Recent Blog Posts

Higher input costs and higher crop prices have been the theme for the last several months. Higher production costs in 2021 gave way to even higher costs for the 2022 production year. Factors affecting both supply and demand have continued to drive commodity crop prices higher. The result of all of this change is a positive margin outlook for 2022 commodity crops.

Production costs for Ohio field crops are forecast to be higher than last year with higher fertilizer prices leading the way. Variable costs for corn in Ohio for 2022 are projected to range from $578 to $708 per acre depending on land productivity. The trend line corn yield (183.7 bpa) scenario included in the corn enterprise budget shows an increase in variable costs of 44%.  

Variable costs for 2022 Ohio soybeans are projected to range from $311 to $360 per acre. Variable costs for trend-line soybeans (56.5 bpa) are expected to increase 40% in 2022 compared to 2021.

Wheat variable expenses for 2022 are projected to range from $249 to $321 per acre. The trend line wheat yield (74 bpa) scenario included in the wheat enterprise budget shows an increase in variable costs of 50%. 

Returns will likely be positive for most producers depending on crop price change throughout the rest of the year. Grain prices used as assumptions in the 2022 crop enterprise budgets are $7.00/bushel for corn, $14.25/bushel for soybeans and $7.50/bushel for wheat. Projected returns above variable costs (contribution margin) range from $450 to $835 per acre for corn and $333 to $606 per acre for soybeans. Projected returns above variable costs for wheat range from $195 to $345 per acre although significant crop price increases since last fall (when the price was set for this enterprise budget) will likely cause wheat to be more profitable than these return projections indicate.

Return to Land is a measure calculated to assist in land rental and purchase decision making. The measure is calculated by starting with total receipts or revenue from the crop and subtracting all expenses except the land expense. Returns to Land for Ohio corn (Total receipts minus total costs except land cost) are projected to range from $260 to $619 per acre in 2022 depending on land production capabilities. Returns to land for Ohio soybeans are expected to range from $205 to $462 per acre depending on land production capabilities. Returns to land for wheat (not including straw or double-crop returns) are projected to range from $100 per acre to $239 per acre assuming a planting-time price of $7.50/bushel. If a current forward harvest price for wheat of $11.50/bushel is used, the Return to Land is in a much higher range of $325 to $576 per acre depending on land production capabilities.

Total costs projected for trend line corn production in Ohio are estimated to be $1,054 per acre. This includes all variable costs as well as fixed costs (or overhead if you prefer) including machinery, labor, management and land costs. Fixed machinery costs of $78 per acre include depreciation, interest, insurance and housing. A land charge of $207 per acre is based on data from the Western Ohio Cropland Values and Cash Rents Survey Summary. Labor and management costs combined are calculated at $105 per acre. Details of budget assumptions and numbers can be found in footnotes included in each budget.

Total costs projected for trend line soybean production in Ohio are estimated to be $678 per acre. (Fixed machinery costs: $62 per acre, land charge: $207 per acre, labor and management costs combined: $60 per acre.)

Total costs projected for trend line wheat production in Ohio are estimated to be $593 per acre. (Fixed machinery costs: $36 per acre, land charge: $207 per acre, labor and management costs combined: $52 per acre.)

Data used to compile these enterprise budgets includes research, surveys, market data, economic modeling, calculations and experience of authors.

Current budget analyses indicates very favorable returns for all three primary commodity crops but crop price change and harvest yields may change this outcome. These projections are based on OSU Extension Ohio Crop Enterprise Budgets. Newly updated Enterprise Budgets for 2022. have been completed and posted to the Farm Office website: https://farmoffice.osu.edu/farm-mgt-tools/farm-budgets

We can count on legal questions about surface water drainage to flow steadily in the Spring, and this year is no exception.  Spring rains can cause drainage changes made on one person’s land to show up as harm on another’s land.  When that happens, is the person who altered the flow of surface water liable for that harm?  Possibly.  Here is a reminder of how Ohio law deals with surface water drainage problems and allocates liability for drainage interferences, followed by guidance on how to deal with a drainage dispute.

Ohio law allows landowners to change surface water drainage

Back in 1980, the Ohio Supreme Court adopted a new rule for resolving surface water disputes in the case of McGlashan v. Spade Rockledge.  Previous Ohio law treated water as a “common enemy” to be pushed onto others, then absolutely prohibited any land changes that would increase surface water drainage for lower landowners.  In McGlashan, the Court replaced these old laws with the “reasonable use rule” that remains the law in Ohio.  The rule states that landowners do have a right to interfere with the natural flow of surface waters on their property, even if those changes are to the detriment of other landowners.  But the right to alter drainage is limited to only those actions that are “reasonable.”

