Ray Massey Commercial Ag Program Crops Economist

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Ray Massey
Commercial Ag Program
Crops Economist
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2009-2010 NCRMEC grant funded program
Held five 3-hour meetings in Missouri;
presented partial material in many more
meetings.
Results from post workshop surveys:
 Decided not to enter into a contract
 Pursued further information before contracting
 Decided to enter into a contract
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Agebb.missouri.edu/massey.htm
 Environmental Markets contains guides and
powerpoint presentations
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http://www.agrisk.umn.edu/
Grant
Received
Educational
Program
Conducted
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General environmental market information
General contract information
Topic 1: GHG markets
Topic 2: Energy markets
Discussion/Activity regarding cooperative
activities in new markets
http://www.gallup.com/poll/117079/Water-Pollution-Americans-Top-Green-Concern.aspx
Ag Involved
Ag Involved
Fair Amount
Ag Involved
Ag Involved
Great Deal
Ag Involved
Percent responding very
concerned or fairly concerned
90
80
70
60
50
40
30
20
10
0
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Market Niches:
 Local foods
 Organic foods
 Natural foods
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Energy markets:
 Ethanol
 Biodiesel
 Biomass
 Wind energy
 Methane derived electricity
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Greenhouse Gas Markets:
 Soil carbon sequestration
 Forest carbon sequestration
 Methane destruction (from manure storages)
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Easements:
 Conservation
 Farmland Preservation
 Power line
 Pipeline
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Contracts are the most common way of
participating in emerging markets.
Participation in new markets uses contracts
because the new responsibilities, rewards and
risks are evolving. Contracts are a way of
fostering the necessary dialogue.
Policy involvement is also a method of
opening or creating and participating in new
markets.
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Contracts
 Opportunity for Return (Profit)
 Possibility of Risk (Loss)
 Assumption of Responsibilities
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Guide: Contracts in Agriculture
 Didn’t have a significant PowerPoint presentation
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Input based:
 Organic contract requires only that you follow
certain steps.
 Soil carbon sequestration contract only requires
that you use no-till production system.
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Output based:
 Wind energy contracts are based on kilowatt hours
of electricity produced.
 Methane destruction contracts based on tons of
methane destroyed.
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Assets that can do only one thing are more
risky, and potentially rewarding, than an asset
that can do multiple things
 Grain bin has high asset specificity
 Tractor has low asset specificity
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New contracts with high asset specificity
 Lagoon covers for methane destruction - risky
 Ridge tops with high wind speeds - rewarding
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Contracts cannot contain every possible
outcome so they try to talk about the most
likely outcomes or the most important
outcomes.
Where a contract does not specify an
outcome, there is opportunity for reward or
risk.
Contractual incompleteness is often called
loopholes.
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Guides
 Agriculture and Greenhouse Gas Emissions
 Introduction to Greenhouse Gas Markets and Cap-
and-Trade
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Presentations
 Emerging Environmental Markets
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Greenhouse gas limitations have the
 Potential to profit agriculture
 Potential to regulate agriculture
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Which is the greatest potential and how will it
impact agriculture?
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Is agriculture a source of offsets or a source of
emissions?
Stationary Coal Combustion
Road Fuel
Stationary Gas Combustion
Stationary Oil Combustion
Aviation Fuel
Direct Fertilizers (N2O)
Enteric Fermentation (CH4)
Non-Energy Fuel Use
Landfills
Ozone Depleting Substances
Natural Gas Systems
Iron and Steel Production
Coal Mining
Marine Fuel
Cement Manufacture
Manure Management (CH4)
Indirect Applied Nitrogen (N2O)
0
500
1000
1500
Source: EPA. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
2000
2500
Agriculture Can Provide Environmental Benefits
via:
 Carbon Sequestration in soils and forests
 Methane Capture and Destruction
 Renewable Fuels
 Increased Efficiency
 Permanent
 Additional
 Verifiable
 Enforceable
http://www.chicagoclimatex.com/market/data/summary.jsf 1/12/10
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Failure to comply with responsibilities results
in fines and penalties.
5 year contract reduces flexibility in land
management.
Don’t know the price that you will receive.
CCX Market is set to expire in 2010.
Aggregators are not bonded.
Land tenure changes do not nullify the
contract.
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Receive money for offsets provided.
 May receive this for no additional work if already
using conservation practices.
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20% of offsets are held until the end to insure
compliance
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Presentations
 Wind Energy Leasing – Shannon Ferrell
 Environmental Contracts – Shannon Ferrell
1.
How will your current uses of the property be
affected by the project?
2.
How long will agreement last?
3.
What are your obligations under the agreement?
4.
How will you be compensated?
5.
What happens when the project ends?
$12.00
Dollars/bushel
$10.00
Ethanol Revenue
Max Corn Price
Actual Corn Price
Corn Production Cost
$8.00
$6.00
$4.00
$2.00
Source: ISU AgDecisionMaker
Jan-10
Sep-09
May-09
Jan-09
Sep-08
May-08
Jan-08
Sep-07
May-07
Jan-07
Sep-06
May-06
Jan-06
Sep-05
May-05
Jan-05
$-
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Energy (gas, electricity, etc.) is a commodity.
Agricultural inputs (corn, biomass) into energy
are a commodity.
Eventually all commodity prices tend to zero
profit.
New energy markets pose
 new profit opportunities
 new risk opportunities
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New markets are frequently fostered by
legislation or regulation.
 Opportunity for profit in affected markets.
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Subsidies are political decisions:
 $1/gallon biodiesel subsidy ended Jan 1, 2010.
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Guide
 What Landowners Should Know When Considering
Conservation Easements by Hoag, Marshall, Seidl
and Mucklow.
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An easement is a legal agreement between a
landowner and another party that
permanently limits the use of the specified
property.
Examples
 business – power and pipe lines easements
 non-profit organization – conservation easements
 government agency – Grassland Reserve Program
or public access to land
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Easements always limit land use and,
therefore, almost always reduce the market
value of the land.
Easements can increase the value of
surrounding land because it bestows some
benefit
 Preserves the scene
 Creates a buffer from encroachment
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Missing Tax Benefits
 Requires a permanent easement
 Requires that the easement grants public interest
values to the grantee (party receiving the grant)
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Costs associated with selling an easement can
be significant and the easement might never
materialize.
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You and the easement holder disagree on the
interpretation of the property rights each of
you possess.
 Does agricultural use only allow a horse boarding
stable? A confined hog operation?
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Easement holders possess a property right –
one that they can sell if they desire.
 If the value of the land becomes great enough the
easement holder may allow it to be “developed”
for a price.
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Presentation
 When Personal and Group Interests Conflict
Ray Massey
Commercial Ag Program
Crops Economist
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