytime soon, you are wrong. Every year I attend an Ag Law Conference where this topic, if not on the official schedule, is on the lips of a small group of water law junkies and constitutional law nuts. The only thing that changes is the location of the conference, the food served at the break, and the gray in the hair of the debating parties.
Other States Follow Iowa’s lead
Iowa has long had a ban on ownership of land by foreign persons, particularly in the farmland sector. So does Minnesota, Mississippi, North Dakota, Oklahoma and Hawaii. Alabama, Missouri, and Indiana are all in various stages of contemplating restrictions. The work around is to have a “sponsor” acquire land in an LLC and then when the person obtains citizenship, they can take the title from the Sponsor LLC. Some states are wise to that loophole and encourage it, others have more formal protections and exemptions built in.
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