Drainage changes must be “reasonable”

Although it allows drainage changes, the reasonable use doctrine also states that landowners incur liability when their interference with surface water drainage is “unreasonable.”   What does that mean?  The law contains factors that help clarify when an interference is unreasonable, a determination made on a case-by-case basis.  The factors attempt to balance the need for the land use change that altered drainage against the negative impacts that change has on other landowners.  A court will examine four factors to determine whether the drainage change is unreasonable:  the utility of the land use, the gravity of the harm, the practicality of avoiding that harm, and unfairness to other landowners.    For example, if a land use change has low utility but causes drainage harm to other landowners, or the landowner could take measures to prevent unfair harm to others, a court might deem the landowner’s interference with drainage as “unreasonable.”

What to do if a neighbor’s drainage is causing harm?  

The unfortunate reality of the reasonable use doctrine is that it requires litigation, forcing the harmed party to file an action claiming that the neighbor has acted unreasonably.  Before jumping into litigation, other actions might resolve the problem.  An important first step is to understand the physical nature of the problem.  Can the cause of the increased flow be remedied with physical changes?  Is there a simple change that could reduce the interference, or is there need for a larger-scale drainage solution?  Identifying the source of the harm and the magnitude of the drainage need can lead to solutions.  Involving the local soil and water conservation district or a drainage engineer might be necessary. 

Based on the significance of the solutions necessary to eliminate the problem, several options are available:

• If identified changes would remedy the problem, a talk with a drainage expert or a letter from an attorney explaining the reasonable use doctrine and demanding the changes could encourage the offending landowner to resolve the problem.  If the landowner still refuses to remedy the problem, litigation is the last resort.  The threat of litigation often spurs people into action.
• Sometimes the issue is one that requires collaboration by multiple landowners.  Identifying a solution and sharing its costs among landowners, based on acreage draining into the area, can be a way to solve the problem.
• For more substantial drainage problems, a petition for a drainage improvement with the soil and water conservation district or the county engineer might be necessary.  Petitioned drainage improvements involve all landowners in the affected area and are financed through assessments on land within that area.  A visit with those agencies would determine whether a petition improvement is necessary and if so, how to proceed with the petition.
• For smaller fixes, a landowner always has the option of filing a claim for damages through the small claims court.  The estimated damages or repairs must fall below the $6,000 limit for small claims.  A landowner can make the claim without the assistance of an attorney, and the dispute could be resolved more quickly through this forum.

As the Spring rains continue, keep in mind that the reasonable use doctrine sets a guideline for Ohio landowners:  make only reasonable changes to your surface water drainage and don’t cause an unreasonable drainage problem for your neighbors.  Where changes and interferences are unreasonable and landowners are unwilling to resolve them, the reasonable use doctrine is the last resort that provides the legal remedy for resolving the problem.

For more information on Ohio drainage law, refer to our law bulletin on Surface Water Drainage Rights. 

An appeals court ruling now stands in the way of a bikeway project begun more than 27 years ago by the Mill Creek Metropolitan Park District (MetroParks) in Mahoning County.  The Seventh District Court of Appeals recently ruled that MetroParks did not have the power of eminent domain when it attempted to acquire undeveloped stretches of the bikeway.  Several landowners have challenged MetroPark’s use of eminent domain for the project over the years, but this is the first case to yield a positive outcome for landowners who have not wanted the bikeway on their properties.  We take a closer look at the decision in today’s post.

The case

The court case began in 2019, when MetroParks offered landowner Diane Less $13,650 for a permanent easement for construction of the bikeway across her land.  When the landowner did not agree to the conveyance, MetroParks filed an eminent domain proceeding in the Mahoning County Court of Common Pleas.  The landowner responded that MetroParks did not have authority to use eminent domain for the bikeway project and attempted to have the case dismissed through a summary judgment motion.  The trial court found that MetroParks was authorized to appropriate the property for the bikeway and denied the motion, and the landowner appealed.

The appellate court began its review of the case by pointing out that whenever Ohio’s legislature grants the power of eminent domain to a subdivision of the state, that grant must be “strictly construed” and any doubts about the right must be resolved in favor of the property owner.  An entity like a park district has eminent domain authority (also referred to as appropriation or takings) only when the Ohio legislature grants the power in statutory law.  MetroParks relied on Ohio Revised Code 1545.11 as the grant of power to acquire the bikeway land by eminent domain.  That statute states:

The board of park commissioners may acquire lands either within or without the park district for conversion into forest reserves and for the conservation of the natural resources of the state, including streams, lakes, submerged lands, and swamplands, and to those ends may create parks, parkways, forest reservations, and other reservations and afforest, develop, improve, protect, and promote the use of the same in such manner as the board deems conducive to the general welfare. Such lands may be acquired by such board, on behalf of said district, (1) by gift or devise, (2) by purchase for cash, by purchase by installment payments with or without a mortgage, by entering into lease-purchase agreements, by lease with or without option to purchase, or, (3) by appropriation.

