By Robert Pore
robert.pore@theindependent.com

Hagel's bill would provide an incentive for active agricultural producers to sell their farmland to beginning farmers and ranchers.

Hagel originally introduced this bill in 2003. Rep. Lee Terry, R-Neb., introduced companion legislation in the House of Representatives in January.

"More than half of our nation's producers will reach retirement age in the next 10 to 15 years," Hagel said. "A smooth transition to the next generation of producers is critical to the future of our agriculture industry. This is important legislation for Nebraska."

But higher commodity prices are barely keeping up with soaring production costs, such as energy prices.

"Machinery, fertilizer, herbicides and fuel expenses have skyrocketed. Breakeven projections for the coming year are barely positive at today's prices, and commodity price slippage will result in major losses in the agsector. All is not golden," according to a recent western Kansas banker comment to the Federal Reserve Bank of Kansas City about agricultural credit conditions in the fourth quarter of last year.

According to one banker in central Nebraska, "If commodity prices fall, there could be some lending institutions that may see some potential for losses as some farmers are being allowed to spend beyond their means."

According to the report:

* District cropland values boomed in the fourth quarter of 2007, easily surpassing the previous highs posted last quarter.

Both nonirrigated and irrigated cropland values surged at a record pace, rising 21 and 18 percent above year-ago levels, respectively.

Ranchland values jumped 16 percent above year-ago levels. Record cropland value gains outpaced the 12-percent rise in cash rental rates for both nonirrigated and irrigated cropland.

In Nebraska, nonirrigated cropland jumped nearly 25 percent. Irrigated farmland values increased more than 22 percent. Ranchland values grew nearly 20 percent.

* Farmland values are expected to rise further in 2008, with the strongest gains projected for nonirrigated cropland. More than 40 percent of district bankers anticipate additional cropland value gains in the coming quarter. In fact, no survey respondent expected farmland values to decline.

* The district's farm income index surged to a record high in the fourth quarter, led by crop sector gains where strong demand and tight global supplies drove crop prices to record highs.

Overall farm income gains, however, were somewhat tempered by declining livestock profits due to high feed costs and eroding pasture conditions in some areas of the district.

Nebraska posted stronger farm income gains in the fourth quarter, while Oklahoma's farm income index pulled back from a record high in the third quarter.

The bank's district includes Nebraska, Oklahoma, Kansas, Colorado, Wyoming, the northern half of New Mexico and the western third of Missouri.

Under Hagel's bill the following three tiers of tax breaks according to type of sale are as follows:

n Tier One: Active farmers/ranchers selling their land to a beginning farmer or rancher would benefit from a 100-percent reduction in the capital gains tax rate, up to $500,000 of a single sale.

n Tier Two: Active farmers/ranchers selling land to someone keeping the land in agricultural production would receive a 50-percent reduction in the capital gains tax rate.

n Tier Three: Active farmers/ranchers selling land to anyone would receive a 25-percent reduction in the capital gains tax rate.

"This is one tool we can use, if we can pass this," Hagel said. "We are heading to this big bugle in the next 10 to 15 years as many producers are transitioning out with a whole new generation of producers coming in behind them. But with the way the tax laws are written and with so many other dynamics ... the next generation of producers are not going to be given the options to do that."