Our Blog

Read the Latest News

 

Wont Crack: California’s Egg Sales Law Stands Up to First Attack.

The U.S. Supreme Court declined to review a challenge to California’s egg sale law that was filed by several states, including Iowa. The complaint comes against the law’s requirement that egg producers in Iowa have to modify their operations and increase costs to sell eggs in California under its state law. The Supreme Court didn’t decide the merits, but simply decided the State did not have the “standing” or legal status, to challenge the law. Iowa is a top egg producer and this is not good for other forms of ag either, as California is a large consumer of ag products and subject to ballot measures that groups can use to quickly change state law.

Snakes in the Mail:  Reptile Keepers Win Against FWS Ban on Giant Snake Trade.

The Lacey Act bans “any shipment” of injurious species (which not surprisingly includes Giant Snakes) “between the continental United States, the District of Columbia, Hawaii, the Commonwealth of Puerto Rico, or any possession of the United States.” The U.S. Fish and Wildlife Service interpreted the shipment clause to ban transport between the 49 continental states as well.

The United States Association of Reptile Keepers (ARK) challenged the rule, arguing language of “between” covers only shipments between the listed jurisdictions and the continental United States. The district court found the law does not bar shipments between the 49 continental states.  Look for the next Amazon Prime day for a special on King Cobras with free shipping.

No Dolphins Hurt, Only Pocket Books. Bumblebee Tuna Will Plead Guilty to Price Fixing Charges.

Bumble Bee Foods has agreed to plead guilty to federal charges of price fixing. Bumblebee Tuna, Chicken of the Sea, and StarKist agreed to fix the prices of shelf stable tuna fish from 2011-2013. In addition to pleading guilty, Bumble Bee has also agreed to pay a $25 million criminal fine. Two of Bumble Bee senior vice president have also pled guilty to fixing prices.  Walmart, and several other retailers, have filed civil suits against the tuna companies, alleging that the price fixing has been a long-lasting conspiracy.

Out of Water: EPA & U.S. Army Corps of Engineers Move Away Expansive Water Jurisdiction.

The Environmental Protection Agency, Department of Army, and Army Corps of Engineers are proposing a rule to rescind the Clean Water Rule and move back to the regulations that existed prior to 2015 defining “waters of the United States” or WOTUS. This will hopefully, shrink the EPA’s jurisdiction as well as the Corps of Engineers.

Montana Beef Producers Rustle Up a Stay of the Beef Check Off Program.

The Federal District of Montana confirmed a lower court ruling that the USDA beef checkoff program violates the First Amendment rights of the state’s cattle ranchers.  The ruling is a noteworthy development as the check offs are widely considered government speech. I still enjoy the “BEEF: Its what’s for dinner” ad campaign that the check off funded, and the “Support Beef: Run over chicken” bumper sticker, though I am not sure that was check off dollar supported.

After Years of Fighting Against COOL, Now Farmers are Suing to Implement it.

A suit against the USDA alleged that country-of-origin labeling (COOL) regulations are harming farmers and misleading consumers. The farmers claimed that not having COOL “reinstated regulations that reclassify imported beef and pork as domestic goods, enabling that meat to be passed off as a United States product.” 

Incomplete Job: Dakota Access Pipeline Needs New Environmental Impact Assessment.

In June, the Federal Court for the District of Columbia found that the US Army Corps of Engineers did not consider the impacts of an oil spill on fishing rights, hunting rights, or environmental justice for the Dakota Access Pipeline process. The Corps will have to reconsider those sections of its environmental analysis. However, the court also declined to stop the pipeline’s operation and indicated that it is an issue for another day. Classic example of both sides being able to claim a victory from one ruling.

Silence is Consent: Court Considers Actual Production History (APH) Yield Exclusion 

A group of winter wheat farmers challenged how federal crop applied the Actual Production History (APH) Yield Exclusion to their crop insurance claims.. The court found that Congress addressed other crops specific application/implementation language but did not for winter wheat. This indicates an intention to allow the existing law to be applicable. 

Monsanto Not Responsible for Off Label Use of Dicamba by Farmers.

A claim was made in court that Monsanto should foresee the illegal use of dicamba and be held responsible for those who are injured by a farmer’s off label use. However, because of the use of warning labels placed on the seed products, the claim was rejected. Monsanto included warning labels, providing notice to farmers that the spraying of dicamba on GE crops would be in violation of state and federal law. So yeah, labels will still be a thing for a long time.