The appeals court examined MetroParks’ purpose for acquiring the land for the bikeway to determine if it met either of the authorized purposes in the statute of “conversion into forest reserves” or “conservation of natural resources.”  MetroParks explained that it established its purposes and the necessity of acquiring the bikeway land in two resolutions in 1993 and 2018.  The first resolution stated that the “public interest demanded the construction of a bicycle path” and the second stated that the bikeway “will provide local and regional users with a safe, uniformly-designed, multi-use, off-road trail facility dedicated for public transportation and recreational purposes.”

According to the court, however, both resolutions failed to relate the necessity of the bikeway to the purposes in the statute of acquiring land “for conversion into forest reserves and for the conservation of the natural resources of the state.”  The court noted other Ohio court decisions that do conclude that a bikeway meets the purpose of acquiring land for the “conservation of natural resources” when it “supplies a human need,” “contributes to the health, welfare, and benefit of the community” and is “essential for the well-being of such community and the proper enjoyment of its property.” But important to the landowner is the court’s statement that it disagrees with these principles, “especially when applied to a rural area where it appears the public need is speculative at best and the harm to the private property owners is great."  Reminding us that a statutory grant of eminent domain authority must be strictly construed and interpreted to favor a property owner, the court stated that prior decisions characterizing any project that serves the public and contributes to the health and welfare of the community as “conservation of natural resources” for purposes of R.C. 1545.11 is “a bit of a stretch.”

A second point the court made in questioning whether a bikeway fits within the purposes of park district land acquisition outlined in R.C. 1545.11 is that a law enacted after that statute assigned Ohio’s Department of Natural Resources the duty to plan and develop recreational trails, along with the authority to appropriate land for recreational trails.  The statute suggests that the state agency, not park districts, possesses the authority to use eminent domain to establish recreational trails and bikeways.

Despite its disagreement with the assumption that R.C. 1545.11 permits the acquisition of land for bikeways as the “conservation of natural resources,” the court reviewed the MetroParks resolutions to determine if the park’s purpose constituted the “conservation of natural resources.”  Not surprisingly, the court concluded that the resolutions were completely devoid of any purposes that met the statute’s requirements.  Creating a bikeway through an extensive acreage of family-owned farmland in a rural area does not constitute the purpose of acquiring land for “conservation of natural resources of the state,” the court stated.  Nor does providing recreation automatically equate to the conservation of natural resources.  The resolutions did not “indicate that the creation of this particular trail or bikeway is designed to promote the general health and welfare of the pubic, which we believe requires more than just a recreational purposes” and failed at “even remotely tying the creation of the bikeway to the conservation of natural resources.”

Lacking a required statutory purpose for acquiring the bikeway land, the court concluded that MetroParks abused its discretion in attempting to appropriate the landowner’s property.  The appeals court instructed the Mahoning Court of Common Pleas to grant summary judgment not only in this case, but also for a second bikeway eminent domain case the landowner was a party to with MetroParks.

Now what?

A question now before MetroParks is whether it will ask the Ohio Supreme Court to review the decision of the Seventh District Court of Appeals.  The park district board will meet on May 9 to discuss how it will proceed. 

A continuing problem

The case highlights a recurring issue with the use of eminent domain for bike paths, as this is not the only legal issue MetroParks has faced in its mission to build its bikeway.  Several other court cases have challenged the park’s eminent domain authority, though unsuccessful, and an amendment to last year’s budget bill included specific language that prohibits the use of eminent domain for recreational trails for five years in a county with a population between 220,000 and 240,00 people.  Mahoning County falls within that population range.  Recent attempts by Mahoning County legislators to enact laws that prohibit the use of eminent domain for recreational trails or give local governments the right to veto such actions have not made it through the Ohio General Assembly.  The divisive issue is clearly one that requires a closer look by our legislators.

Read the case of Mill Creek Metro. Dist. Bd. of Commrs. v. Less here.

One of the core principles of the American legal system is that people are free to enter into contracts and negotiate those terms as they see fit.  But sometimes the law prohibits certain rights from being “signed away.”  The interplay between state and federal law and the ability to contract freely can be a complex and overlapping web of regulations, laws, precedent, and even morals.  Recently, the Ohio Supreme Court ruled on a case that demonstrates the complex relationship between Ohio law and the ability of parties to negotiate certain terms within an oil and gas lease.     

The Background.  Ascent Resources-Utica, L.L.C. (“Defendant”) acquired leases to the oil and gas rights of farmland located in Jefferson County, Ohio allowing it to physically occupy the land which included the right to explore the land for oil and gas, construct wells, erect telephone lines, powerlines, and pipelines, and to build roads.  The leases also had a primary and secondary term language that specified that the leases would terminate after five years unless a well is producing oil or gas or unless Defendant had commenced drilling operations within 90 days of the expiration of the five-year term. 

