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We are back with another edition of the Ag Law Harvest, where we bring you rulings, laws, and regulations that affect the agricultural industry. This month's Ag Law Harvest is bringing the heat with H-2A wage rule injunctions, cultivated meat ban challenges, sales and use tax issues, and an emergency order from the EPA.
Federal Judge in Georgia Blocks H-2A Wage Rule for Named Plaintiffs. A Georgia federal judge has limited the U.S. Department of Labor's enforcement of a rule titled "Improving Protections for Workers in Temporary Agricultural Employment in the United States" (the “Final Rule”). This rule, challenged by 17 states led by Kansas and Georgia, as well as by Miles Berry Farm and the Georgia Fruit and Vegetable Growers Association (the “Plaintiffs”), is claimed to be unconstitutional. The Plaintiffs argued that the Final Rule violates the 1935 National Labor Relations Act (the “Act”) by granting H-2A farmworkers greater organizing and collective bargaining rights than those afforded to U.S. citizen agricultural workers, effectively bypassing the Act. The U.S. District Court in Georgia sided with the plaintiffs, ruling that the Department of Labor's Final Rule improperly creates a right that Congress did not intend and did not create by statute. The court emphasized that administrative agencies, including the DOL, cannot create laws or rights that Congress has not established. The court criticized the DOL for overstepping its authority, stating that while the DOL can assist Congress, it cannot assume the role of Congress. The court granted a preliminary injunction prohibiting the DOL from enforcing the Final Rule, but only for the Plaintiffs. Thus, the preliminary injunction will only apply in Georgia, Kansas, South Carolina, Arkansas, Florida, Idaho, Indiana, Iowa, Louisiana, Missouri, Montana, Nebraska, North Dakota, Oklahoma, Tennessee, Texas, and Virginia. The injunction will also apply to Miles Berry Farm and the Georgia Fruit and Vegetable Growers Association. We will keep you updated as the case goes up on appeal and how this ruling affects other H-2A lawsuits across the country.
Florida Cultivated Meat Ban Challenged. A California business has filed a federal lawsuit against the state of Florida, challenging a law that bans the sale of cultivated meat. The company argues that Florida's prohibition is unconstitutional, claiming it violates their right to engage in interstate commerce by restricting their ability to sell their products across state lines. Upside Foods, Inc., the California based company, alleges that Florida Senate Bill 1084 (“SB 1084”), which bans the manufacture, distribution, and sale of cultivated meat, violates the U.S. Constitution’s Supremacy Clause because SB 1084 “is expressly preempted by federal laws regulating meat and poultry products.” Furthermore, Upside Foods alleges that SB 1084 violates the U.S. Constitution’s Dormant Commerce Clause because SB 1084 “was enacted with the express purpose of insulating Florida agricultural businesses from innovative, out-of-state competition like UPSIDE.” Upside Foods has asked the district court in Florida to declare SB 1084 unconstitutional and to issue an injunction preventing SB 1084’s enforcement. Proponents of SB 1084 argue that the law protects Floridians, however, Upside Foods alleges that the Florida ban isn’t meant to protect the public, rather it was passed to “protect in-state agricultural interests from out-of-state competition.”
Board of Tax Appeals Finds Utility Vehicle Not Exempt Under Agricultural Sales Tax Exemption. Claugus Family Farm LP (CFF), an Ohio timber farm, purchased a 2015 Mercedes-Benz utility vehicle and claimed it was exempt from sales tax under Ohio’s Agricultural Sales Tax Exemption. After an audit, the Ohio Department of Taxation assessed the sales tax on the vehicle. CFF petitioned for reassessment, but the Ohio Tax Commissioner determined that CFF did not provide enough evidence to prove the vehicle was primarily used for farming as required by law. CFF then appealed to the Ohio Board of Tax Appeals, arguing that the vehicle was mainly used for farming operations, such as transporting people around the farm, monitoring tree health, applying pesticides, maintaining equipment, and carrying supplies. CFF claimed the vehicle was used 95% of the time on farming activities. Upon review, the Board of Tax Appeals noted that “the use of vehicles for transportation around a farm, as well as general uses such as delivering parts and cutting and hauling of wood and brush, do not constitute direct farming activities.” The Board held that the vehicle was used primarily for these purposes and not directly in farming and thus found the vehicle to be subject to Ohio’s sales and use tax.
EPA Emergency Order Suspends Use of Pesticide DCPA/Dacthal. On August 7, 2024, the U.S. Environmental Protection Agency (“EPA”) issued an Emergency Order immediately suspending the registration and use of all pesticides containing dimethyl tetrachloroterephthalate (“DCPA” or “Dacthal”). The EPA cited the danger the substance poses to pregnant women and unborn babies. The agency determined that the continued sale, distribution, or use of DCPA products during the cancellation process would present an imminent hazard, justifying the emergency suspension without a prior hearing. Despite efforts by AMVAC Chemical Corporation, the sole registrant of DCPA products, to address these concerns, the EPA concluded that no practicable mitigations could make the use of DCPA safe.
Tags: ag law harvest, H-2A, pesticides, EPA, Cultivated Meat, U.S. Constitution, Ohio Sales Tax, Agricultural Sales Tax Exemption, Ag Law, Farm Law
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We mourn the passing of Paul L. Wright, an agricultural attorney, mentor, leader, professor, farmer advocate, and the founder of our OSU Agricultural Law Program. Paul passed on August 17, 2024, due to cancer.