In other dicamba litigation, a group of Arkansas farmers allege that Monsanto’s and BASF’s “negligent control, development, and distribution of the dicamba crop system . . . proximately caused significant and material injury and damage to Plaintiffs’ crops in 2016.” The lawsuit states that farmers who did not plant dicamba-resistant seeds had no way of protecting themselves, and have been victimized by Monsanto’s and BASF’s conduct. The case is pending.

Data Dump Costs the EPA: Farm Groups and EPA Reach Privacy Settlement Regarding Agricultural Data

The American Farm Bureau reached a settlement regarding violation of the Freedom of Information Act brought by AFB and the National Pork Producers Council against the EPA. The litigation started after EPA released spreadsheets containing personal information about farmers and ranchers in 29 states who raise livestock and poultry. In some cases this included the names of farmers, ranchers, other family members, home addresses, email addresses, GPS coordinates and telephone numbers.

 

 

 

Its July, its hot, and the worry will soon set in on Harvest ‘17. Minus some late season applications, the die has been cast on the crop, and mother nature will be the deciding factor as the crop moves toward maturity. It is time to evaluate where the farm operation is, where it is going, and where it needs to steer clear of in the coming years.

Does your operation have a one year, three year, and five-year plan? Has it reviewed its relationships with its land owners recently?  When is the operation going to need more labor? Where will it get that labor, and how will it retain its help when competing with off-farm jobs? Does the estate plan match the business plan? What vendors can you rely upon to grow with you, and which ones are not up to the task? Have you outgrown relationships with vendors and end users of your product? Why do you buy and sell where you do? How could you make it more efficient? How will new federal or state legislation and programs impact your operation? What would a sustained 10% hit to the gross income do to your operation and how would it adjust. Same question at 20%.

These questions need to be asked frequently, and they need to be answered honestly after considering the environment you are operating in.

Consider a couple of the environmental factors farm operations are experiencing right now.

  1. This year has been particularly interesting for farm operators, as lenders are tightening their purse strings, margins seem to be shrinking, and the equity in the once red hot farm land market appears to be receding. Dairy operations are being asked to check with the buying creamery before expanding herds significantly.

  2. Banks are not keen on the slim cash flows. Operators are being asked to consider consolidation, releasing high rental rate ground, and stream lining their operations to be lean in the coming years. Those operators who bought shiny equipment in the last several years are starting to regret aggressive short term note payments and taking accelerated depreciation.

  3. The ever-aging population of farm land owners who are needing high rents to cash flower their health care needs. What does your land owner need from its tenant to meet its own obligations?

While farm operators are used to having to know everything from tire changing, yield monitor calibration, and agronomy, it is highly unlikely to have all the answers yourself. Those involved with professionals like tax preparers, lawyers, appraisers, marketing specialists, and bankers, to accurately assess the question and its costs, will be far better off.  

Consider this example of behaving like a professional. A large dairy operation installed a scale and told its suppliers point blank, “we will pay for what goes across the scale on the farm, scale in and scale out.” The operation thinks the scale paid for itself the first year.

Businesses that grow take risks, and balance it with the reward. The opportunities for those with the patience and planning will be many in the coming years. A solid cash base to work from will result in opportunities for capital and equipment purchases in the coming years with good value. Operators who can “do the math”, make cash flows that work, and treat farming operations as business operations, not emotional baggage, will be poised to capitalize and grow.

The world of ag law never stops. Here are some of the recent changes in the law that impact agriculture. Every once in a while, a quick tour is in order.

