Sunday, February 22, 2009

Dealing with natural resource extractors

You have multiple use of your land whether you want it or not. The state claims ultimate domain, but aside from that there are a host of others who have an interest in your land and how you farm it. Hunters, people who would like to gather woodland products, such as firewood and edible plants, people concerned with the quality of the water which leaves your land (since they catch some of it for use down stream), people who need right of way, such as electricity, water, and telephone companies, and those interested in extracting natural resources, such as coal, timber, gas and oil.

People in the last group require very careful attention, because they have the capacity to provide considerable income, and also to do considerable damage. The product they remove has great value, they use large machinery, frequently requiring them to borrow a lot of money, which means they are always in a hurry-up mode. They employ people who receive good wages for skilled work, so they have large expenses, too. They are invariably in it for the money, and you have to negotiate details of what they do on your land. Both you and the businessman want to get as much for yourself as possible out of the difference between what he gets for the material extracted and his expense.

The extractor usually has a much larger business than your farm, He deals with land owners frequently, with the resulting advantages in knowledge of applicable law and business practice. Oil and gas drillers, for example, associate with other oil and gas drillers and with lawyers who practice oil and gas law. And they take out leases frequently, so they are familiar with what land owners will try to get. You can usually deal with them on such matters as where a new right of way will go, location and type of fences to be built, size of culverts, and other things related to your farming operation. Large corporations will have specialists in dealing with various personality types among land owners. If one can’t connect with you, they will send another, perhaps tougher, agent.

Companies offer a standard payment, which may be a fraction of the value of the product removed, such as one-eighth royalty, or a price for some unit of measurement, such as a ton of coal. Getting a higher price than the standard is difficult. You may be offered less, so you have to find out what the standard is. In cases where the product is going to produce greater value for the extractor, such as low sulfur coal or thin cover over coal, you may be able to extract a premium, but you really have to study thoroughly, know what you are doing and negotiate well.

With timber it may pay to hire a registered forester. He can “mark” trees to be removed, sparing small trees to regenerate the timber. He can “walk” the tract and make measurements to get a very accurate estimate of the timber will to be removed by cutting the marked trees. He can arrange bids for the sale and oversee the cutting operation to see that the laws are followed on your land. This will cost about 8 or 9% of the sale price, but many think it is worth it, not to have to deal with the timberman, especially on large tracts or high value timber. I sell small amounts of good timber and some low grade timber myself from time to time.

Since you make a sale of this sort infrequently, think, think, think about what is going to happen. Once the contract is written, it is written in stone. Errors and omissions can seldom be corrected. You need to think about where roads will be bulldozed, where spoil will be deposited, where piles of trees will go from well platforms (and what their sale value is, because you are entitled to that, even if the value is too small to market). You need to think about where and what kind of fence you will need during and after extraction. Where will check dams be needed, and where will the rock come from? Is there a spring that needs to be protected? Try to visualize what will happen. Go to sites the extractor has worked on previously. Ask the landowners there what they learned.

You must read the contract very carefully – you are the one ultimately responsible for your interests. Think about what each paragraph does for the lessee. Does he need the thing it gives him? Does it give more than he needs? For example, does the lease specify the geologic formation that is his target? It should not surprise you that the lessee will frequently use wording which gives him formations beyond his immediate objective. An example of this is a coal lease which is sought for a seam near the surface, but which allows the lessee to take ownership or extraction rights for all coal, no matter how deep. In general, minerals become more valuable as time passes, so your heirs can loose out big time. Another hazard is paragraphs concerning liability. You should not put yourself in a position where you become liable for negligence or mistakes of the lessee. The lease should expressly say the lessee assumes responsibility for his accidents. What about damage to your business, such as cows being killed by drinking water from the process, or being killed by the operation? Read it all. Read it several times. With your mind “in gear.”

