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Newsletter | Past Issues
January,
2005
In This Issue:
Ohio
Beef Checkoff Referendum Vote on January 12-14
When
will IRC Section 179 Expensing go back to $25,000?
Soybean
Rust and Crop Insurance
Profitable
Soybean Seeding Rates
Director
of Farm Operations Sought for Ohio State ATI
Depreciable
Basis of New Assets and Like-Kind Exchanges
Estate
Planning Help Available
Crop
Profit Game Agronomy Information
2007
Farm Bill Under Pressure
Food
Spending Trends
Ohio
Beef Checkoff Referendum Vote on January 12-14, 2005
Dr. Brian Roe, Associate Professor, Department of AED
Economics & Livestock Marketing Specialist
With
the national Beef Checkoff still in the midst of litigation
and supreme court deliberations, the Ohio Cattlemen's
Association has organized a referendum that, if passed,
would increase the Ohio Beef Checkoff from fifty cents
to one dollar per head in the event that the national
Beef Checkoff program ceases operation. The statewide
referendum on the Ohio Beef Checkoff Program will be
held January 12-14, 2005 . Producers may vote at their
local Extension offices.
Those
wanting to vote by mail can do so by calling the Ohio
Department of Agriculture, Division of Markets at 800/282-1955
to request absentee ballots. Ballots also will be available
through the Ohio Cattlemen's Association office by calling
614/873-6736. Additional voting eligibility questions
should be directed to Bruce Benedict at the Ohio Department
of Agriculture, Division of Markets at 800/282-1955
or to the Ohio Cattlemen's Association office at 614/873-6736
or at www.ohiocattle.org.
For
a summary of the court cases that have led to the Supreme
Court case and a history of checkoff program impacts,
see John Anderson's ( University of Mississippi Livestock
Extension Economist ) article on the topic:
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When
will IRC Section 179 Expensing Go Back to $25,000?
Donald
Breece, OSU Extension Farm Management Specialistr.
Under section 179 of the Internal Revenue
Code, a business may elect to recover all or part of
the cost of certain qualifying property, up to a limit,
by deducting it in the year it was placed in service.
Eligible property commonly included, both new and used,
are: machinery and equipment, breeding livestock,
grain bins, single purpose livestock or horticulture
structures and field drainage tile. The 2004 tax
year has a limitation for direct expensing of $102,000
of eligible property, up to an investment limitation.
For 2004, the investment limitation is $410,000, whereby
the dollar limit of $102,000 is reduced dollar for dollar
for qualifying investments, In other words,
once a person exceeded $512,000 of total qualified investments,
no section 179 expensing would be allowed to be taken
in 2004.
Former tax legislation reverted the section 179 expensing
limit back to $25,000 in 2006. However, the American
Jobs Creation Act of 2004, signed by the President on
October 22, 2004, extended the increased amount for
two additional years or through 2007. Therefore,
the section 179 limitation will be $100,000 adjusted
for inflation, until 2008 whereby it reverts to $25,000.
Likewise, the investment limit of $400,000, adjusted
for inflation, will be extended as well.
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Soybean
Rust and Crop Insurance
Donald
Breece, OSU Extension Farm Management Specialist.
The Iowa State University plant pathology
Extension group has started a website on Asian soybean
rust. The address is:
http://www.plantpath.iastate.edu/soybeanrust/
. William Edwards, Farm Management Specialist from
the Department of Economics at Iowa State, contributed
a short article on crop insurance coverage. Within
it he writes that the Risk Management Agency of the
U.S. Department of Agriculture stated: " ... losses
to soybean production due to soybean rust disease is
an insurable cause of loss provided the insured can
verify that the cause was natural and available control
measures were properly applied. If there are no effective
control measures available or there are insufficient
amounts of chemicals available for effective control,
resulting loss of production would be covered."
Producers should obtain further information from their
crop insurance agents.
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Profitable
Soybean Seeding Rates
Dr.
Jim Beuerlein, State Soybean Extension Specialist, The
Ohio State University
The
most profitable seeding rate for any crop is a function
of the size of its' plants at maturity. Very large plants
like corn need only about 30,000 plants per acre for
maximum yield. Soybeans and wheat are much smaller and
need about 150,000 and 1,250,000 plants per acre respectively
for good yield. This function works for various sizes
of soybean plants also. Recently conducted seeding rate
studies indicate that when soybean plants are short
at maturity (20 inches tall or less) a seeding rate
of 225,000 to 250,000 plants per acre and a final population
of about 210,000 plants per acre was the most profitable.