I remember receiving my first letter from Paul Wright. I had sent him my resume with the hope he and law partner Tony Logan would hire me for their law firm, Wright & Logan. I was a young attorney and I knew about Paul Wright and his respected reputation as an agricultural attorney. Paul sent me a return letter encouraging my interest in agricultural law and requesting an interview. A few months later, I was working with Paul. That letter gave me the opportunity I so badly wanted, and I’ve held onto it for years.
Paul didn’t set out to become an agricultural law attorney, his passion for agriculture led him there. He grew up on a farm in Coshocton County, Ohio, was active in 4-H and vocational agriculture, and decided to pursue a degree in agricultural education at Ohio State. He then began his career in 1959 as the county 4-H agent for OSU Extension in Madison and Clinton counties. But it didn’t take long for him to recognize his curiosity and natural aptitude for farm management and agricultural economics. While he was completing a Master of Science degree in Agricultural Economics, OSU Extension promoted Paul into a Farm Management Area Extension Agent position in Fremont, Ohio.
Paul once told me how his work as a Farm Management Specialist for OSU kept pulling him into legal issues, and that he felt compelled to try to solve those issues for farmers. I can easily imagine that, as his desire to help farmers seemed always at the front of his mind. That desire took him to the University of Toledo College of Law for a law degree, and he soon transitioned to become the first Agricultural Law Specialist for Ohio State University, a faculty member in what was then the Department of Agricultural Economics. He shared stories with me about his days of driving across Ohio to teach at farm meetings, equipped with boxes of files, articles he had written, and “overhead transparencies.” Paul said he always tried to be prepared for “whatever legal issue they might want to talk about.” He loved teaching about those legal issues and resolving problems and questions from farmers. In addition to teaching farmers, Paul also established the first agricultural law course at Ohio State, a course still offered to undergraduate students in the College of Food, Agricultural, and Environmental Sciences.
With his knowledge in both law and economics, Paul and Ohio State were well equipped to help farmers during the economic crisis that hit farming in the mid-1980s. He talked with me about the often painful meetings and kitchen table sessions he had with farmers back then and that despite his knowledge, he again felt the need to do more for farmers. He began connecting with other attorneys across the Midwest and eventually, those connections resulted in the formation of the American Agricultural Law Association—the first official recognition of lawyers who work in agriculture as “agricultural attorneys.” Paul shared that he and other founding members of AALA recognized the role they could fill for farmers and the need to constantly expand their knowledge base and broaden the network of agricultural attorneys and other professionals who could help farmers. He taught for educational sessions at AALA annual conferences, served on committees and the Board of Directors, and was elected to a term as the AALA President. In 1994, the AALA awarded Paul its highest honor, the Distinguished Service Award.
For years, Paul maintained connections with AALA colleagues across the country and met regularly with a group of AALA friends who constantly identified and analyzed issues and needs in agricultural law. When he brought me into that community of colleagues, I always walked away learning something I could use in my work as an agricultural attorney. That type of networking was a common practice for Paul that provides us wisdom today. In his 1998 presidential address to the AALA, Paul challenged association members to become better attorneys through networking within the agricultural community. “I wonder how many differences are grounded in a lack of thorough communication, or a lack of taking the time to create a forum to really hear another’s thoughts and knowledge,” Paul stated. “With confidences and resources, there is hardly an agricultural law issue that cannot be refined and improved as a result of networking.”
Paul retired from OSU in 1988, but many in Ohio know that Paul’s career didn’t end at that point. He wanted to be a private attorney who could personally advise the farm community. Paul partnered with Tony Logan to form the law firm of Wright & Logan, which was likely the first “agricultural law firm” in Ohio focused on representing farmers. That's when I met Paul and joined the firm. As a young attorney working with Paul, I lived in both awe and fear—awe for all he had accomplished in agricultural law and fear that I would not live up to his knowledge level and standards. To the contrary, Paul always encouraged and taught me. I often struggled to keep up with his expertise, but he never expressed disappointment in me.
Wright & Logan later transitioned to Wright Law Co., LPA. When Robert and Kelly Moore joined, the law firm became the current Wright & Moore Co., LPA, now led by Ryan Conklin. Like the farmers he admired, Paul never completely retired from Wright & Moore but continued in an “Of Counsel” capacity and served clients up to his death. In his private law practice, I’d estimate that Paul served hundreds of farm families and prepared hundreds of business, estate and transition plans. He was well known in Ohio’s agricultural community and had clients that stretched across the state. I wonder how many times farmers and others have asked me, “do you know Paul Wright?” and how many times my answer of “yes, I used to work for him” opened doors for me and gave me immediate credibility. In Ohio’s agricultural community, Paul was a celebrity.
The Ohio agricultural community honored Paul by inducting him into the Ohio Agricultural Hall of Fame in 2006. I recall receiving an invitation from Paul to sit at his table for the induction ceremony. He was nervous, excited, and humbled. It was something I had witnessed before with Paul, when Ohio State recognized him with its Distinguished Alumni Award in 2003. Those awards meant so much to him, and he said once that he couldn’t believe a farm boy who had spent his time fixing fences in Coshocton County could ever be so fortunate to have the career and recognition he had.
