Susan Voss, CPA, the head of our Agriculture team, provides the next installment in her series on helping farm families understand and respond to changes in agribusiness.
As we continue to march through this period of low commodity prices and high input costs, we must continue looking for opportunities to strengthen our bottom lines. I recently spent time with other farm families listening to speakers from the Farm Service Agency (FSA),Women, Land and Legacy group, and Iowa Agricultural Development Division (IADD).
Tax Saving Programs
In Mahaska County and surrounding counties, FSA is close to releasing CRP for haying and grazing. Northwestern Iowa has already released their acres. We’d all rather have some nice rains, but if we don’t, FSA will issue a news release letting us know the details.
CRP – Dollars available for CRP are at or near their cap. Funds are currently on hold for all new applications until it is determined if funds are available. Continue to sign up for CRP during its enrollment period if it can work in your operation. As of the first of 2017, maximum payment for most programs was $300 per acre. Here are three of the less traditional programs to consider:
- State Acres for Wildlife Enhancement (SAFE)
In Iowa, the SAFE programs address wildlife habitat resource concerns for specific species in targeted areas. The five current programs are for birds, specifically identifying pheasants, quail, bobolink, dickcissel, eastern meadowlark, field sparrow and loggerhead strike.
- Farmable Wetlands Program
This program was designed to restore previously farmed wetlands and to improve both vegetation and water flow. Naturally, most of these acres are river and creek bottoms. This program can take the worry out of your frequently flooded bottoms.
- Pollinator Habitat Initiative
This initiative enhances honey bee and native pollinator populations by providing better access to nutrition for pollinators that have experienced significant declines over the past decade. A lack of flowers and forbs to provide pollen nectar is believed to be a major contributing factor for these declines. I had a client tell me he and his neighbor saw a significant increase in bean bushels after he enrolled in this program and the number of bees increased in their area.
Livestock Forage Disaster Program (LIP) – Provides payments to producers when livestock losses are incurred in excess of normal due to a weather event. Examples include extreme heat or cold, tornado, flood, lightning, winter storm, blizzard, hail, and straight line winds.
Noninsured Crop Disaster Assistance Program (NAP) – Insurance policy for crops not covered by traditional crop insurance.
Organic Certification Cost Share Program (OCCSP) – Provides organic producers and handlers with financial assistance to reduce the cost of organic certification.
Farm Stored Facility Loans (FSFL) – Offers low interest loans, 1.5%-2.25% for storage facilities such as bins, grain trucks, trailers, skid steers, grain augers, grain carts, gravity flow wagons, portable dryers, and forklifts, among others.
Marketing Assistance Loans (MAL) – Sealing grain becomes an option again each August through May 31. The 2016 interest rate was 1.625%. This is more popular again as cash flow pressure is occurring in some operations. The 2016 loans were for just less than $2 per bushel for corn and $5 for beans.
FSA Loan Programs
The FSA also has several loan programs and low rates for lines of credit, land purchase, emergencies and microloans for smaller purchases, like equipment.
- Farm Operating Loans A beginning farmer is defined as someone operating a farm less than ten years. Minorities and females are also targeted. Loans carry an interest rate of 2.875% for 1-7 years and a maximum balance of $300,000.
- Farm Ownership Loan Programs
- Down Payment loans For beginning, minority and female farmers who can benefit from a 1.5% interest rate on a loan after making a 5% minimum down payment. Borrowers can finance a maximum of 45% of the purchase price, up to $300,000.
- Participation Loans are available when FSA shares a loan. Up to 50% of the financing is shared with another financing institution. USDA takes a second mortgage with a current interest rate of 2.5%, up to $300,000.
- Regular Farm Ownership Loan up to 100% of the financing with a 3.875% interest rate, up to $300,000.
- Microloans can be up to $50,000 at 2.875%. This is often used for equipment.
- Guaranteed Loan Programs can be considered when a financial institution needs to share the responsibility for a loan. FSA can back up to 90-95% of the balance held through a non-government source for an operating loan or land purchase loan.
Iowa Agricultural Development Division (IADD)
The programs offered through (IADD) benefit land owners by making it attractive to rent, crop share or hire a beginning farmer. They also have a loan program worth investigating for operators.
IADD’s beginning farmer is not defined by age or length of time farming. It’s defined by net worth. Beginning farmers can qualify for benefits for themselves or for tax credits for someone who rents them or hires them to do custom work, provided they meet these requirements:
- Net worth of less than $645,284
- 18 years or older, with no upper age limit
- Possess sufficient training and experience in farming
- Has access to the tools of trade
Beginning Farmer Tax Credit – The application date for 2017 was September 1, but you can keep a look out for the 2018 deadline. This is a 7% Iowa tax credit for the land owner for renting land, equipment, and/or breeding stock to a qualified beginning farmer for 2-5 years. It provides a 17% tax credit for a crop share arrangement and both credits are capped at $50,000. Both percentages will decrease in 2018 to 5% and 15%. This program can work within a family. The idea is to give land owners a benefit so they are in a position to negotiate a lower rent to beginning farmers. The state recognizes the need to grow and develop the next generation of farmers.
Beginning Farmer Custom Farming Tax Credit – Application date for 2017 is November 1. This program provides a 7% Iowa tax credit on the Iowa tax return for farmers who hire a beginning farmer to do custom work. An example would be hiring a beginning farmer to spread manure, spray the crops, move dirt, bale hay, etc. This program cannot be within a family and ends in 2017, however, there is time for beginning farmers to market themselves with this program as leverage in 2017.
Loan Programs are also available at IADD. Some loans can piggy-back with FSA loans and create an attractive financing package. Details are available with either office’s staff.
We Can Help
I’ve provided a summary of programs that might help strengthen your bottom line. Each of the offices noted above are there to help put your management skills to work. Please use them. As always, TD&T tax professionals are also a tool to help you navigate through these many farm-friendly opportunities.
I’d like to thank the following people for providing information in their areas of expertise: from the FSA, USDA – Wendi Denham, CED, and Dawn H. Stewart, Farm Loan Manager, and Morgan Glasby, Farm Loan Manager; Steve Ferguson from IADD, and Charles Brown, Field Specialist – Farm Management, ISU Extension and Outreach. Charles Brown and Steve Johnson, both from ISU Extension, were featured speakers at TD&T’s Ag Conference on August 22. Thank you for those of you in attendance. We hope you left with more knowledge and some insight.