1. Ray Massey Commercial Ag Program Crops Economist

2.  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

3.  Agebb.missouri.edu/massey.htm  Environmental Markets contains guides and powerpoint presentations  http://www.agrisk.umn.edu/ http://www.agrisk.umn.edu/

4. Grant Received Educational Program Conducted

5.  General environmental market information  General contract information  Topic 1: GHG markets  Topic 2: Energy markets  Discussion/Activity regarding cooperative activities in new markets

6. http://www.gallup.com/poll/117079/Water-Pollution-Americans-Top-Green-Concern.aspx Ag Involved

7.  Market Niches:  Local foods  Organic foods  Natural foods  Energy markets:  Ethanol  Biodiesel  Biomass  Wind energy  Methane derived electricity

8.  Greenhouse Gas Markets:  Soil carbon sequestration  Forest carbon sequestration  Methane destruction (from manure storages)  Easements:  Conservation  Farmland Preservation  Power line  Pipeline

9.  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.

10.  Contracts  Opportunity for Return (Profit)  Possibility of Risk (Loss)  Assumption of Responsibilities  Guide: Contracts in Agriculture  Didn’t have a significant PowerPoint presentation

11.  Input based:  Organic contract requires only that you follow certain steps.  Soil carbon sequestration contract only requires that you use no-till production system.  Output based:  Wind energy contracts are based on kilowatt hours of electricity produced.  Methane destruction contracts based on tons of methane destroyed.

12.  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  New contracts with high asset specificity  Lagoon covers for methane destruction - risky  Ridge tops with high wind speeds - rewarding

13.  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.

14.  Guides  Agriculture and Greenhouse Gas Emissions  Introduction to Greenhouse Gas Markets and Cap- and-Trade  Presentations  Emerging Environmental Markets

15.  Greenhouse gas limitations have the  Potential to profit agriculture  Potential to regulate agriculture  Which is the greatest potential and how will it impact agriculture?  Is agriculture a source of offsets or a source of emissions?

16. Source: EPA. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007

17. Agriculture Can Provide Environmental Benefits via:  Carbon Sequestration in soils and forests  Methane Capture and Destruction  Renewable Fuels  Increased Efficiency

18.  Permanent  Additional  Verifiable  Enforceable

19. http://www.chicagoclimatex.com/market/data/summary.jsfhttp://www.chicagoclimatex.com/market/data/summary.jsf1/12/10

20.  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.

21.  Receive money for offsets provided.  May receive this for no additional work if already using conservation practices.  20% of offsets are held until the end to insure compliance

22.  Presentations  Wind Energy Leasing – Shannon Ferrell  Environmental Contracts – Shannon Ferrell

23. 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?

24. Source: ISU AgDecisionMaker

25.  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

26.  New markets are frequently fostered by legislation or regulation.  Opportunity for profit in affected markets.  Subsidies are political decisions:  $1/gallon biodiesel subsidy ended Jan 1, 2010.

27.  Guide  What Landowners Should Know When Considering Conservation Easements by Hoag, Marshall, Seidl and Mucklow.

28.  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

29.  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

30.  Missing Tax Benefits  Requires a permanent easement  Requires that the easement grants public interest values to the grantee (party receiving the grant)  Costs associated with selling an easement can be significant and the easement might never materialize.

31.  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?  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.

32.  Presentation  When Personal and Group Interests Conflict

33. Ray Massey Commercial Ag Program Crops Economist