When plants grew to a height of 30 inches the most profitable
seeding rate was around 175,000 seeds per acre and a
final population of about 160,000 plants per acre. For
plants that got 40 inches tall the most profitable seeding
rate was around 125,000 seeds per acre and a final population
of about 110,000 plants per acre.
Producers
can reduce their seed cost for the 2005 crop by reducing
the seeding rate for tall varieties or for fields or
soil types where plants get tall. The average cost of
Glyphosate Tolerant varieties in 2005 is expected to
be about $32.00 per 50-pound bag of seed. The following
table indicates the cost of 125,000 seed per acre in
7.5- inch rows for different sizes of seed and varying
seed cost.
For
a seeding rate of 150,000 seeds/ac multiply table values
by 1.2. For a seeding rate of 175,000 seeds/ac multiply
table values by 1.4. For a seeding rate of 200,000 seeds/ac
multiply table values by 1.6. For a seeding rate of
225,000 seeds/ac multiply table values by 1.8. For a
seeding rate of 250,000 seeds/ac multiply table values
by 2.0
The
effect of seed size and seed price on the per acre soybean
seed cost when planting (125,000 seeds per acre in 7.5”
rows.
Seed
Cost ($/50 lbs)
 Seeds/pound
26
28
30
32 34
2000
32.50 35.00
35.50 40.44
42.50
2200
29.55 31.82
34.10 36.37
38.64
2400
27.08 29.16
31.25 33.33
35.41
2600
25.00 26.92
28.85 30.77
32.69
2800
23.21 25.00
26.78 28.57
30.35
3000
21.70 23.37 25.04
26.71 28.37
___________________________________________________________
Other
facts to keep in mind are:
The
most profitable seeding rate is 10-15 percent lower
than the “highest yield” seeding rate. As the cost of
seed increases the most profitable seeding rate decreases.
As the value of grain increases the most profitable
seeding rate also increases. A
pound of seed cost six to seven times as much as a pound
of grain, so each extra pound of seed planted must increase
yield by six to seven pounds to pay for itself.
Director
of Farm Operations Sought for Ohio State ATI
Dr.
Wesley Greene, Ohio State ATI
Responsibilities
include, but are not limited to, planning and directing
the fiscal, personnel, equipment, crop, and animal operations
of the Ohio State ATI farm, including the coordination
of efforts to utilize farm laboratories/property as
an integral part of the instructional programs and to
yield maximum benefits. The individual will consult
with faculty, staff, and administrators and develop
a long range plan for the farm. He/she will serve as
a liaison for farm operations of the Institute with
offices/agencies having vested interest in the farm.
The individual will supervise and evaluate regular and
student farm employees. Since the farm is operated as
a commercial business, he/she will maintain all production,
financial and inventory records of the farm, administer
farm operations budgets, closely monitor sources of
income and expenses, cultivate sources of external funding,
and direct the allocation of funds.
The
individual will coordinate public relations with the
ATI farm and maintain contacts with government, university,
agricultural organizations, and vendors. Qualifications:
Bachelor's degree, preferably in agriculture or business,
with a minimum of five years agricultural/farm business
management experience. Experience with both crop and
animal enterprises is preferred. Supervisory experience
and excellent communication skills required. Start date
negotiable. Send resume, 3 letters of reference and
official grade transcripts to: Dr. Wesley Greene, Chair,
Agricultural and Engineering Technologies Division,
Ohio State ATI, 1328 Dover Rd. , Wooster , OH 44691
. Phone: (330)287-1372, Fax (330)264-0137, E-mail: greene.2@osu.edu
. Applications received until position is filled.
THE
OHIO STATE UNIVERSITY IS AN EQUAL OPPORTUNITY/AFFIRMATIVE
ACTION EMPLOYER. WOMEN, MINORITIES, VETERANS, AND INDIVIDUALS
WITH DISABILITIES ARE ENCOURAGED TO APPLY.
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Depreciable
Basis of New Assets & Like Kind Exchanges
David
Miller, Farm Management Specialist, OSU Extension
Beginning
with assets placed in service after February 27, 2004
the IRS now allows a choice in calculating the depreciable
basis for an asset acquired in a like-kind exchange.