After five years had passed, the owners of the farmland in Jefferson County (“Plaintiffs”) filed a lawsuit for declaratory judgment asking the Jefferson County Court of Common Pleas to find that the oil and gas leases had expired because of Defendant’s failure to produce oil or gas or to commence drilling within 90 days.  Defendant counterclaimed that the leases had not expired because it had obtained permits to drill wells on the land and had begun constructing those wells before the expiration of the leases.  Defendant also moved to stay the lawsuit, asserting that arbitration was the proper mechanism to determine whether the leases had expired, not a court. 

What is Arbitration and is it Legal?  Arbitration is a method of resolving disputes, outside of the court system, in which two contracting parties agree to settle a dispute using an independent, impartial third party (the “arbitrator”).  Arbitration usually involves presenting evidence and arguments to the arbitrator, who will then decide how the dispute should be settled.  Arbitration can be a quicker, less burdensome method of resolving a dispute. Because of this, parties to a contract will often agree to forgo their right to sue in a court of law, and instead, abide by any arbitration decision.   

Ohio law also recognizes the rights of parties to agree to use arbitration, rather than a court, to settle a dispute.  Ohio Revised Code § 2711.01(A) provides that “[a] provision in any written contract, except as provided in [§ 2711.01(B)], to settle by arbitration . . . shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract.”  What this means is that Ohio will enforce arbitration clauses contained within a contract, except in limited circumstances.  One of those limited circumstances arises in Ohio Revised Code § 2711.01(B).  § 2711.01(B)(1) provides that “[s]ections 2711.01 to 2711.16 . . . do not apply to controversies involving the title to or the possession of real estate . . .”  Because land and real estate are so precious, Ohio will not enforce an arbitration clause when the controversy involves the title to or possession of land or other real estate.  

To be or not to be?  After considering the above provisions of the Ohio Revised Code, the Jefferson County Court of Common Pleas denied Defendant’s request to stay the proceedings pending arbitration.  The Common Pleas Court concluded that Plaintiffs’ claims involved the title to or possession of land and therefore was exempt from arbitration under Ohio law.  However, the Seventh District Court of Appeals disagreed with the Jefferson County court.  The Seventh District reasoned that the controversy was not about title to land or possession of land, rather it was about the termination of a lease, and therefore should be subject to the arbitration provisions within the leases.   

The case eventually made its way to the Ohio Supreme Court, which was tasked with answering one single question: is an action seeking to determine that an oil and gas lease has expired by its own terms the type of controversy “involving the title to or the possession of real estate” so that the action is exempt from arbitration under Ohio Revised Code § 2711.01(B)(1)? 

The Ohio Supreme Court determined that yes, under Ohio law, an action seeking to determine whether an oil and gas lease has expired by its own terms is not subject to arbitration.  The Ohio Supreme Court reasoned that an oil and gas lease grants the lessee a property interest in the land and constitutes a title transaction because it affects title to real estate.  Additionally, the Ohio Supreme Court found that an oil and gas lease affects the possession of land because a lessee has a vested right to the possession of the land to the extent reasonably necessary to carry out the terms of the lease.  Lastly, the Ohio Supreme Court provided that if the conditions of the primary term or secondary term of an oil and gas lease are not met, then the lease terminates, and the property interest created by the oil and gas lease reverts back to the owner/lessor.  

In reaching its holding, the Ohio Supreme Court concluded that Plaintiffs’ lawsuit is exactly the type of controversy that involves the title to or the possession of real estate.  If Plaintiffs are successful, then it will quiet title to the farmland, remove the leases as encumbrances to the property, and restore the possession of the land to the Plaintiffs.  If Plaintiffs are unsuccessful, then title to the land will remain subject to the terms of the leases which affects the transferability of the land.  Additionally, the Ohio Supreme Court concluded that if Plaintiffs were unsuccessful then Defendant would have the continued right to possess and occupy the land.  Therefore, the Ohio Supreme Court found that Plaintiffs’ controversy regarding the termination of oil and gas leases is the type of controversy that is exempt from arbitration clauses under § 2711.01(B)(1). 

Conclusion.  Although Ohio recognizes the ability of parties to freely negotiate and enter into contracts, there are cases when the law will step in to override provisions of a contract.  The determination of title to and possession of real property is one of those instances.  Such a determination can have drastic and long-lasting effects on the property rights of individuals.  Therefore, as evidenced by this Ohio Supreme Court ruling, Ohio courts will not enforce an arbitration provision when the controversy is whether or not oil and gas leases have terminated.  To read more of the Ohio Supreme Court’s Opinion visit: https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-869.pdf.