Escalating swine manure values have pork producers and crop farmers reviewing manure use agreements.
It seems not long ago that pork producers who needed land on which to apply manure had to give away the manure and, sometimes, even pay crop farmers to take it.
Now, escalating fertilizer prices have turned the tables. Manure has become a valuable part of crop fertility programs, and many crop farmers are seeking access agreements — and they are willing to pay for it.
The agronomic value of manure for crop production is well established, but with the change in economics has come the need to reexamine written agreements for manure application.
The terms used in manure application agreements in years past may be out of date and could lead to problems as the demand for manure steadily increases.
Some key points in manure agreements are:
If a tenant farms the land where the manure will be applied, the tenant's concurrence in the terms of the agreement is essential. In some cases, a tenant may be interested in signing the agreement with the pork producer. Some state regulations, such as Iowa, require a landowner to sign the agreement if the operation is required to have a manure management plan.
Under general real estate law, a tenant has the legal right to possession and use of the leased premises during the term of the lease. However, a tenant's right to possession and use of the leased premises is subject to control by the landowner under the lease. Even if a tenant has the legal right to sign a manure application agreement, a tenant cannot bind a landowner beyond the term of the lease.
Who is responsible for and pays for manure application must be expressly addressed in the agreement. This often depends on whether the landowner is paying for the nutrient value of the manure. Landowners most often want the pork producer to be responsible for manure application, since the producer either has the equipment or has more expertise in hiring someone to apply the manure.
The agreement should expressly state whether either party would receive payment. Depending on market conditions in each locality and the nutrient value of the manure, some agreements provide for no monetary payment by either party. Some agreements require the landowner to pay for the manure based on its soil nutrient value or at least for the cost of manure application, while others may require the pork producer to pay the landowner for the use of the land (these are much less common in recent years).
To ensure adequate land to apply manure for the pork producer and to ensure compliance with any government regulations, the agreement should state that additional commercial fertilizer or manure from other sources will supplement and not replace the pork producer's manure, and that any additional nutrient applications will not exceed amounts allowed by regulations.
A particularly key issue as fertilizer costs increase is whether the pork producer is required to apply a minimum amount of manure, or any manure, under the agreement. Pork producers may have more acres than needed to ensure there is enough land for manure under all circumstances. Accordingly, agreements may include a clause stating that there is no guarantee of a minimum amount of manure or that there is no obligation to provide any manure during the term of the agreement.
On the other hand, crop producers may want to be assured of a minimum amount of manure each year, or may want the agreement to state that they will receive all of the manure from the hog operation for as long as hogs are raised and manure is produced by the operation. This issue needs to be discussed and the parties' agreement expressly written in the contract.
Because manure is a variable source of crop nutrients, pork producers may want to include a clause stating that there is no warranty as to the quality of the manure or whether the manure will achieve any particular yield results. Crop producers, on the other hand, may want a specific clause stating that the manure will meet specific standards, particularly if they are paying for and relying on the manure as part of their fertility program.
Most pork producers (and their lenders) want the manure agreement to remain intact if the landowner transfers the farm. Crop producers have also become interested in making sure the agreement remains in effect if the pork operation is transferred. If so, the agreement should specify that it “runs with the land,” and the agreement or a memorandum of the agreement must be recorded with the county recorder.
The agreement should detail each party's liability and whether the parties are indemnifying (holding harmless) each other for liability. Liability for nuisance from application of manure may be a primary concern of parties to a manure application agreement.
The pork producer and crop producer may want to take steps to protect against action by any mortgage holder or contract holder on the pork operation or the crop producer's land. For example, if there is a foreclosure or forfeiture of a landowner's interest in the land, the mortgage holder or contract seller may allege that the manure application agreement is an encumbrance on the land and eliminate the manure agreement in the foreclosure or forfeiture. One way to protect against this is to obtain, before the manure agreement is entered into, what is called a non-disturbance and attornment agreement from the pork producer's or landowner's mortgage holder or contract seller.
The increase in the value of manure and the increase in pork producer input costs have led some to consider additional terms in manure agreements that reflect the changing economics. Examples include:
Terms that require the crop producer to guarantee that the pork producer will have access to corn produced by the crop producer on the land that receives the manure. This clause could set the price for the corn or could simply state that the pork producer is guaranteed the right to purchase the corn at market price.
A requirement that the crop producer pay for input costs that may rise as the fertilizer value of the manure rises. In addition to feed costs, LP gas for the hog unit, manure sampling, nutrient management plan preparation and soil testing are examples of additional expenses that the pork producer may want to require the crop producer to pay all or part of as compensation for the manure.
Crop producers may want to include a requirement that the pork producer not implement any management practices or technology that would reduce the fertilizer value of the manure. This type of clause needs to be carefully considered by the pork producer, as it may limit what the producer can do to implement new odor control or other environmentally desired practices.
As with all other contractual agreements, when both parties fully understand the written agreement, then the contractual relationship is much more likely to benefit both parties without disputes later on.
And as in the case of all legal agreements, both parties should work with individual legal counsel to address their particular circumstances.
A pork producer who is considering entering into a manure application agreement should consider the following factors:
Procedures for removal and application of manure from the production facility in compliance with state and federal requirements for manure storage and application.
Cost of removal and application of manure.
Sale value of manure based on the crop nutrient value.
Terms in a long-term manure agreement that allow for recouping as much of the value of the manure as possible over the length of the agreement.
Potential nuisance and other legal liability from the application of manure.
A crop producer entering into a manure application agreement should consider:
Soil nutrient levels and nutrient requirements of crops.
Nutrient content of the manure to be applied. Some crop producers are concerned future technological advances in rations and manure treatment designed to reduce odor may lower the fertilizer value of the manure.
Cost of organic nutrients compared with nutrients from commercial fertilizer.
Potential soil compaction from application of manure.
Potential for increased soil erosion due to possible reduction in crop residue from the manure application.
Possibility of nuisance and other legal liability from application of manure.
— Eldon McAfee