Paul’s career, recognition, and impact on Ohio agriculture certainly won’t end with his passing. Being the meticulous and creative estate planner he was, Paul developed a succession plan for agricultural law in Ohio. In 2006, he established an endowment with OSU’s College of Food, Agricultural & Environmental Sciences to further agricultural law and farm management education in Ohio. Having followed in Paul’s footsteps as the agricultural law specialist at OSU, I have been able to use Paul’s funds in the OSU Agricultural & Resource Law Program to provide educational programs for attorneys, farmers and Extension educators and scholarships for law students and undergraduate students interested in agricultural law. Paul's goal was to ensure a long-lasting commitment to agricultural law and farm management at Ohio State, and his endowment will carry that goal well into the future.
I’ve thought of trying to locate that old worn letter I received from Paul when I asked him to hire me. That letter, and knowing Paul, changed my life. Because of Paul, I and many of my colleagues can repeat his words about the unbelievable fortune of being an agricultural attorney in Ohio. But I don’t need the letter to remind me of Paul, as his presence has always and will always be embedded in me, in others he has mentored, in Ohio State, and in Ohio’s agricultural community. The loss is immeasurable, but so is the legacy he left us.
Tags: Paul L. Wright, Paul Wright, Agricultural Law
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In the last post, we discussed the different types of life insurance. In this post we will explore the benefits and disadvantages of life insurance in farm transition planning as well as strategies for using life insurance.
The Value of Life Insurance in Farm Estate Planning
Liquidity for Estate Taxes and Debts:
When a farm estate is passed on to the next generation, estate taxes and debts can create significant financial burdens. Life insurance provides the liquidity needed to cover these expenses, helping to prevent the forced sale of farm assets.
Equalization Among Heirs:
In many farm families, not all heirs are involved in daily farm operations. Life insurance can be used to compensate non-farming heirs, ensuring fairness while preserving the farm for those who continue the operation.
Succession Planning:
For farmers transferring ownership of the farm to the next generation, life insurance can be a crucial part of succession planning. It provides the financial resources to buy out other heirs or business partners, ensuring a smooth ownership transition.
Protection Against Loss:
In the event of the sudden death of a key family member, life insurance can provide the necessary funds to keep the farm operational during the transition period.
Disadvantages of Life Insurance in Farm Estate Planning
Cost of Premiums:
Life insurance, particularly permanent policies like whole or universal life, can be costly. The ongoing premium payments may strain the farming business, especially if cash flow is tight. Also, the premiums are not usually a deductible business expense.
Insurability:
Not everyone qualifies for life insurance. Individuals with pre-existing health conditions may be denied coverage. Additionally, as the applicant ages, premiums increase, potentially becoming unaffordable at some point.
Complexity of Policies:
Permanent life insurance policies, such as universal or variable life, can be complex and require careful management. Without proper oversight, these policies may lapse, resulting in the loss of coverage and forfeiture of premiums paid.
Limited Cash Flow Benefits:
While life insurance provides liquidity at death, it may not offer significant cash flow benefits during the policyholder's lifetime. Cash value accumulation can be slow, particularly in the early years.
Examples of Using Life Insurance in Farm Transition Planning
Off-Farm Heirs:
Andy and Betty own Family Farms. Their son Chris has returned to manage the farm, while their daughter Darla has pursued a successful career elsewhere and is not involved in the farming operation. Andy and Betty have a net worth of $3 million, but most of it is tied up in the farm, leaving little liquid cash. They purchase a second-to-die policy for $1 million and name Darla as the beneficiary. Upon their deaths, Darla will receive the $1 million death benefit as her inheritance, while Chris will inherit the farm, ensuring he can continue the operation without financial strain. This plan balances the needs of both heirs, providing liquidity to the off-farm heir while preserving the farm for the on-farm heir.
Debt:
Ed and Fran recently purchased a farm and owe $1 million on the property. They worry that if they die prematurely, the farm may struggle to meet the debt payments. To mitigate this risk, they purchase a second-to-die policy for $1 million. The death benefit will be used by their heirs to pay off the land debt, helping to secure the farm's future for the next generation. Any death benefit not needed to pay debt can go to their heirs.
Ownership Buyout
George and Harry are brothers who own and operate Family Farms LLC. They expect to continue farming for another 10 years. If either George or Harry die while they are farming, they want the surviving brother to be able to continue the farming operation by buying out the deceased brother’s ownership. The LLC is valued at $2 million. The brothers want $1 million to go to their family upon their death but do not want to burden the other brother with $1 million of debt.
George and Harry purchase $1 million, 10-year term policies for each other. If either brother dies in the next ten years, the surviving brother will receive $1 million death benefit which will be used to buy the deceased brother’s ownership. The $1 million in sale proceeds will go to the deceased brother’s family. The surviving brother will not need to worry about taking on debt to make the buyout. By using term policies, George and Harry were able to provide buyout funds while keeping the premiums costs significant lower than a whole life, universal or variable policy.
Effect on Estate Taxes
The death benefit of a policy is included in the estate of the policy owner. For example, if Ida owns a $1 million whole life policy which pays out to her beneficiaries upon her death, the $1 million death benefit will be included in her federal taxable estate. This presents a planning issue if life insurance is purchased to help pay estate taxes. Owning a life insurance policy will compound the estate tax liability of the estate.