  1. Des Moines Waterworks. They attempted to hold drainage districts responsible for nutrient run off fails.  The sue and settle method of the federal activist groups was not successfully parroted by the DSM Waterworks in their attempt to get additional parties to the table on nutrient run off management.
  2. Syngenta Litigation. The lawsuits have their first “bell weather trials” (aka test cases) working their way through the courts in Kansas and Minnesota. The results of these cases will determine if a global settlement is in the cards for the coming months. If you are a producer of corn in Iowa in the years in question, you are either represented individually by opting out of the class action, or you are represented by the class action lawyer, who essentially carries the case for all the nonspecifically represented corn producers.
  3. Pink Slime. The trial against ABC and its reporters for characterizing Beef Products, Inc.’s lean, finely textured beef as pink slime is underway. BPI says the report ruined its production, cut demand rapidly, and damaged the company to the tune of $1.9 billion (which could be tripled under South Dakota law where the suit is being heard).
  4. Industrial Hemp. Nevada (the state, not the town in Iowa with a different pronunciation of the same word) authorized growing industrial hemp for commercial purposes.
  5. Soda Tax. Seattle imposes a 1.75 cents per ounce tax on all non-diet sodas sold.
  6. Hazardous release exemption challenged.  Activist groups are challenging the EPA when it exempted farms from hazardous release reporting requirements. The district court found it didn’t have the authority to make the exemption. Producer groups were also suing the EPA, saying the exemption wasn’t broad enough and should cover concentrated animal feeding operations as well. Twenty-Eight Senators have asked the EPA to appeal the decision to the Supreme Court. The producers and the senators are worried that the reporting requirements (including low level ammonia and sulfur emissions that happen during livestock production) will expose farms to liability for not reporting correctly, and if they are reported correctly, the reporting system will be overwhelmed and create dangerous conditions. Further, farm groups fear the reporting requirements will subject them to attacks by extremist groups, because of the ease in which they can discover where feeding operations are located and managed via this reporting.
  7. Ag Supply Liens. Suppliers to ag feeding operations (like a feed mill) must file a new UCC filing statement with the Secretary of State every 31 days to maintain its ag supplier’s lien for feed sold within the last thirty days. Further, that lien is for the full amount of the feed supplied, and it attaches in full to the animals that consumed the feed. This is an important clarification that should help ensure distressed livestock farmers can still gain access to feed on credit, without the feed supplier sitting behind the operating credit lender in priority.
  8. Partition of real estate. Breaking up is hard to do, but splitting in kind falls from disfavor with the court. The Iowa Supreme Court ruled that when two parties own property, splitting up dollar bills is preferred to splitting up the farm.  The old “you pour, and I pick” method of splitting drinks won’t work either. This preference by the court means squabbling co-owners shouldn’t look to the court to split a farm, unless it is both fair and practicable. As no two pieces of dirt are ever the same, it creates a high bar. This is good news if you are an auctioneer or real estate agent, as court ordered sales appear to be favored going forward. Right after that ruling by the Supreme Court, the appeals court found that dividing in kind into identifiable tracts with no topographical differences would work, so all hope is not lost for those seeking to split the farm versus buying a co-owner out.
  9. Easements. Once a landowner is paid for the easement, the easement cannot be expanded without further compensation. The court indicates the key is to look at the use of the easement within the original idea of the grant of the easement. For example, allowing ingress/egress to a field doesn’t expand to parking on the access lane unless there is more to the story. If the use isn’t that clear, the court will look at the lay of the land, the actions in the first couple of years of the easement with an expansive view of allowing the easement holder the upper hand.
  10. Fences. Once again, good fences make good fences, and long standing fences make property lines; however, this is only true if coupled with conduct that shows ownership up to the fence. Fences not on the property line make fences the new boundary line after a period of years, but that installation of the fence needs to be coupled with mowing, grazing, or maintaining the area for your claim to stick. Also, fence agreements can be enforced, as one defendant found out when he entered into a fence agreement with his neighbor and then failed to follow its terms. The complaining neighbor picked up about $19,000 of damages and attorney’s fees because the agreement allowed for attorney’s fees to the prevailing party.
  11. Leases. After the court of appeals found one horse makes you a farmer for lease purposes, the Iowa Supreme Court gave further clear guidance. The new standard of whether a lease is a farm lease, for termination purposes, is the “primary purpose” test. The courts will now look at the actual use of the property to determine if it is a farm lease. So, the tenants out there with fainting goats, a herd of cats, and a broken-down nag will not get the September 1st protection that an actual farm tenant receives. In another matter, the court enforced the proration of unused lime as called for in the lease between the tenant and the farmer, which was a first legal test of that fairly standard provision.  The court also clarified that 99 year leases for primarily non-ag use would be acceptable under the Iowa Constitution.
  12. Nuisance.  A hog facility was found liable for interfering with a neighbor’s use and enjoyment of the property by not following generally acceptable management practices and was ordered to pay over $400,000 in damages.  The hog facility unsuccessfully complained the damages were too high, with the court finding that personal inconvenience, annoyance, discomfort and loss of full enjoyment of the property were caused by the odor from the hog facility. These damages may be limited in the future by the new law enacted in March that limits damages of this type.
  13. Insurance Contracts. I have often remarked that insurance companies do three things very well: deny claims, delay claims, and defend claims.  The insurance company has an army of attorneys who draft the terms of the insurance policy, and they are quick to defend the exact coverage.  A custom grower’s insurance policy was not responsible for the death of 837 hogs, because the contract only covered damage caused by the hogs, not damage TO the hogs.  Knowing the terms of your coverage can be the difference between a bump in the road and bankruptcy.