Since January 3, 2000 the calculation of the depreciable
basis for an asset acquired in a like-kind exchange
was outlined in Notice 2000-4. It stated that any cash
or “boot” paid to acquire the new asset would be the
new basis for depreciation. Any carryover basis (remaining
basis) in the traded asset would continue to be depreciated
over the remaining life of the traded asset as if it
was still on the farm. This created “phantom assets”
on the depreciation schedule; assets still being depreciated,
but that were no longer in the possession of the producer.
For
assets placed in service after February 27, 2004 a taxpayer
can make an election out of Notice 2000-4 under Temporary
Regulation § 1.168(i)-6T. This election allows
the basis remaining in the traded asset to be rolled
into the new basis of the acquired asset that is then
set up on a new depreciation schedule. The election
out of Notice 2000-4 is similar to the “old” way of
calculating depreciable basis prior to January 3, 2000
; the basis of the new asset is the boot money paid
plus any basis remaining in the traded asset. However,
electing out means that a partial year's depreciation
is claimed on the traded asset in the year of the trade
to determine its remaining basis.
An
example: A new tractor is acquired on July 1, 2004 for
$20,000 plus the trade of another tractor with a remaining
basis of $24,502 that had been acquired in 2001 and
had an original basis of $50,000. Under Notice 2000-4,
the total MACRS depreciation for the new tractor would
be the new basis depreciation of $2,142 ($20,000 * 10.71%)
plus the carryover basis depreciation of $6,125 ($50,000
* 12.25%) or $8,267. Electing out of Notice 2000-4 gives
a new depreciable basis of $44,502 and total MACRS depreciation
of $4,766 (($20,000 + $24,502) * 10.71%) for the new
tractor plus $3,063 ($50,000 * 12.25% * ½ yr.)
for the traded tractor or $7,829. Election out of Notice
2000-4 will result in a smaller amount of deprecation
in the year of acquisition if the traded assets have
any remaining basis. There is no difference in deprecation
of the new asset in the acquisition year if the traded
assets are depreciated out.
The
election is made by attaching a statement indicating
“Election made under section 1.168(i)-6T(i) to Form
4562, Depreciation and Amortization. Check with your
tax adviser to see what is the best strategy for your
situation.
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Estate
Planning Help Available
Jim
Skeeles, AG & NR Extension Educator, Lorain County
The third lesson of the OSU Extension
Estate Planning Letter Study Course, which can be viewed
at http://lorain.osu.edu/ag/Lesson32.pdf
compares the pros and cons, including cost of transferring
appreciated property by sale, inheritance and giving.
The lesson also discusses the pros and cons of different
property ownership, such as fee simple, life estate,
tenancy in common, joint tenancy with right of survivorship
(JTRS) and tenancy by the entirety. Pros and cons of
owning personal property such as bank accounts by JTRS
is also discussed. If you would like all 12 lessons,
visit http://lorain.osu.edu/ag/pg1.htm
for enrollment and other information on the letter
study.
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Crop
Profit Game Agronomy Information
Greg LaBarge, AG &
NR Extension Educator, Fulton County
Ohio
State University Extension is on tap to offer this year's
“The Crop Profit Game,” a satellite series for Ohio
crop producers, agronomy retailers and other agribusiness
individuals. The next two broadcasts, being held
Jan. 11 and Feb. 15, will be hosted by ABN Radio's Dale
Minyo, and feature Ohio State University Extension specialists
with the latest information in agronomic crop production.
The event is designed to highlight current production
practices, input recommendations and economic concerns
for Ohio's crop industry.
Topics for discussion during the broadcasts will include:
* Jan. 11: Weed control issues, corn rootworm, precision
agriculture update and getting the most from your nitrogen
dollar.
* Feb. 15: Soybean aphid, wheat fungicides, soybean
rust, grain marketing outlook and using crop revenue
coverage in developing a grain marketing plan, and evaluating
harvest date and plant population effects on corn standability
and final yield.
Ohio residents have three ways to view the programs.
Many OSU Extension offices are making the program available.
Call your local Extension office or visit http://cropprofit.osu.edu
for details. Options exist for those who want to view
the broadcast at home via Dish Network Satellite or
Internet streaming video. Cost for these at-home options
are $30 in-state or $50 out-of –state for the series
of broadcasts. Requirements and registration information
are available at Ohhttp://cropprofit.osu.edu
or by contacting Greg LaBarge at (419) 337-9210,
or e-mail labarge.1@osu.edu.