A relatively easy solution to this issue is to use an Irrevocable Life Insurance Trust (ILIT). With this strategy, an ILIT is established that will purchase the life insurance policy. The grantor of the trust will pay the premiums on behalf of the ILIT and beneficiaries. Because the ILIT owns the policy and not the grantor, the death benefit is not included in the grantor’s estate.
Continuing the above example, Ida establishes an ILIT and the ILIT purchases a $1 million whole life policy. Ida pays the annual premiums on behalf of the ILIT. When Ida dies, the policy will pay $1 million to the ILIT. The ILIT will then distribute the $1 million to Ida’s heirs. The $1 million is not included in Ida’s taxable estate.
Conclusion
Life insurance can be a valuable tool in farm estate planning and transition or succession planning, offering liquidity, equalization among heirs, and protection against financial hardship. However, it is essential to carefully weigh the pros and cons of different policies and consider the long-term costs and management responsibilities. Life insurance is not needed for every transition plan. Farmers should consult financial advisors, estate planners, and insurance professionals to determine how life insurance may or may not fit their specific needs and goals. When structured properly, life insurance can help ensure the farm remains a viable operation for future generations while also providing financial security for heirs.
Farmers often face the challenge of being "land rich, cash poor." While they may have significant wealth tied up in land and other assets, they can lack sufficient cash to cover expenses, taxes, or distributions when planning for the farm’s transition to the next generation. This "land rich, cash poor" dilemma can complicate farm transition and succession planning, creating potential obstacles for a smooth handover of the farm.
Life insurance can provide a solution to this problem by introducing liquidity into an estate or trust, which can be used to cover expenses, taxes, and distributions to heirs. By incorporating life insurance into a farm transition plan, legal complexities and costs can be reduced, and the transition process can be streamlined. However, life insurance, like any estate planning tool, may be appropriate in some situations but not in others. This bulletin aims to explain different types of life insurance and how they can be used effectively in farm transition planning. Given the complexities of life insurance policies, it is essential to work with insurance and legal professionals to ensure that life insurance is appropriately included in your plan.
Types of Life Insurance Policies
Term Life Insurance:
Term life insurance provides coverage for a specific period (e.g., 10, 20, or 30 years). If the insured passes away during the term, the policy pays a death benefit to the beneficiaries.
- Pros: Lower premiums compared to permanent life insurance; simple and straightforward; ideal for temporary needs like covering a mortgage or debt.
- Cons: No cash value accumulation; coverage ends at the term’s expiration unless renewed, often at a higher premium; not ideal for long-term estate planning.
Whole Life Insurance:
Whole life insurance provides lifetime coverage with a guaranteed death benefit and includes a cash value component that grows over time. Typically, the premiums are fixed for the life of the policy.
- Pros: Permanent coverage with a guaranteed death benefit; cash value can be accessed through loans or withdrawals; fixed premiums for the life of the policy.
- Cons: Higher premiums compared to term life insurance; cash value grows slowly in the early years; limited flexibility in adjusting the death benefit or premiums.
Universal Life Insurance:
Universal life insurance offers permanent coverage with more flexibility than whole life. Policyholders can adjust premiums and death benefits within certain limits and earn interest on the cash value.
- Pros: Flexible premiums and death benefits; cash value accumulation with potential for higher returns; can be tailored to specific estate planning needs.
- Cons: More complex than whole life insurance; interest rates may fluctuate, affecting cash value growth; requires careful management to avoid policy lapse.
Variable Life Insurance:
Variable life insurance provides permanent coverage with investment options for the cash value. Policyholders can invest the cash value in various sub-accounts, such as stocks and bonds.
- Pros: Potential for higher returns through investment options; tax-deferred growth of the cash value; permanent coverage.
- Cons: Higher risk due to market exposure; policy performance depends on the chosen investments; requires active management and carries higher fees.
Difference Between Universal Life and Variable Life Insurance
Universal life and variable life insurance are both types of permanent life insurance, but they differ in flexibility, investment options, and risk. Universal life offers adjustable premiums and death benefits, with cash value growth based on an interest rate set by the insurer. This makes it a more predictable option with lower risk, though it offers moderate growth potential as the cash value isn't directly tied to market performance. Variable life, on the other hand, requires fixed premiums but allows policyholders to invest the cash value in various sub-accounts, offering the potential for higher returns. However, it introduces greater risk as the cash value fluctuates with the market, and there’s no guaranteed minimum cash value. Variable life policies are also more complex, requiring active management and often incurring higher fees. In summary, universal life provides predictability and flexibility, while variable life offers the potential for higher returns with greater risk and complexity.
Second-to-Die Life Insurance Policy
A second-to-die life insurance policy, also known as survivorship life insurance, covers two individuals, typically a married couple, and pays the death benefit only after both individuals have passed away.
- Pros: Second-to-die policies generally have lower premiums than two individual life insurance policies since the insurer pays out only after both insured individuals have died, reducing their risk exposure. Additionally, they are often easier to obtain for couples where one partner has health issues, as the payout depends on both individuals passing away.