A lawyer can be of some help, especially if he/she has experience with the industry on large dollar items. A lawyer would be familiar with technical terms, and if familiar with the industry, that is, with common practice in the industry. Remember, though: 1. the lawyer is in it to make money, too, and 2. if he is in the mineral extractive industry it is most profitable for him to mind his interests with the industry. This is not to say a lawyer will routinely try to get you to sign a lease that is not good for you, but he can’t be expected to alienate a segment of his potential clientele. Lawyers are most dangerous in connection with major utilities, and in situations where you have a serious adversarial position with the mineral extractor. If you are trying to sue a utility, you need a lawyer with serious ethical commitment.

You are a land owner, but that is a kind of business, and ultimately you will have to live under the conditions of the contract. Don’t expect someone else to carry your responsibility for you.

When the extractive process is going on, try to remain business like and in contact with the person in charge of the operation. Appearing interested in the process will do more at less expense than any other tactic you can employ. If there is a problem, discuss it, but don’t expect to get expensive changes. Don’t expect to “get tough” – the extractor will doubtless have dealt with many trying that before you. Make notes and take pictures of the action, before and after pictures, and pictures of problems that arise. This is a record, and it is proof of how things were at a certain time.

Dealing is knowledge-based work. You may have to hire help in the form of a lawyer, but remember he is your employee. His function is to give you advice in his area of expertise, not to run your business. Ask for alternatives. Ask "What will happen if I do so and so?" Try to be creative – think of things that others are not thinking about. You are the one to get the profit or loss. Your mineral royalty is much more important to you than it will be to the lessee or the lawyer.

Don’t ever threaten anyone. That is guaranteed to take you downhill in a hurry, with no return. Do what you have to do tactfully, but don’t loose your self-respect and your contact with the other party.

Wednesday, February 11, 2009

On renting, buying and partnering a farm

Renting or buying a farm is a big deal, one of the most important decisions that a renter or a landowner will make. This article concerns some thoughts on the business aspect of renting and buying. You want a written document that will guide each party in what the other expects, and will secure to each what he has to have to make an economic deal. Both should remember that the other has to have certain things to profit from the exchange, to make it worthwhile.

First, a note on using a lawyer. A lawyer is like an architect, in fact more so, in that you have to tell him what you need (or want). The lawyer knows very little about the farming business. He doesn’t do farming, he has never seen the farm and he doesn’t know the people involved. The farmer is the expert on what has to be done, it’s his life, and he has the responsibility. Don’t depend on a lawyer who doesn’t have training or experience in writing the specialized kind of contract you need. You must take the initiative. Lawyers who know farming are “rare as hen’s teeth” in West Vrginia

Any lawyer can help you avoid falling afoul of the law in adversarial situations, but that is about all. Lawyers all think farming is so simple - there is nothing to writing a farm lease or other document. But they will invariably follow a house or business model for the contract, not a farm model. You need to think about everything you need and be sure it gets in. And like everything else in life, you may still get surprises. Don’t be passive.

Renting is not going to involve big money. The best interest of both parties, renter and landowner, is to keep the place up and avoid adversarial relations with the neighbors. The property that is to be rented must be clearly stated and what the renter can do with it described, and someone designated to be the lessor contact person if a group owns the farm. It should say when the money is due and how much, and the length of time the farm lease is to last (such as ten years, or ten years and as long thereafter as both parties agree).

At this point the lessor’s interest and lessee’s interest diverge. The lessor’s interests include: determination of who will be responsible for damage – if cattle get out, farm assets are damaged, etc. What is the lessee allowed to do? Does it include cutting timber, hunting, fishing, digging mushrooms, ginseng, sassafras and the like? Camping? If brush hogging is required, it should be written in. Likewise fence repair, any required rebuilding of fence, maintenance of roads, etc. that the lessor expects.

The lessee’s interests include: can the lessor drive through the fields at any time? Can the lessor make any use of the facilities? Who is responsible for upkeep? If the lessee must leave, is the cut and stored hay his? Does he have to clean out the barn/s before leaving?