Materials from the December 14th broadcast can be found
at http://www.oardc.ohio-state.edu/cropprofit/newresources.asp
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2007
Farm Bill Under Pressure
Carl Zuluaf, OSU McCormick
Professor
Introduction:
Hearings on the next
farm bill will begin this year. For several reasons
this farm bill is likely to be under budgetary and programmatic
pressure. The reasons include the federal budget deficit,
pending retirement of the baby boomers, international
trade negotiations, and uncertainty surrounding farm
policy leadership. I briefly examine each of these factors.
I then examine potential implications.
Federal
Budget Deficit: The budget
deficit for the recently completed 2004 Fiscal Year
(FY) was $422 billion. The Congressional
Budget Office currently estimates a deficit of $298
billion for FY 2010 and $65 billion for FY 2014. These
projections do not include the cost of the Iraq
war. They also assume that, consistent
with the original legislation, many of the tax cuts
enacted in President Bush's first term will be allowed
to expire. However, President Bush has indicated that
making these tax cuts permanent will be a priority in
his second term. In short, the potential budget deficit
most likely exceeds the current projections.
Pending
Retirement of Baby Boomers: The
Congressional Budget Office recently projected that
by 2019 annual revenue to the Social Security Trust
Fund will fall below payouts. The importance of this
event can be illustrated by noting that the budget deficit
for FY 2004 is actually composed of a $149 billion surplus
in the Social Security Trust Fund and a deficit of $571
billion in all other spending. Thus, at about the time
experts expect the economy to outgrow the current deficits,
a Social Security driven deficit emerges. This sequential
deficit has attracted the attention of many in Congress.
Budget
Deficits and the Farm Bill :
History suggests that federal budget deficits of the
size forecast by the Congressional Budget Office will
trigger cuts in farm program. Unlike the 2002 Farm Bill,
the 1996 farm bill was enacted in an atmosphere of budgetary
constraint. My calculations suggest the 1996 Farm Bill
cut average annual farm program spending by 10% to 20%.
This cut did not materialize because budget surpluses
replaced budget deficits shortly after the 1996 farm
bill was passed. It is arguable whether the economic
assistance packages enacted in 1998 through 2001 and
then codified into the 2002 Farm Bill would have occurred
if surpluses had not emerged.
The
lesson from history is consistent with the current actions
of Congress to bring the federal budget deficits under
control. In FY 2004, 31% of the cuts in mandatory program
spending involved agricultural programs. In contrast,
agricultural programs account for only 2% of federal
spending. The disproportionately large cut in spending
on mandatory agricultural programs indicates that Congress
currently believes that agricultural programs can be
targeted for cuts.
International
Trade Negotiations: The
reelection of President Bush means that international
trade negotiations will continue. In particular, the
current round of multi-lateral trade talks likely will
end in a new agreement. The working outline of the proposed
agreement for these trade talks contains cuts in the
maximum amount the U.S.
and other developed countries can spend on farm programs.
Furthermore, international efforts to challenge U.S.
farm policy are growing, as best
illustrated by the case that Brazil
brought against the U.S.
cotton program before the World
Trade Organization. It is pre-mature to conclude that
these international trade events will force the U.S.
to revise its farm policy, but
it is not pre-mature to conclude that the next U.S.
farm bill will be watched closely
by the international community. It is also not pre-mature
to note that, if the final agreement follows the current
working outline, the possibility increases that current
U.S. farm
programs may be out of compliance during years of large
government expenditures. In short, concern over international
trade obligations will overhang the next farm bill,
thus at least indirectly impacting the farm bill deliberations.
Farm
Policy Leadership Uncertainty: Arguably
the three most important members of Congress in terms
of impact on the 2002 Farm Bill no longer are members
of Congress. Representative Larry Combest, a Texas Republican
who was chair of the House Agriculture Committee during
the 2002 farm bill debate, retired. Representative Charles
Stenholm, a Texas Democrat and Ranking Minority Member
on the House Agriculture Committee during the 2002 farm
debate, was defeated in the 2004 elections. Senator
Tom Daschle, a Democrat from South
Dakota and Minority Leader in
the Senate, was defeated in the 2004 elections. Leadership
is critical in a bill as complex as the farm bill. Who
will fill the role of Representative Stenholm, who was
able to reach out to all the various and diverse farm
bill constituencies? The loss of a seat at the leadership
table (i.e., Senator Daschle) raises additional concerns.