- Cons: The death benefit is delayed until both individuals have passed, which may not provide financial assistance when the first spouse dies. This delay makes the policy less useful for covering immediate expenses or providing cash flow to the surviving spouse. Furthermore, second-to-die policies do not offer cash flow benefits during the policyholders' lifetimes, as the payout occurs only after death.
In the next post, we will discuss the advantages and disadvantages of life insurance as well as strategies to incorporate life insurance into a farm transition plan.
The costs of long-term care (LTC) continue to rise, creating potential financial risks for farmers who want to protect their farm assets for future generations. In the last two years alone, the cost of in-home care has increased by more than 20%, while nursing home costs have risen by 10% to 15%. According to the 2023 Genworth Cost of Care Survey, the following are the most recent costs of long-term care services:
- U.S., Home Health Aide: $75,552/year
- Ohio, Home Health Aide: $73,212/year
- U.S., Nursing Home – Semi-private room: $104,016/year
- Ohio, Nursing Home – Semi-private room: $100,380/year
These figures make it clear why long-term care costs are a significant risk to the continuity of the family farm. Even a short stay in a nursing home can incur substantial costs.
According to data from the Administration for Community Living, individuals turning 65 have a 69% chance of needing some form of LTC, with an average of three years of care required. Typically, one of these three years is spent receiving at-home care provided by spouses or family members, one year in paid at-home care, and one year in a nursing facility. For farmers needing LTC, this equates to an average of approximately $180,000 in costs per person, and double that for a married couple. However, some individuals will require more than three years of care, which can cause LTC costs to increase significantly.
Medicaid can help cover LTC costs, but it has stringent eligibility requirements. One major condition is that Medicaid limits the amount of assets an individual can own and still qualify for benefits. In Ohio, an unmarried person cannot own more than $2,000 of countable assets. Most farmers will not qualify for Medicaid without aggressive planning. Another critical factor is the five-year look-back period, during which Medicaid reviews any asset transfers made within five years of applying for coverage. If assets were gifted or transferred below market value during this period, Medicaid may impose penalties, delaying eligibility for benefits.
Given these costs, statistics, and Medicaid rules, it is crucial for farmers to explore strategies that can minimize the risk of LTC expenses depleting their farm assets. Here are some common strategies farmers can consider:
- Gifting Assets: Transferring farm assets to family members while retaining enough to cover immediate needs can help reduce exposure to LTC costs. However, this strategy should be approached with caution, as it is subject to Medicaid’s five-year look-back period.
- Irrevocable Trusts: Placing farm assets in an irrevocable trust can protect them from being considered in LTC cost calculations, ensuring that the farm remains intact for future generations. However, this plan is also subject to Medicaid’s five-year look-back period.
- Self-Insurance: Farmers with significant savings or assets may choose to self-insure by setting aside funds specifically for potential LTC expenses, thereby reducing the need to sell farm assets.
- LTC Insurance: Purchasing long-term care insurance can provide coverage for LTC costs, offering a buffer against the high expenses associated with nursing home or in-home care. However, LTC insurance can be expensive, and not everyone will qualify for coverage.
- Wait and See: This strategy involves holding back enough assets to pay for five years of LTC while awaiting Medicaid eligibility.
- Do Nothing: Some individuals with adequate income to cover LTC costs may not need to take action to protect assets.
- Combining Strategies: Often, a combination of these approaches can provide the most robust protection, balancing immediate needs with the long-term preservation of farm assets.
By understanding the risks and costs of LTC and carefully considering these strategies, farmers can take proactive steps to help ensure their farm's legacy remains intact, even in the face of unforeseen health care costs. Always consult with legal and financial advisors to tailor the best approach for your specific situation.
For more information and a detailed discussion on LTC, see The Long-Term Care and the Farm publication available at farmoffice.osu.edu.
The Western Ohio Cropland Values and Cash Rents study was conducted earlier this year from January through April. This opinion-based study surveyed professionals with a knowledge of Ohio’s cropland values and rental rates. Professionals surveyed were rural appraisers, agricultural lenders, professional farm managers, ag business professionals, OSU Extension educators, farmers, landowners, and Farm Service Agency personnel. The study results are based on 131 surveys.
Respondents were asked to group their estimates based on three land quality classes: average, top, and bottom. Within each land-quality class, respondents were asked to estimate average corn and soybean yields for a five-year period based on typical farming practices. Survey respondents were also asked to estimate current bare cropland values and cash rents negotiated in the current or recent year for each land-quality class. Survey results are summarized below for western Ohio with regional summaries (subsets of western Ohio) for northwest Ohio and southwest Ohio.
Results from the Western Ohio Cropland Values and Cash Rents Survey show cropland values in western Ohio are expected to increase in 2024 by 3.3 to 5.8 percent depending on the region and land class. Cash rents are expected to increase from 3.2 to 3.8 percent in 2024 depending on the region and land class. Decreasing profit margins have competed with relatively strong farm equity positions and increasing property taxes to direct values and rents so far in 2024. Cropland values and cash rents are expected to increase although they are projected to be smaller increases than the past two years.
Factors Important to Ohio Cropland Values and Cash Rents
The primary factors affecting these values and rents are land productivity and potential crop return, and the variability of those crop returns. Soils, fertility and drainage/irrigation capabilities are primary factors that most influence land productivity, crop return and variability of those crop returns.