Both parties should have a clear understanding of reasons and procedure to remove a farm tenant. Where housing is not involved, it can be rather simple. If the renter plans to live on the rented farm there is a lot of additional law that becomes applicable because of that. If you keep an eye on the property and notice and act on problems early enough, it helps a lot. Especially if a rented house is involved.

Some things beyond the contract should be ascertained by the lessee before signing. Are there continuing complaints from any neighbor, such as straying animals, odors from farming, excessive dust from a neighbor’s road, a history of children or dogs in the neighborhood intruding, complaints about manure in the waterways and so on? If so, it would be best to look elsewhere. If you have any suspicion, talk around the neighborhood. Don’t rely on the lessor to act against his own interest, even if that would be the moral thing to do! Observe, observe, observe and think, think, think!


The most important part of buying a farm is when. Land varies immensely in price over the decades. In 1962 any farm sold for $20,000, regardless of how large the farm and how fine the house was. Today that wouldn’t buy ten remote acres with a tent on it! Part of the difference is the decline in value of the dollar. It has lost (2008) 18% of its value since 2000, according to the Official United States Inflation Calculator. Part of the low price of land in 1962 was at that there were tremendous farm surpluses. This depressed what you could make from a farm, and consequently what the farm was worth. The population was lower, and industry was booming, too. The lucky ones of us coming of age at that time had the chance of a lifetime. However, $20,000 in 1962 represented as much “real money” (purchasing power) as $140,678 as this is written in 2008 (determined by the Consumer Price Indicator calculator).

The present may or may not be a good time to buy a farm. The currency is very unstable, but the demand for food is rising. Grain looks good, but other countries can produce cattle, which can be imported, so demand for meat is difficult to predict. Land is notoriously high now. Maybe if you have a good income elsewhere and want to invest it, or money to invest, or adjacent land is available, it might be a good risk. At best it won’t disappear completely like so many paper assets (stocks and bonds) did in the “Great Depression” of the thirties. There has been a saying around Central West Virginia for the last two decades or so, “If you want to go into farming, get a car dealership first.” The ordinary farmer should consider renting land, if possible, until he has the assets to operate the new land and put up a hefty down payment.

The second most important part is where. If you already own, and adjacent land comes up for sale and it can be farmed, this might be your chance. Adjacent land is much more valuable. Take it from someoneone who has farmed two tracts 12 miles apart. Adjacent land will reduce fence by the common border, will eliminate the need for travel and transportation of equipment and farm products.
You must have a very good farm on the other end to overcome the cost of much travel.

If you are buying a residence too, the thoughtful person will also be aware of the cost of too much distance from stores, utilities, school bus routes and also church, if so inclined. The quality of the land should be of obvious importance in buying a tract to be farmed.

If you are buying or selling to a family member or someone you trust, consider a “land contract.” When you buy something that will take a long time to pay for, the interest will be one third to one half as much as the principal. If the buyer doesn’t need all the money immediately, he can finance it for you. This arrangement cuts out the middleman who makes the loan, because the seller receives the interest. You should be able to negotiate a lower rate from the seller than a standard lending agency. You will need to talk to someone familiar with this practice and will want to work with a lawyer.



The written agreement between the four parties (including the two wives) when we purchased the our farm was written by a Harvard Law graduate, and was so inadequate one manager of Farm Credit was on the verge of denying us credit until we got something better. The agreement made no provision for the responsibility of the parties. My partner never did any work, and almost nothing to compensate. I made two or three trips to State College, PA, home of Penn State, to get something this Farm Credit manager was happy with. (They have expertise in doing work for serious farmers at Penn State.) I told the Penn State lawyer straight out what the situation was. He dallied and I dallied and finally the manager moved elsewhere and the whole thing fell through. I don’t know if my partner would ever have agreed to it. A partnership contract is difficult, of course, because duties would have to be defined if written properly. There’s nothing worse than a non-performing partner. I know, I’ve been there. Make a dime, share a nickel, loose a dime, make it back by yourself!

