By  E. W. Lang

August Class III Milk Futures ended out the week at $16.01 per cwt., after trading at $15.93 a couple days earlier, which was the contact low. The contract high was $20.12 on May 12, 2021. September is trading at $16.49 and has a Milk-Feed Index of $6.32 per cwt. It's late this year before Class IV Futures poke through $16 per cwt., they're in the $15s now.

As corn and soybean prices are choking milk producer margins, they are also driving up land prices. Farm land continues to come to market as prices rise, and in response to concerns that estate taxes will go up.

While this is likely, there are very few estates that have ever paid any tax since the exclusion amount is more than the gain on most farms. And there is little sentiment in the U.S. Senate to tax family farms because of the voter's romantic view of family farmers.

So the whole family farm estate tax scare has largely been a red herring, of sorts. It creates an image of the federal government and the tax collector as a common enemy to the farmer. This is effective and clever, and a tactic that has been used since Constantine the Great established a state religion and portrayed paganism as a common enemy to Rome. I'm oversimplifying the comparison, but this kind of tactic is nothing new. Hitler was really good at casting a common enemy, so was Sen. Joe McCarthy.

Regardless, farm land is coming to market almost daily, and future estate tax rates are likely an unjustified concern. Future capital gain tax increases on farm land are a legitimate concern, however. They are 31% on the gain here in Iowa for State plus Federal, and there is a California proposal to raise those rates to total 43% on capital gains.

Still, estates following a death will likely be taxed little or nothing going forward. These are mutually exclusive taxes for entirely different sectors of the public. One is Estate Tax, and one is Capital Gain Tax. They're different and affect different people at different times.

Now, back to capital gain taxes, be they 10% or 50%, they can be deferred by using a 1031 In Kind Exchange. This is also driving land prices up as a person can sell today, buy something else in a few weeks, and then defer their taxes until that second property is sold in a year or in 50 years. This kind of thing also distorts real estate values.

There are a lot - and I mean a lot - of dairy farms who are refinancing against land value. I did it three times in 29 years and have yet to have a cross word with a lender, or about a lender. It's perfectly legal and many bankers would rather do this and keep charging you interest on a giant loan, rather than force you to sell your herd at public auction such that you pay off some debt and then pay interest on a smaller loan.

Banks are in the business of renting out money, and bigger loans are bigger income sources. If you're out to get out of milking, your lender can give you wise counsel on how to do it. If you're out to stay in milking at any cost and borrowing against higher real estate values is a way to do it, your lender will probably let you. He or she knows, however, that the big real estate loan is likely to become just a stay of execution.