Other factors impacting land values and cash rents may include field size and shape, field accessibility, market access, local market prices, field perimeter characteristics and potential for wildlife damage, buildings and grain storage, previous tillage system and crops, tolerant/resistant weed populations, USDA Program Yields, population density, and competition for the cropland in a region. Factors specific to cash rental rates may include services provided by the operator, property taxes and specific conditions of the lease. This fact sheet summarizes the survey research data collected for western Ohio cropland values and cash rents:
https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents
Projected Estimates of Land Values and Cash Rents
Survey respondents were asked to give their best estimates for long-term land value and cash rent change. The average estimate of cropland value change in the next five years for western Ohio is an increase of 3.6 percent (for the entire five-year period). Responses for the five-year cropland value change ranged from an increase of 50 percent to a decrease of 50 percent.
The average estimate of cash rent change in the next five years is an increase of 2.7 percent. The cash rent change also had a large range, with responses ranging from an increase of 25 percent to a decrease of 50 percent.
Interest Rates
Survey respondents were also asked to estimate 2024 interest rates for two borrowing terms: 20 year fixed-rate mortgage and operating loan. The average estimate, according to survey respondents, of 20 year fixed-rate mortgage borrowing is 7.1 percent. According to the same respondents, the average estimate of operating loan interest rates is 8.3 percent.
The full survey research summary can be found at the Farm Office website: https://farmoffice.osu.edu/farm-management-tools/farm-management-publications/cash-rents
The OSU Agricultural & Resource Law team just returned from Cincinnati after hosting the Second Annual Cultivating Connections Conference. What a thrill to bring together 121 professionals from across the country who work in farm transition planning! The group consisted of attorneys, tax professionals, educators, farm legacy counselors, financial planners, and law students. The commonality among our attendees: the desire to help farms transition their assets and operations to the next generation.
The old saying, “it takes a team,” rings true for farm transition planning. The conference illustrated the myriad of topics and expertise required to assemble a farm transition plan and the hurdles a farm family faces. Like the long line of hurdles that awaited our Olympic athletes in their races this week. But the difference is that farm families aren’t always trained to overcome those hurdles, let alone at a high speed. That’s where the professional team comes in—to help move a family over the hurdles it faces.
Here are a few takeaways on the “hurdle” topics we focused on at Cultivating Connections.
- Don’t jump right to the plan--talk first. An important first step to building a plan: get the family talking and thinking. David Marrison of OSU Extension recommended strategies for working with farm families, including understanding the legacy; encouraging the family to assess its strengths, weaknesses, opportunities and threats; and helping the family deal with the elephants in the room.
- Organize, organize, organize. A huge amount of information goes into a farm transition plan and organizing that information is a challenge. Kelly Moore of Make Hay Consulting demonstrated a new tool that can help, the FARMS spreadsheet, currently under development by OSU Extension.
- Know what’s in an appraisal. We use appraisals regularly in farm transition planning and estate administration, but do we understand what goes into an appraisal and what limitations it has? Tim Harpster, an appraiser with Consolidated Appraisal Services Company, answered those questions.
- Divorce is a threat to reckon with. But a well drafted pre-nuptial agreement can help reduce the impact a divorce can have on a farming operation, as Susan Montgomery of Gottlieb, Johnston, Beam, Dal Ponte PLL explained. Farm transition planners also need to understand the process of divorce and parenting plans, and how they can affect a farm family.
- Be careful with business entity discounting. Whether for “lack of marketability” or “lack of control,” business entity discounts can reduce the value of an estate and limit federal income tax exposure—but they need to survive IRS scrutiny. Peter Woodlock of Youngstown State highlighted issues with discounting.
- It’s time to think about the 2025 estate tax sunset. There are strategies to employ now to prepare high-wealth farms for the possible reduction of the federal estate tax exemption in 2025. David Malson of Barnes and Thornburg LLP walked us through a few of those strategies.
- We need to encourage and mentor more rural professionals. There's an alarming shortage of legal and tax experts who can advise farm owners and operators in rural areas. Beth Rumley of the National Agricultural Law Center led a panel of young attorneys--Johnny Cottingum of Wright & Moore, Eli Earich of Barrett, Easterday, Cunningham and Eselgroth, and Jennifer Harrington of Iowa State University--to discuss issues and solutions for reducing these "rural deserts."
- Know the ethics rules. When an attorney represents a farm couple, farm family, and/or farm operation, lack of awareness about potential issues with confidentiality and conflicts of interest can get an attorney in trouble. Jesse Richardson of West Virginia College of Law laid out the rules of professional responsibility that can affect farm transition planning.
- Plans can differ. The conference ended with a case study that challenged all to assess a family’s situation, its farm transition plan, and the administration of its estate and federal tax return. A range of ideas and analysis by conference attendees emerged. What we learned: there can be different paths to the same goal—different ways to jump the hurdles. But in all cases, it takes a team of professionals to get the family through those hurdles.
Learn more about the Cultivating Connections Conference on the Farm Office website. Consider joining us next year for the third annual conference, hosted by Iowa State University’s Center for Agricultural Law and Taxation, on August 4 and 5, 2025 in Ankeny, Iowa. And to stay involved with professionals involved in farm transition planning, consider joining the Association of Farm Transition Planners by signing up for the list serve.