A partnership agreement should include the following, at least: What the duties of each person would be, how decisions will be made, what the labor, money, machine, land, etc., input from each partner will be, how earnings will be divided and when (monthly, annually), and how expansion will be handled, or reduction, and termination. Also, if there is housing involved, who will live in each dwelling, who will be responsible for upkeep and repairs additions and such.

There should be formal statement of how records will be kept, both of finances and farm operations. This could be considerable on farms keeping livestock. How will demands such as divorce and disability be handled? These do happen, and they can destroy all the partners.

It takes a certain amount of “guts” and diplomacy to do this. You have to be objective, though, to avoid hard feelings later on and to assure continuity. You must be objective, It’s better to be prepared.

Sunday, February 1, 2009

Fence Building

There is but one fence and electrified high tensile is its name! There is a certain technology you have to follow, but there is considerable latitude also. A three wire high tensile fence is legal (in West Virginia), if properly built. Posts may be set 75 feet or more apart, but must be close enough to follow the contour of the ground. It is quite adequate to keep bulls and cows in heat separated, the only fence that will do so. However, cattle can be stampeded through it, and new born calves will fumble through, apparently they do not understand the wire is the cause of their pain.

Let’s discuss how it works in general terms. The controller loads a capacitor with electricity, this is allowed to run into the fence for about three thousandths of a second. If anything is in contact with the fence and the ground it will get shocked at this point. After the very brief period the fence is unloaded, that is, the charge is allowed to drain away into the ground. This will repeat in about three-fourths of a second. The electrical quantity that causes pain is the energy that passes from the fence wire to the ground through the animal (or unfortunate person), not the voltage. Energy is measured in joules (pronounced the way West Virginians pronounce “jewels” - jewlz).

The capacitor mentioned previously determines how much energy the charger will hold. Typical values are 8 to 15 joules for a 110 volt charger. The charge is limited by the capacitor in the charger. This is safe, that much electrical shock will not damage your body. My daughter worked in the Cardiac Care unit at Ruby Memorial Hospital, so I asked her what charge was used to restart a person’s heart. She told me 450 joules. So there seems to be a considerable margin for safety. I don’t recommend touching an electric fence while standing barefoot in a stream, of course. A charge from considerably less than fifteen joules is an emotional experience that will be remembered for a long time, I can assure you! The idea is for the fence to cause pain, so the animal will avoid it. You don’t want to hurt people or hurt or damage animals.

Several things affect the amount of energy that a charger actually supplies to the animal. One is the quality of the insulation. The polyethylene and ceramic insulators available are excellent, in effect allowing no charge to leak off. Another is loading by grass or brush. This is often significant, and so one should place the lowest wire17 (or a little more) inches off the ground for cattle, unless there is some special reason. This height would be a joke for barbed wire, the cattle would lift it with their heads and go right under. Keeping the bottom wire up is one of the hardest things for someone used to building barbed wire fences has to learn. I know, it took me two decades! This height also encourages cattle to eat the grass under the fence, an important consideration. You don’t want to supply the labor to trim it out if the animals will do it. If the wire touches the ground, or a metal post, serious leaks will occur.

Your “fence tester” reads in kv (kilovolts), because it is difficult to measure joules, and once the charge is in the fence, the energy (or pain) delivered in a short circuit (you or the animal) is about proportional to the voltage. The animal stands in “bare feet” on the ground. I’ve never seen the ground so dry that they challenge electric fence, but I understand this is a problem in the arid West. You wear shoes or boots, which are good insulators, so you only get full energy when you are on a knee or sitting on the ground. If you wear lined leather gloves of the sort ordinarily used in winter you can handle all but a very hot fence with your hands.

I never use metal posts – wood for permanent and fiberglass for temporary, corners are larger posts set in concrete with no braces. Or drive six-inch posts on firm ground. More than three wires are best for approaches to pens where you work cattle, where you plan to wean feeder calves, and along the road where cows may be with very young calves. In these areas we use six wires, posts at about twelve feet, and in some areas “stiffners,” the “T” shaped fiberglass rods with notches, halfway between posts. Make your own “clips” from short pieces of wire left over from fences. The ones you purchase do not last very long. Cows will try to keep their baby calves away from 2 or 3 wire electric fence, but once in a while they will get through. It is best to build a more secure fence (six wirres) if you plan to have new born calves along the road. When they escape in other directions they will come back through the hot fence. Only a small fraction ever get through, and even those learn very quickly. Occasionally one will get stuck on the wrong side, so look for them when you feed.