Within that, the constant is that taxes will change but will always be present.

The likelihood that major tax reform legislation will be introduced and passed in 2017 is high. Some believe that like-kind exchanges remain at a high risk for repeal. Many have used this process to delay capital gains tax by selling farm ground, and instead of taking a check, replacing it with additional farm ground in other areas. As equipment becomes bigger, the value of having adjoining parcels cannot be disputed.

In the local market, pressure in the mid 2000’s came from investors with proceeds from sales near large metropolitan areas. These investors were quick to bid up ground, as they were motivated to delay paying capital gains.  As the market tapered off slightly, the investors sold their holdings locally and moved towards Missouri and Kansas where ground was not booming at the same rate.

Land can account for up to 100% of farm operators “retirement”, and is on average, 30% of commercial investments. The statewide average value for an acre of farmland is about 17.5% lower than 2013 peak values, with declining values for the last three years (5.9% in 2016). Prices stay high when demand is high and supply is low. The desire to avoid capital gains tax has been shown to increase demand. The lion’s share of ground in Iowa is held by those who have a high probability of needing expensive nursing home care in the next 20 years. Like-kind exchanges could help keep the market up for land prices, even in the face of additional sales in the coming years.

The House Republican Blueprint for Tax Reform doesn’t address like-kind exchanges, which are disfavored by some. It proposes full expensing for all capital asset acquisitions, excluding the cost of the land. Right now, land improvements of certain types need to be added to the basis of the property, and not deducted as an expense or depreciated. Full depreciation of real property improvements may well face stiff resistance.

The Blueprint proposes a maximum tax rate of 16.5% for capital gains. President Trump has proposed a maximum rate of 20%.

LEASING

Leases are old news in the U.S. farm community; we have been doing them for a long time. However, how we lease is changing.  Landowners are recognizing the value of the data generated by the farm operator in order to make better decisions about what the land value might truly be. Tenants are using the data to determine which farms are truly profitable, and which ones are lemons to be shed or demanded lower rent for.

You can choose from several types of lease arrangements. They all come down to three basic types:

Crop share   production, government payments, and crop insurance are shared between the landowner, and the operator who provides the labor. These arrangements also involve sharing crop expenses.  The problem is the landowner is still worrying about the weather and the markets. It is a great fit for the first couple of years after a land owner has had to quit farming themselves. It is almost like a half-way house for farm land owners moving to cash rent arrangements.

Cash rent really needs little explanation. The key is setting the price and the timing of when the payments are due.

Flexible lease arrangements provide a base cash rent, plus a bonus, which represents a share of gross revenue in excess of a base value. This allows the landowner to have a set price, but still capture some of the good year’s prices. It also ensures that in bad years, tenants aren’t paying for a tuxedo when all they needed was flip flops and a bathing suit.

Saturday, September 23, 2017
  • Patrick B. Dillon
  • Jill Dillon
image
Patrick B. Dillon enjoys finding solutions to legal issues and catching problems for clients. Pat practices in the Sumner office regularly represents clients in district, associate district and magistrate courts for agricultural, real estate, criminal and collection issues. He drafts wills and trusts, creates estate plans and helps clients through the probate process.
image
Jill Dillon focuses on family law, estate planning and IRS matters. Jill is a University of Northern Iowa undergraduate (Political Science Cum Laude) and a Drake University Law School graduate. Jill spent extensive time advocating for low income tax payers in front of the IRS and the State of Iowa Department of Revenue while at Drake.

Share Some Ideas

Do You Have a Tip or an Idea for a Story? Tell Us About It.
Contact Us!