The USDA reported on their website on Thursday that they expect net farm income for 2009 to be $54.0 billion down from the record 2008 preliminary estimate of $87.2 billion.  This equates to a net decrease in farm income of $33.2 billion or an over 38% decrease.  What is even more disheartening is that the net income will be about $9.0 billion below the 10 year average net farm income of $63.2 billion.

Net cash income is forecasted at $68.2 billion which is about $29.4 billion down from 2008 and $3 billion below the 10 year average.  Net farm income reflects only income from production in this year, while net cash income includes sales of crops from 2008 in 2009.

Some good news is that farm expenses are expected to be down $9.2 billion to $25.6 billion.  However, the 2008 expenses were at an all time high and 2009 expenses are still about 5% higher than 2007.  This is the first year over year decline since 2002.

Crop receipts are expected to be in the $165 billion range which is an $18 billion drop from the all time high in 2008, but still the second highest of all time.

Government payments are expected to be about $12.6 billion which is about the same as 2008.

These are challenging times for all farmers and businesses.  The good news is that expenses are down, the bad news is that income is down even more.  Now is the time to make sure your marketing program is sound and that you have the appropriate tight controls on your expenses.  Make sure that the cash rent you are paying is the correct amount for these new revenue numbers.

For the third straight month, a rural economic indicator has declined.  This suggests that a rural economic rebound is still several months away.  Creigthon University (located in Omaha) performs a monthly survey of bank CEO’s in an 11-state region which primarily comprises the corn belt region and related states.

The Rural Mainstreet Index (RMI) which ranges between 0 and 100, slipped to a weak 32.00 from 32.6 in July and 34.0 in June.  However, the reading is still higher than the all-time low of 16.9 in February of this year.  A reading of 50 indicates neutral growth.

Creighton University economist Ernie Goss stated “The RMI has remained below growth neutral for 18 consecutive months.  After appearing to bottom out earlier this year, the index, which gauges overall economic activity, appears to be moving sideways or with little change.”

The weak national economy appears to be negatively affecting the farm economy.  With farm income under pressure, land prices and sales of farm equipment have weakened over the past several months.  Bankers were asked their perceptions on this years crop yields and about 60% indicate that the crop will be up substantially over last year’s crop.

As a result of softer farm income, the farmland-price index has moved below the 50 mark for the 10th straight month.  The farm-equipment-sales index is also below the 50 mark for the 11th straight.

Hiring in rural areas also remains weak.  Over the last 12 months, the region has lost 5 percent of their jobs according to Goss.

The states covered by the index are Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming.  The survey represents an early snapshot of the rural and agricultural dependent regions.  It focus on approximately 200 rural communities and seems to give the most current real-time analysis of the ag economy.

An article in the Denver Post today and in other papers outlined a program in Iowa that is designed go help young non-farmers become farmers by hooking them up with farmers that are ready to retire.

This particular program is located in Iowa at Iowa State University and is headed up by Dave Baker.  The program is called the Beginning Farmer Center and it appears that they have helped up to 30 beginning farmers get partnered up with retiring farmers over the last three years. 

Although the program is designed to help younger people who want to get started in farming, but do not have the needed capital to do it on their own, it appears that there is no age limit on who can participate.

If you are nearing retirement and have no heirs who are interested in farming, this program or others like it in other states may help you partner up with somebody who wants to farm and would be willing and able to continue your farming legacy.  It is worth taking a look at it.

If you combined taxable income including capital gains is in the 15% tax bracket or lower, then all of your long-term capital gains will be tax free in 2009.  This also applies to qualified dividend income. 

For example, if you file a joint return with your spouse and have farm income of $50,000, have two small children and use the standard deduction, your taxable income will be about $24,000.  This will result in total income taxes of about $2,800.  If you have either long-term capital gains or qualified dividends of up to about $44,000 in addtion to this income, it would be completely tax free for federal income tax purposes in 2009.  If you live in a state with income taxes, you may still be subject to state income taxes.

Many farmers have C corporations that have retained earnings that may be subject to a tax when distributed to its shareholders as a dividend.  For 2009, if you distribute these earnings and they are within the 15% or lower income tax bracket, they will be tax free.  All dividends above this amount will only be taxed at 15% for federal purposes.  With all of the talk about paying for national health insurance, this break will most like come under attack in 2010 or later years. 

I would strongly suggest you review this with your tax advisor or send me a quick e-mail at paul@hansenneifer.com and I can give you a quick estimate of whether this applies to your situation. 

I remember having a client this year who had taxable income of about $65,000 who called me and asked why they did not owe any income taxes for the year.  I explained to them the zero tax rate for their capital gains which will also apply in 2009 and they now actually look forward to filing their return for this year.  This break can save you up to about $10,000 in taxes. 

Take advantage of it for sure this year if you can.

I have had several requests from farmers and their advisors regarding an online farmers tax guide.  From what I can tell there is no such thing, but in the near future, there should be one.

I am working on a “wiki” based online farmers tax guide.  This guide would be for income, estate, excise and other related taxes for farmers.  It would have both the rules related to these taxes for farmers and related tax planning that farmers can take advantage of.  This will take me a few more months to get it to the BETA stage since, as you can imagine, there is a lot of typing and inputting to do on this project.