Tags: Cultivating Connections, farm transition, Estate Planning, business planning farm succession
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Recently, the Supreme Court of Ohio ruled on a unique and highly publicized case involving a bone found in a "boneless" wing. This case has drawn significant attention due to its peculiar subject matter and the broader implications it holds for consumer protection and food labeling practices. It exemplifies the delicate balance the law must strike between protecting business interests and ensuring consumer safety.
Case Background
In April 2016, Michael Berkheimer ordered boneless wings at Wings on Brookwood, a restaurant in Butler County. Berkheimer cut each boneless wing into smaller pieces before eating. After consuming one piece, he experienced discomfort in his throat. In the following days, he developed a fever and nausea, prompting a visit to the emergency room. Doctors discovered a 1 1/2-inch chicken bone lodged in his throat, resulting in heart and lung damage and a partially paralyzed diaphragm. In 2017, Berkheimer sued the restaurant owners, as well as the chicken supplier and processor. The case was eventually appealed to the Supreme Court of Ohio.
Legal Concepts at Issue
The Court of Appeals previously determined that the bone was a natural part of chicken and thus the restaurant did not breach its duty of care to its customer. The Appeals Court essentially decided that consumers should recognize the inherent risk of bones in chicken, regardless of how the product is labeled.
Conversely, Berkheimer argued that a reasonable person would not expect a bone in a boneless wing and, therefore, would not think to inspect the meat for bones. He contended that the restaurant and supplier were negligent by offering a food product labeled as boneless while knowing it could contain bones or bone fragments. Mr. Berkheimer appealed the matter to the Ohio Supreme Court.
The Court's Decision
In a 4-3 decision, the Ohio Supreme Court ruled in favor of the restaurant. The court concluded that while the term "boneless wings" might not be entirely accurate, it did not constitute negligence under Ohio law. The court noted that "boneless wings" is a commonly accepted descriptor for a specific type of chicken product, and reasonable consumers are unlikely to be misled by this term.
The court also emphasized the importance of context in labeling disputes. They found that the restaurant's menu and advertising provided sufficient context for consumers to understand what they were purchasing. However, the court suggested that businesses should strive for greater clarity in their labeling practices to avoid potential confusion.
Implications and Future Considerations
The ruling in this case has significant implications for the food industry and consumer protection efforts. It highlights the ongoing tension between industry practices and consumer expectations, particularly in the realm of food labeling.
For businesses, the case underscores the importance of transparency and clarity in product descriptions. While the court ruled in favor of the restaurant chain, it also suggested that more accurate labeling could help prevent similar disputes in the future.
For consumers, the case serves as a reminder to scrutinize product labels and ask questions when in doubt. As food labeling practices continue to evolve, consumer awareness and vigilance will be crucial in ensuring that businesses maintain honest and transparent practices.
This case sets a precedent for how courts might handle similar disputes in the future, emphasizing the need for clear communication between businesses and consumers to avoid misunderstandings and ensure consumer safety.
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Featured Discussion on the Downward Trend in Global Profitability of Crop Farming and a Bearish Outlook for 2024
During its annual conference from June 10th to 14th, the agri benchmark Cash Crop Network discussed recent developments in global crop production. I was fortunate to recently attend the agri benchmark conference in Valladolid, Spain. The conference was hosted by the Spanish Ministry of Agriculture who together with its operating company Tragsa, established and manages a network of 37 typical crop farms. Approximately 55 international experts from all over the world discussed recent results and topical issues of global crop production.
The Ohio State University College of Food, Agricultural and Environmental Sciences is a member of the agri benchmark network and I serve as the network representative for the College. The following are a few selected highlights from the conference.
Last year (2023) was difficult for most typical agri benchmark farms when compared with previous, more profitable, years. Increasing machinery cost and lower output prices many farms experienced a massive downturn in return to land.
The projections for 2024 for the agri benchmark network, which is coordinated by the German Thünen Institute, are even more bearish. The likely relief provided by lower fertilizer prices will not fully compensate for the increase in machinery costs. In addition, based on global price projections, farm-gate production prices are likely to be lower in 2024 than in 2023. Many typical farms are likely to struggle with returns in 2024.
US renewable diesel boom – how US soybean production may increase
A number of U.S. states have implemented blending targets for renewable fuels. As a result, renewable diesel production has increased substantially. By 2029 this will lead to an annual demand of 8 million tons of soybean oil renewable diesel production (FAPRI-MU, 2024), a 3-million-ton increase in demand relative to 2020. The respective supply can be generated through more domestic crushing or an increase of soybean acreage; most likely, a combination of both options will be used. To satisfy this increased demand for soybean oil via expansion of soybean acreage, about 5.1 million ha (+15% of current soybean acreage) of additional farmland would be required. An increase in soybean acreage may come from either (a) shifting away from continuous corn rotations to corn-soy and (b) shifting corn-soy rotations toward corn-soy-soy. Based on agri benchmark data, Margaret Lippsmeyer from Purdue University showed that option (a) would require an increase in soybean prices of 6% and option (b) of 8% to make these rotations preferable over existing ones.
Ukraine grain exports: No specific effects on Central & Eastern European farm-gate prices
At the national level, agri benchmark farm-gate data did not yield an indication that growers in Central and Eastern Europe have been suffering from the inflow of Ukrainian grain. As the graph attached indicates, respective wheat margins between Western Europe and Central and Eastern Europe actually narrowed. However, agri benchmark partners mentioned that in regions close to the Ukrainian border lower than usual prices have been observed.