If you buy animals that are not used to an electric fence, you have to train them. Put them in a lot that is secure, and put an electric fence across it. A temporary string fence is OK. Feed on one side and put the new animals on that side. They will learn what electricity is, and will approach all fences more gingerly. If a few get through, let them remain on the second side while you feed on the first side. Let them get hungry and try it again. The way a bovine checks the fence is by touching it with its nose, the most sensitive part of its body. An animal which is familiar with electric fence will be easier to control with other kinds of fence, too.

You need 2 to 2.5 kv on the fence to control animals. More is better. This is a fair jolt for you, too, but your shoes help insulate. Use 4.0 kv or better to train. Once they are trained, they do not challenge a fence for weeks, and if you have a gate that uses wires and hooks, they can be hard to get through the gate when you want to move them. The tube gates that are widely used work much better for getting animals from one field to another.

Internal fences on our place are all two wire, the second one mainly for a safety factor. Fences through a woods are not put directly on trees, because trees grow over the insulators or pull nails through the polyethylene insulators and let the wires drop. We use treated 2x4 “ insulator boards” to space the wires like they are on posts, and spike them to the trees through holes cut in the board the size of the spikes drilled through the 2x4’s. (Use junk trees, because the tree must be cut above the top nail for timber.) Do not drive the spikes all the way in, leave an inch or so for tree growth. These “insulator boards” are made at the house of scrap treated lumber on rainy days, and kept for use when needed.

We use barbed wire only in places too isolated to reach with electric fence. The back side of our farm is a strip mine high wall, and we need a few roads fenced where the miners left a road to the isolated hill top. We do not use high tensile, non-electrified fence, due to the necessity of keeping it very tight. For sorting pens we use high woven wire with posts at ten to twelve foot intervals. Electrified fence is not suitable for crowding animals. Even if it is made tight enough so they can’t force their way through, the electrical shocks would make them too wild to handle. We also use woven wire on the road side of the field where calves spend the first two weeks.

Temporary fence can be made with “Polywire” string and fiberglass rods for posts. The Polywire is polypropylene (the plastic used for ropes) with several strands of stainless steel woven in to cary electricity. I always use two strands. The conductivity is not as good as the standard wire, so you have a limit as to how long a fence can be made with it and still be effective. I can’t advise on this distance, because it depends on the charge on the fence you attach it to.

Two uses we have made of temporary fence are to isolate the bales in one corner of the meadow while pasturing it and second to funnel animals into an alleyway. Longer temporary fence can be made with fine gage wire. Either can be wound up effectively on the plastic reels sold to wind longer extension cords on.

To be secure when animals are under stress, such as a sorting lot, the best choice is woven wire. I believe the final pen before a cattle chute for working or loading should be made from two inch lumber and be high enough to prevent cattle from jumping over. Five feet four inches will hold all but the most wild animals. The posts should be ten feet apart or less for four board 2x 8 fences in such a lot.

Gates for sloping ground can be a problem. You want to set posts vertically, but the gate, if it is square, does not adapt to the slope of the hill. You can get around this by making a gate yourself, using hardwood, preferably white oak since it has the best rot resistance. Use a single 3/8 or 7/16 bolt in each end of the horizontal board and don’t tighten the bolts up to the point they prevent the end of the gate from being lifted. Set the post the gate is to be hinged to first, and tie to it loosely with wire or good rope. Then set the other posts the outer end will have to contact. This is necessary because the width of the gate will change as the outer end goes up or down. This isn’t beautiful, but it works. In situations like this you need to put (very small) gravel in the walkway, because it will erode badly when cattle go through it in wet weather.