Once it gets to the BETA stage, I will have a link on the FarmCPAtoday.com site to the Farmers Tax Guide.  It will allow you to add comments and changes directly to any page on the site.  I will review these comments and upgrade the site as needed based on this feedback.

I would encourage you to send me any comments or e-mails with any ideas on what you want to see in this project.  Your feedback will guide me in what is important to you as farmers and their advisors.  I think this is something that almost all farmers want and need and I will try to fulfill the need.

I would like to get some interaction going with my audience.  I would appreciate any questions that you might have about farm taxation, operations or any other questions that you might have.

Please feel free to send me a quick or detailed e-mail to paul@hansenneiffer.com.  I will promise to try to get an answer to you with 48 hours.  Let me know if you do not mind me sharing your question and answer on the FarmCPAToday site and I will try to post these on at least a monthly basis.

My colleague, Scott Heintzelman, has a great blog entitled The Exuberant Accountant.  In one of his most recent posts, he references a site that gives a breakdown by state and county of the stimulas money that is being spent on projects, etc.

If you are interested to see where your county ranks and where the money is being spent, go check out the site.  This is your tax dollars at work and you should know where they are going.

The USDA issued a report on Land Values and Cash Rents for January 1, 2008 to January, 1, 2009.  This is a highly detailed report that summarizes the changes in land values and cash rents by region for calendar year 2008.

Some of the highlights are as follows:

•  Average cropland values decreased by 3.9% or $110 per acre to $2,650 per acre.
• In the Cornbelt region, the decrease was 4.0% or $160 per acre to $3,870 per acre.
• In the Northern Plains and Delta regions, cropland values actually increased by 1.6% and .6%, respectively.
• Pasture values decreased by $20 per acre overall, however the Mountain region had a 16% decline in 2008.
• Although cropland values dropped in 2008, they have increased from $1,460 in 2000 to about $2,650 in 2009 or an overall 92% increase.
• In the Cornbelt, Illinois and Iowa still have average cropland values of more than $4,000 per acre.

Some highlights related to cash rents are:

• Annual cash rents rose by $4.50 or 5.3% for the year.
• Pasture rents remained unchanged.
• Cropland cash rents averaged $90 per acre, compared with $85.50 the previous year.
• The Cornbelt region had an average increase of $7 per acre to $146.
• Iowa had the highest Cornbelt average at $180 while Illinois was right behind with $170 per acre.
• California had the highest overall cash rent at $360 per acre and Washington was right behind with $245 per acre.  These were the only two states over $200 per acre.

There is a wealth of information in this report and it would be worth reading it to see how your farm operation compares to your state and region.

I came across a good marketing company be watching Agday the other day.   Alan Brugler was discussing the corn and bean market and I decided to go check out his web site.  He is located in Omaha, Nebraska and has a very good short guide on how not to be a marketing lemming.

I will highlight the 12 steps to not becomming one and you can read the full article to get more details.  The twelve steps are:

1. Find a method that works for you and stick with it.
2. Don’t gather data that inevitable contradicts.
3. Remember that the market satisfies need, not greed.
4. Don’t demand consistently high returns.
5. Beware of your success threshold.
6. Make your own final decisions.
7. Isolate emotion from order time.
8. Don’t argue your position with friends.
9. Avoid highly leveraged positions.
10. Remember that your current market position is never perfect.
11. It doesn’t matter why, it matters which way.
12. Make marketing a habit.

I would strongly suggest reading this memo several times and try to determine where your marketing strategies fit within this.  Remember that a lemming only goes one way eventually and that is down.

The Iowa Farm Business Association, comprised of various farm management companies, recently issued a nice 4 page newsletter that had a lot of good information on farm profit trends.  All of this information relates to farms in Iowa but the trends show hold true for most states that grow corn and s0ybeans.

The newsletter recapped the overall net income from 1998 to 2008.  The low net income was in 1998 at $4,547 per average farm.  The high net income year was 2007 at $176,401.  The interesting trend is that only three years was over $100,000 per year which is the last three years of 2006 – 2008 and the top five years are the last five years.

Another really interesting trend is the amount of gross farm income per full-time equivalent employee.  In 1998, this was about $143,000.    In both 2007 and 2008, this amount was greater than $400,000 per man.  This is a very important calculation that should perform on your farm each year.  I am assuming you have your history of total income and number of employees for the last five to ten years.  I would work up these numbers on a historical basis and compare it to these averages.  You should try to shoot for exceeding this average since this is probably one of the better indicators for farm profitability.

Machinery costs had held steady at about $60-65 per acre from 1998 to 2003.  Beginning in 2004, this number rapidly increase from $73 per acre to $106 per acre in 2008.  I think a lot of farmers bought new equipment in 2007 and 2008 so I think a lot of this increase is due to new iron purchases.

Another indicator of increase farm profitability is the ratio of gross farm profit to total cash expenses.  The greater this number is the higher your overall profit should be.  In 1998 this was at a low of 1.07 and averaged around 1.2 to 1.3 until 2006 and 2007 when it was over 1.5.  For 2008, the number dropped back to 1.5.  Any number over 1.4 would indicate good farm profitability. Do you know your number.

I think every good profitable farmer will know these numbers and try to exceed the averages each year.  Are you doing it?!!!!!!!!!!!!!!!!!