Just got back from the meeting with the other participants and local growers.  Looks like there were about 200 people or more in attendance.  Our counts versus the other routes for the day seemed very similar.  The one thing that stood out to me was the drilled soybeans in South Dakota had some wildly high pod counts.  If they get enough rain, the yield up there may be another record.  But that is a big if.

We will be headed out at 6:30 in the morning, but our route appears to be much shorter than today.  We probably put on over 350 miles today and tomorrow is closer to 150 miles.

I will report tomorrow evening and let you know how Nebraska turns out.

I got into the Kansas City airport yesterday about an hour late due to mechanical issues.  My partner in the farm picked me up and we then traveled about 350 miles to Sioux Falls and met up with the Pro Farmer Crop Tour participants.  There were about 30 people at the meeting and we had about an hour and half meeting to discuss how to do the counts, who were were traveling with, etc.

We left Sioux Falls this morning with about 8 different groups traveling southeastern South Dakota and Center Nebraska.  We headed west on I-90 to about 10 miles west of Mitchell and then turned south toward Nebraska.  Our first two corn fields that we checked turned out to be the worst ones we say all day with yields much less than 100 bushels per acre.  We sampled about 7 or 8 fields in South Dakota and crossed the Missouri River into Nebraska at Fort Randall Dam. 

We made a couple of quick stops right after crossing the river and we did not see another corn or bean field for at least 35 or 40 miles traveling through most of Holt County.  Almost all of the fields in South Dakota were dry-land, whereas, almost all of the fields in Nebraska were irrigated ground.  We saw a couple of fields that should yield more than 200 bushels but all in all, I would say most were in the 120 to 175 range.  We made a total of about 18 corn stops and 17 bean stops.

Talking with a farmer from Illinois that was in the car with us, he thought the yields we saw today were slightly lower than last year.

I am on the way to meet up with all of the groups to see how they saw things and will write another post tonight after that meeting.

According to the USDA (using 2007 information) farmers who grow and raise more than $1 million in annual farm sales account for 47% of total farm production.  The survey done by the USDA compared 2007 to 1991 and there are several interesting facts in the survey:

• Very small farms have increased by over 315,000 during the  period and large farms over $250,000 increased over 50,000 while the small commercial farms between $10,000 and $250,000 decreased by about 275,000 (all of the revenue numbers have been adjusted to reflect 2007 values).
• In 1991, farms with less than $250,000 in sales represented 42% of the total farm sales.  In 2007, this had dropped to 23%.
• Farms over $1 million in sales increased from 28% of the total to about 47%. 
• Farms between $250,000 and $1 million held steady at about 30% of the total, while farms between $100 thousand and $250 thousand decrease from 23% to only 14%.
• Operating margins were the highest in the over $1 million farmers with at least 60% of the farms showing an operating margin of 20% or more.
• In all categories of farms, the farmer aged 65 or greater grew from 1991 to 2007.  For example, in those farms between $100 thousand to $500 thousand, the percentage of farms over age 65 grew from about 10% to about 20%.  Even the large farms say a small increase in these age groups.
• Farms under $250,000 continue to be a large factor in the growing of hay, tobacco and small grains with their production ranging from 24% to 30% of these commodities

I think the trend of larger farms will continue especially as the older farmers pass on their land to children that are not in farming.

I am flying out of Seattle early Sunday morning and meeting up with my farm partner at the Kansas City airport.  We are then driving up to Sioux Falls, South Dakota to meet up with all of the Crop Tour participants that are doing the western leg of the tour.

The plan is to spend Monday to Thursday traveling through South Dakota, Nebraska, Iowa and Minnesota.  Another set of participants will leave Ohio on Monday and then meet up with us in Austin, Minnesota on Thursday afternoon. 

I plan on writing a updated post each night and let you know what we did that day and what my thoughts about the corn and bean crop are.  This is my first time of participating and I look forward to it.

In the recent Holdner Tax Court case, the IRS was able to make an argument that the farming operations carried on by father and son were in fact a partnership and not two separate farming operations that should be reported on their respective schedule F.

In the case, the father and son had operated the farm business together since 1977.  However, during these years, the father and son each reported one half of the income on their schedule F.  However, the father arbitrarily reported most of the farm expenses on his return.  Upon audit, the IRS took the position that the farm operation was in fact a partnership and allocated one-half of the income to each and disallowed all of the farm expenses to both.  In addition, the IRS assessed the 20% accuracy penalty against the dad.

