In times of tight margins, every purchase must have a purpose with ROI top of mind. As you optimize your equipment, crop inputs, farmland and business intellect for the year ahead, take the time to plan your work, and then you work your plan.
“Give me a show of hands… how many people in the room farmed with PIK certificates in the ‘80s?” asked Ken Ferrie to the 100-plus corn and soybean growers in the audience.
A smattering of hands shot up in the air. Some of the younger growers glanced at each other, puzzled about the 40-year-old farm program Ferrie was referencing.
Payment-in-Kind, or PIK for short, was implemented by USDA during the early years of the 1980s farm crisis, when production agriculture was under extreme financial duress, Ferrie explains. He remembers the time well, as he was just starting his career.
Four decades later, agriculture again faces severe economic constraints with commodity prices below the cost of production for many growers. Ferrie’s hope, and what he told his farmer audience this summer, is that farm programs could potentially help them weather the economic storm and keep their operations intact over the next couple of years.
“No matter what your opinion is about climate smart farming or the government initiatives and industry incentives out there, they are potentially an avenue to square up some revenue income,” Ferrie says.
A potential game-changing opportunity for farmers that has captured headlines this year is the 45Z Clean Fuel Production Credit. The new credit goes into effect on Jan. 1, 2025, and will reward renewable fuel manufacturers for lowering the carbon intensity (CI) score of their products, such as ethanol, biodiesel and sustainable aviation fuel.
To participate in 45Z, farmers will sell grain with the grain’s carbon data tied to its value. Much to agriculture’s frustration, just how the program will work and farmers will be compensated is yet to be undetermined.
Concerned farm groups, including the American Farm Bureau Federation, American Soybean Association, National Corn Growers Association and National Farmers Union, sent a letter in to Treasury Secretary Janet Yellen and U.S. Office of Management and Budget Director Shalanda Young, asking them to ensure the Clean Fuel Production Credit (45Z) works for U.S. farmers.
Despite the unknowns, Ferrie hopes farmers will look into 45Z and other farm programs and evaluate whether they would be a good fit, once funded.
“They could be the bridge that puts us into some profit while we are waiting for these down markets to improve,” Ferrie says.
He offers five additional thoughts on how farmers can evaluate the farm programs:
- Look for the source of revenue. “Determine who is putting the money up for the project. Know who you’re dealing with,” Ferrie says. “Is it all government money, all private money, or is it a combination of the two?”
- Consider whether you will be paid for practices or performance. “With government funding, you’re usually paid for practices,” Ferrie says. “With private dollars or industry initiatives, you could be getting compensated for environmental performances.” Don’t expect to be paid by two different organizations for using the same practice on the same acre. This is a standard rule with carbon markets. Typically, you can’t sell an asset to one company and then again to another.
Evaluate nutrient management programs closely before signing up. They can differ widely by state and region and have different requirements, Ferrie explains.
“You have to be careful that you don’t sign up for one that would cause a large reduction in your yields,” he cautions. “If you’re used to putting on 250 lb. of N to grow your crop, because that’s what it takes, and now you’re asked to put on 170 lb., you could take a beating in yield, and that’s not going to be replaced.”
- Go slow with any program that requires you to make a significant change in practices. Ease into adopting no-till or growing cover crops. “We have a lot of successful growers out there using both, but we’ve also had a lot of crashes,” Ferrie says. “If you’re going with no-till and cover crops, get your farm into a vertical format. You’re going to have to take out those horizontal layers that have been there throughout your farming career, but that will make your no-till and cover crops work a lot better.”
- Some growers are reluctant to sign on to a new program with the upcoming elections. Some of the programs not yet funded could be tossed aside by a new administration with different priorities, Ferrie says. His advice: “Look at things like the Regional Conservation Partnership Program and others where the funding is already approved.”
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