EU sugar production: Expanding and rather profitable in 2023
Due to high EU sugar prices in 2022, EU production increased by 7% in 2023. Therefore, the EU became a net exporter again. Since global sugar prices were still rather high, the negative impact on domestic prices was low. Thomas de Witte from Thünen Institute stated that profitability of sugar beet production was extraordinarily high – an advantage of 1.000 to even 2.000 €/ha over other crops could be observed. A possible future cut of 15 to 30 €/t in beet prices (or 20% to 40%) would still make beets competitive at wheat prices of 230 €/t.
Regenerative agriculture – a promising option to reduce environmental footprint?
The members of the agri benchmark Network discussed the concept and the environmental claims of regenerative agriculture. Many industry leaders and politicians are promoting this idea to address public concerns regarding agriculture; influential global consulting companies try to educate growers regarding the profitability of suggested measures such as cover crops and no-till. One discussion focused on the notion that proponents of regenerative agriculture oversell the potentials, in particular regarding greenhouse gas savings and economics. Furthermore, the two major sources for GHG emissions – nitrogen use and land use change – are not addressed. Considering these shortcomings, the network will be publishing a thesis paper on this topic and will suggest more meaningful indicators to define goals that effectively reduce GHG emissions and reduce pressure on biodiversity.
agri benchmark, a nonprofit, politically independent organization, provides comprehensive information and advice on crop production systems. With its proven and unique farm level data and a global network of on-the-ground experts, agri benchmark enables economic and environmentally sustainable decision-making by agricultural stakeholders worldwide.
Let’s grow together – Your strategic partner for tomorrow’s agriculture
For more information visit: agribenchmark.org
Evolution of average return to land* across all crops (USD/ha)
* Total revenue (incl. decoupled payments) minus total cost (excluding land cost);
weighted average per farm, simple average across all farms per region
Evolution of farm-gate wheat prices – regional agri benchmark averages (USD/t)
Source: agri benchmark Cash Crop (2024)
Group picture from the conference
Source: agri benchmark Cash Crop (2024)
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The Internal Revenue Service (IRS) has specific guidelines for determining whether a farming activity is considered a business or a hobby. This distinction is crucial because it affects how expenses and losses are treated for tax purposes. Farmers who engage in agricultural activities must understand these guidelines to ensure they comply with tax laws and maximize their deductions.
Defining Hobby Farms vs. Business Farms
The IRS considers several factors to determine if a farming operation is a for-profit business or merely a hobby. A farm classified as a hobby cannot deduct losses against other income, whereas a business farm can. The primary difference lies in the intent to make a profit.
The 3-out-of-5-Years Rule
One of the key benchmarks used by the IRS is the "3-out-of-5-years" rule. According to this rule, a farming activity is presumed to be for-profit if it has made a profit in at least three of the last five tax years. For horse breeding, training, showing, or racing, this period extends to two out of seven years. If the farm meets this criterion, the IRS assumes the activity is profit-oriented unless there is evidence to the contrary.
Factors Considered by the IRS
Even if a farm does not meet the 3-out-of-5-years rule, it can still be considered a business based on other factors. The IRS evaluates the following criteria to assess the profit motive:
- Manner of Operation: Is the farm run in a businesslike manner? This includes maintaining accurate books and records, having a separate bank account, and implementing strategies to improve profitability.
- Expertise: Does the taxpayer have expertise or consult with experts to make the farming operation profitable? This factor looks at the knowledge and experience of the farmer or their reliance on professional advice.
- Time and Effort: How much time and effort does the taxpayer put into the farming activity? Significant personal involvement can indicate a profit motive.
- Asset Appreciation: Does the value of the farming assets (such as land and equipment) increase over time? Appreciation can suggest a profit intent, even if the farm incurs losses.
- History of Income or Losses: What is the history of income and losses in the farming activity? Occasional profits or a trend towards profitability can support the profit motive.
- Financial Status: Does the taxpayer have substantial income from other sources? If the taxpayer relies on farming as their primary income, it is more likely to be seen as a business.
- Elements of Personal Pleasure: Does the taxpayer derive personal pleasure or recreation from the farming activity? While enjoyment does not automatically classify an activity as a hobby, it can be a contributing factor.
Tax Deductions and Hobby Farms
If the IRS deems a farm a hobby, the taxpayer can only deduct expenses up to the amount of income generated by the hobby. This means that hobby farms cannot use losses to offset other income. Conversely, a business farm can deduct all ordinary and necessary expenses related to the farming activity, even if they exceed income, potentially reducing overall taxable income.
Record Keeping and Documentation
Maintaining meticulous records is essential for farmers to substantiate their profit motive. This includes keeping receipts, invoices, and detailed logs of farming activities. Proper documentation helps demonstrate the businesslike operation of the farm and supports the claim of profitability.
Conclusion
Understanding how the IRS views hobby farms versus business farms is critical for farmers to manage their tax obligations effectively. The 3-out-of-5-years rule provides a clear benchmark, but other factors also play a significant role in determining the nature of the farming activity. By operating in a businesslike manner and keeping thorough records, farmers can maximize their tax deductions and ensure compliance with IRS regulations.