The Tax Court reviewed the case and agreed that the farm operation was in fact a partnership, however, they did allow the deductions to be split 50/50.  The Court did uphold the extra 20% penalty assessed against the dad.

I know that many farmers who farm either with their children or siblings do so in an informal farm partnership and usually report their income and deductions on schedule F.  If this allocation is based upon a formal accounting process, then the IRS is not going to have an issue with the reporting.  However, if the income or deductions are allocated based upon the whim of the individuals involved, then the IRS may come in and both disallow the allocation and assess an extra 20% penalty of the tax owed.

If this applies to your farm operation, make sure you review with your tax advisor that you are handling your allocations correctly.

As I write this post September 2011 wheat futures are trading at slightly more than $7 per bushel.  If I had asked any wheat farmer three months ago would they like to lock in $7 wheat for next year’s crop, I am fairly certain that 100% of them would have said yes.

These farmers now have that choice, subject to the basis issues as discussed in a previous post.  I would strongly suggest that all wheat farmers review their budget for next year and see if it makes sense to try to lock in prices near the current level.  Any time that a farmer can at least lock in good prices to cover all of their estimated production costs allows the farmer greater flexibility in marketing their crop and it also pleases the banker.

In a side note, I spent Friday and Saturday driving combines for my cousins down in Walla Walla.  I drove a Case IH 2388 and 1470 for about 18 hours and that was my idea of a vacation.  Yields ranged near 125 bushels for dry land wheat and with the current good prices, I think my cousins might have a good year in farming.  They have some steep hills down in this area and kicking in the 4 wheel drive is always fun for a combine driver.  Using three machines, you can cover a lot of acres in a day, however, this year the fields had a lot more down wheat and the speeds are much lower than normal.  it is fun to see 3 combines, 2 bunk-out wagons and 2 semis all going strong.

I was skimming through the Reuters.com website the other day and came across an article on how US Farm Managers are enjoying the benefits of the Baby Boom Generation of farm land transfer and the continued high farm land prices.

Most of these larger national farm managers went through crisis in the early to mid 1980′s as they struggled with many foreclosed farms.  However, since the late 1990′s they are enjoying a fairly successful business climate.  According to the article, about 80% of the farmland in the US is owned by people age 65 and over and this property will be transferred to the Baby Boom Generation, of which almost all of them are not farmers.  This requires the use of a competent farm manager to manage the whole farm process in many cases. 

The largest US farm manager is Farmers National out of Omaha.  It was founded in 1929 right at the time of the stock market crash and like many others struggled with the 1980′s farm crisis and was sold to MetLife.  In 2000, MetLife sold the company back to the employees and it now employs over 200 employee/owners and sell well in excess of 25 million bushels of corn, 5 million bushels of beans and over 1 million bushels of wheat.  They actively manage 1.5 million acres of crop land in 23 states.

I believe that most newer farmers should view this as an opportunity to get to know these farm managers well and show that you can be a profitable farmer for them.  This trend will continue and it provides a great opportunity to acquire more acreage to farm.

The Rural Mainstreet Index maintained by Creighton University dipped below growth neutral in the latest July posting.  This marks the first time since April that the index dipped below the neutral 50 level by sinking to 49.3 from 52.6 in June and 54.3 in May.

Like other economic indicators, this index appears to be signalling that there is slowing in the national economy including rural areas, however, the farmland-price index continues to move above growth neutral for the sixth consecutive month to close at 52.5 down slightly from June’s 54.7.  One banker noted that “The farm economy has clearly improved from last year and we are seeing that reflected in farmland prices.”  Also, with the recent dramatic rise in wheat prices, I would expect this trend to continue or even accelerate.

The farm equipment-sales index slipped from 53.1 in June to 51.8 in July.

Bankers on an overall basis do not believe that the financial reform bill passed by Congress will help their borrowers.  About 29 percent view it as positive while 66 percent anticipate a negative effect on the economy.

Retail sales for the rural area took a nosedive in July with a reading of 41.7 down from 52.6.  This represents an almost 21% drop in the index.

A lot of analysts are talking about a double dip recession and these readings may reflect those opinions.  We will have to wait and see how the next few months turn out.