These questions and concerns do not mean that leadership
will not emerge, but at present it is not clear who
will provide leadership.
Implications:
As
of the present time, these factors, especially the federal
budget deficit, suggest to me that the 2007 Farm Bill
will be under intense scrutiny, with spending cuts of
10% to 40% as a distinct possibility. Obviously, many
factors can alter this assessment, including the major
unknown of weather (i.e., prices). I also think that
the recent annual expenditures of $2 billion plus on
crop insurance make it possible that insurance provisions
could be brought into the farm bill umbrella. The role
of conservation programs will be intriguing. Will farmers
embrace stronger conservation compliance rules in exchange
for smaller cuts in farm program spending? Will the
Conservation Security Program be folded into another
program or will funding be found from some other source?
Two
concerns are sure to arise if cuts in farm programs
approach the level mentioned above: what will be the
impact on land prices and what will be the impact on
farmers' ability to survive? The likely answers will
vary by area of the U.S.
and by whether or not a new era of prolonged and permanent
increases in farm input prices is underway. For Ohio
, the impact of cuts in farm program
spending will be moderated by Ohio
's strong urban land market and
by the fact that, as a group, Ohio
farmers are currently in fairly
good financial condition, with reasonable debt loads.
Furthermore, recent studies suggest that only 10% to
30% of farm program payments are being capitalized into
land values. This capitalization rate is much smaller
than previously thought, and again will moderate any
decline. However, the recent increases in fertilizer
prices and the likely need to spray for Asian Soybean
Rust in the future underscore that speculating about
a new era of higher crop input prices is not an academic
exercise. Such a situation would clearly compound the
negative effects of cuts in farm program spending, both
on annual income and on land prices. This situation
bears close watching as deliberation on the next farm
bill gets underway.
Given
the potential combination of higher input prices and
cuts in farm programs, farmers may want to take a conservative
approach to financial management until they see the
outcome of the next Farm Bill debate. Adjustments in
farming operations may be necessary on more than a few
farms if cuts approach 40% and input prices remain high.
Furthermore, some farmers who are currently experiencing
cash flow problems may have difficulty surviving a 10%
cut in farm program spending. Hopefully, the farm bill
will recognize the need to help these farmers adjust
if cuts in the 10% to 40% range materialize.
Last,
while my current farm bill scenario raises difficult
questions about the future, it also offers farmers and
others an opportunity to recast farm programs for the
21 st century rather than just tinkering with programs
developed for the 20 th century. Risk management has
become a bigger issue, as illustrated by the growth
in spending on crop insurance programs. For most Ohio
farmers, it would be desirable
if the farm support programs and crop insurance would
be integrated into a coherent program. Hopefully, farmers
will see the opportunity that lies in front of them.
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Food
Spending Trends
Source: Stan Ernst, OSU Dept. of Agricultural,
Environmental & Development Economics
Consumer spending on food will continue to increase
2-3 percent annually over the next decade. USDA projections
show total food spending up 26.3 percent between 2000
and 2020. The unclear issues at this point are where
that food will be prepared and eaten, and the full impact
on commodities of changes in demographics. What is probably
more clear is that change brings some opportunities
and challenges to producers and processors of food products.
This article examines some of the relevant trends and
potential impacts.
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Readers
can subscribe electronically to this newsletter by sending
an e-mail message to: ohioagmanager-on@ag.osu.edu.
A successful subscription message will receive by an
automatic reply from the listserv. Contact your local
Ohio State University Extension Office or e-mail dmarrison@ag.osu.edu
if you have problems subscribing.
Editors:
Chris Bruynis & David Marrison
Information
presented above and where trade names are used, they
are supplied with the understanding that no discrimination
is intended and no endorsement by Ohio State University
Extension is implied. Although every attempt is made
to produce information that is complete, timely, and
accurate, the pesticide user bears responsibility of
consulting the pesticide label and adhering to those
directions.
All
educational programs conducted by Ohio State University
Extension are available to clientele on a nondiscriminatory
basis without regard to race, color, creed, religion,
sexual orientation, national origin, gender, age, disability
or Vietnam-era veteran status.
Issued
in furtherance of Cooperative Extension work, Acts of
May 8 and June 30, 1914, in cooperation with the U.S.
Department of Agriculture, Keith L. Smith, Director,
Ohio State University Extension.
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