The Rural Voice, 1980-01, Page 29Advice on Farming
Renting or Crop Sharing:
both involve same risk
BY DONALD SHAUGHNESSY, CA
The economics of renting out surplus
land as opposed to becoming involved in a
crop sharing agreement involve a gamble
on the part of both the farm owner and the
tenant. There's a good chance both can
win.
As a rule, renting acreage for an outright
cash payment is popular with tenants when
farm commodity prices are high and
demand is strong. When prices are
depressed, they are more likely to look for
' crop sharing.
Among the advantages of a cash rental
agreement are:
•It is simple. There is little chance that
either party will misunderstand the
agreement.
•The land owner is assured of a specific
level of income and thus avoids risk.
•The tenant has a free hand in deciding
how to manage the property, apart from
any provisions that the owner has written
into the agreement.
It has its drawbacks, too. These include:
•The tenant takes all the risks, and must
pay the agreed rent no matter how poor
conditions or prices become.
•The landlord does not share in the
benefits of an extremely good year.
•It can be difficult to negotiate a fair
rental price in advance.
•The tenant may "mine" the land and
destroy or diminish its productivity for
future years.
Rents are usually calculated on the basis
of how much the farmer would earn if he
was sharing the crop in a normal year,
usually on a one-third of the yield basis.
This figure is adjusted in calculating the
rent, to reflect the fact that the owner is not
also sharing in the cost of feed, fertilizer
and manpower.
The owner and tenant can also reach a
fair financial agreement by working out a
flexible cash rent. This involves a base
rental rate, and an agreed-upon range in
which this can be adjusted depending on
commodity prices and crop yields.
If it is an outstanding year, both parties
benefit. if prices fall or there is a poor
yield, both parties share the reversal.
The land owner should bear in mind one
possible pitfall if he decides to rent his
farm to someone else, however.
By doing so, he is changing the nature of
his land from a self -operated farm to a
rental property. When a taxpayer, farmer
or not, changes the use of an asset, he is
deemed by tax authorities to have sold it
when he discontinued one use, and
re -acquired it when he began a second.
In theory, at least, he thus becomes
liable for a tax on capital gains and on
recaptured capital cost allowance. To avoid
this situation, it would be advisable to have
the rental agreement checked out by a
financial adviser. It may be possible to
draft the agreement in such a way that
possible tax problems are avoided.
Milk replacer
improves gain
A new processing technique developed
by Agriculture Canada scientists in Ottawa
could make veal production more econom-
ical.
The technique is called low-pressure fat
dispersion.
New-born calves fed a 40 -per -cent fat
milk replacer mixed by low-pressure
dispersion gained weight at the rate of 0.4
to 0.5 kg per day. That's twice as high as
when the same ration is homogenized.
The low-pressure dispersion technique
produces larger fat globules in the milk
replacer.
Homogenization, the usual method of
mixing fat into milk replacer, results in
small fat globules.
The larger fat globules produced by
low-pressure dispersion resulted in larger
and firmer curds being formed in the
calves' stomachs. This meant improved
digestion and more rapid weight gains.
Laboratory tests by Doug Emmons of the
department's Food Research Institute
showed that low-pressure dispersion of
high levels of fat (50 per cent of dry matter)
resulted in much firmer curds than did
homogenization.
K.J. Jenkins of the Animal Research
Institute and Dr. Emmons decided to use
the technique to mix animal fat into milk
replacer.
They found the results promising, and
say the technique could be used to improve
commercial calf milk replacers.
Dr. Jenkins explains that milk replacer
must be high in energy so a calf grows
quickly, especially if it is being raised for
veal.
It is also important that the protein,
which is expensive, actually helps the calf
grow, rather than being burned up as a
source of energy.
Tests have shown that as much as 40 per
cent of the dry matter in milk replacer is
needed as fat to prevent the protein from
being used as energy.
Unfortunately, cheap sources of energy,
such as lard and tallow, did not result in
good calf growth when added to homog-
enized milk replacer at the 40 per cent
level.
But by using low-pressure dispersion,
these cheaper animal fats can be used to
produce an economical and easily digest-
ible milk replacer.
Do you have
enough insurance?
Farmers are conscious of the increasing
costs of farm supplies and services, but
many have lost track of farm building
costs. The result is that many farm
buildings are underinsured.
"It's easy to see inflation in the cost of
regular purchases," says Dick Heard,
Ontario Ministry of Agriculture and Food
area coordinator. "But farmers may pur-
chase farm buildings only once or twice in a
lifetime. Farmers haven't reduced their
insurance coverage, they just haven't kept
it up-to-date with current replacement
costs. Many farm buildings in Ontario are
insured for only 40 per cent of their
replacement value."
For example, a farm building which cost
$10,000 when built 10 or 15 years ago
would probably now cost $30,000 to
$40,000 to replace. Even if the farmer's
insurance covered the full cost of the
building at construction, it would still be
much less than the replacement cost.
The harsh reality of insufficient insur-
ance hit home for more than 400 Oxford
County farmers who suffered millions of
dollars of damage when a tornado struck in
October. A spokesman for the Oxford
County Disaster Relief Fund said about 80
per cent of the uninsured losses came from
farmers. Many farmers were unaware of
what type of coverage they had, and other
residents had only enough insurance to
meet mortgage company requirements.
Before the situation occurs to you,
seriously check to see what your insurance
program would cover if the worst happen-
ed."
Most farm mutual insurance companies
encourage farmers to insure farm buildings
for at least 80 percent of the replacement
value.
Mr. Heard advises farmers to check
what type of coverage they have. Most
companies offer comprehensive coverage
that includes protection from all kinds of
perils. Mr. Heard recommends coverage
for fire, lightning, wind storms, and hail.
THE RURAL VOICE/JANUARY 1980 PG. 27