Following up on my post from yesterday, here are some more interesting farm export facts.

Total 2011 agricultural exports are expected to $137 billion.  This is an all time high with 2008 in second place at $115 billion.  An interesting note is that farm imports were $93 billion which is primarily comprised of fruits, vegetables and coffee.

Of total exports, less than 40% of this is bulk products such as corn, wheat and beans.  Back in the 1970s and 1980s more than 60% were bulk grains.

Our top 5 exporting countries are China #1, Canada #2, Mexico #3, Japan #4, and the EU #5.  Canada had been number 1 for several years until China took over in 2011.

China imports almost 60% of the total world trade in soybeans and almost 40% of cotton.

The Federal Reserve Bank of Kansas City puts on an Ag Symposium each year.   It was held July 19-20, 2011 in Kansas City and here are some interesting farm export facts that I gleaned out of reading their information which is available online.

The share of the US crops that is exported each year is as follows:

• Wheat – 46%
• Corn – 15%
• Rice – 53%
• Soybeans – 47%
• Cotton – 81%

The US share of total world crop exports are as follows:

• Wheat – 18%
• Corn – 53%
• Rice – 11%
• Soybeans – 39%
• Cotton – 35%

The share of livestock that is exported is as follows:

• Beef 10%
• Pork 22%
• Poultry 17%

These percentages are based upon their estimates for 2011-2020.

There is more information that I will share over the next few weeks, but I thought this was informative.  For example, only 15% of our corn crop is exported, however, this makes up about 53% of all corn exports through-out the world.  Also, almost 40% of the soybeans exports come from the US, with most of the remainder coming from South America.

We had a reader ask the following question:

“President Obama’s proposed Jobs Act includes an extension of 100% bonus depreciation through 2012 however excludes qualified real property. Does this include farm buildings?”

 First, I think there is a very good chance that we will see 100% bonus depreciation sometime in 2012.  However, we are dealing with politician in Washington DC and this decision may not get made until after next year’s election.  This is what happened in 2010.  For planning purposes, we currently have 100% bonus depreciation for 2011 and 50% for 2012.  Those are the numbers I would use for now.

For the second question, the qualified real property relates more to retail lease space and restaurant property, etc.  All farm buildings have either a 20 year life or perhaps a 10 year life for structures such as a hog confinement building.  Under the Section of the Code dealing with bonus depreciation, all assets with a life of 20 years or less qualifies for bonus depreciation.  So, the bottom line answer is that farm buildings would qualify under President Obama’s proposal.

I have already written a previous post on one of the first sessions at DTN AG Summit yesterday, but here is my recap of the rest of the day.

The president of International Farming Corporation gave a presentation on their efforts to both create long-term value to their investors and their tenant farmers.  This is a company that has raised about $250 million in funds to be invested in farms around the US with I think the ultimate goal to turn it into a publicly traded REIT.  The management of this company has been involved in farming for about 150 years and has a very long-term focus on farming.  I think we will see more funds like this in the future.

My first break-out session dealt with cash rent versus flexible rent versus crop share rent.  Much discussion was held in this group and sometimes it did get a little bit emotional.  The idea of a flex rent almost brings cash rent back to the equivalent of a good crop share rent.  Another point of the session leaders was that over time, the market will drive profits to farmers to be approximately zero.  This does mean that the farmer will be entitled to return on their investment for machinery and technology and their overhead for management plus some profit on it, but in the long-run cash rents will tend to drive the other profit to zero.  Farmers can either embrace this in their operation or not, but in the long-run, that is where market economics will take it.  Another important point was to be proactively involved in communicaiton with your landlord. 

The last break-out session dealt with the proper use of crop insurance, options and marketing.  I especially enjoyed the farmer on the panel with his discussion of how the integration of crop insurance and options locked in a certain minimum profitable sales price no matter what the production or actual sales price was.  Remember, this is a business and anytime you can lock a good profit with the upside potential of call options should not be overlooked.

Today, I am only at the Summit for about an hour and then head home for our Christmas office party.  Since I have been on the road since Monday, I will be happy to get home.

Two speakers from Kansas State Univeristy indicated that overpaying for land in their analysis was more likely to be more harmful to a farm operation than having too much leverage.

Their bottom line objectives for their land buying decisions in 2011 is that the perceived land rent value should be at least 4.50% of the amount paid. If it ends up being lower than 3.50%, then the farmer most likely pass on the purchase.

If 2011 is like 1981 in values and returns, under all their scenarios, all farmers would have a negative return over 20 years, however, it is very unlikely it is like 1981, but it might be.

Just make sure you use consistent decision making in your land purchase decisions.

I attended most of the afternoon session of the first day of the DTN AG Summit in Chicago. There appeared to be around 600 Agri-business leaders there of which about half were farmers.

The potential slowdown in economic growth in China may negatively affect the American farmer in 2012. Although growth of 4-5% would be great in America, it is not so good in China or India.

Another session was a presentation by the largest Brazilian farmer. By 2015, it is likely this company will be farming over 1 million acres. There costs per acre are not lower than other smaller farmers in BrZil, however, there yields are higher, therefore, there per-unit costs are lower. Also, more than high of their revenue for the current crop year is from cotton, not soybeans.

They also indicated that unless bean prices are higher than about $12 per bushel, the Brazilian farmer will not plant more beans.

That’s my recap for day 1. I will keep you posted on day 2.

After a long flight home Friday night, I have had a couple of days to reflect on the the First Annual Conference for Executive Women in Agriculture and here are my conclusions:

• American Agribusiness should be proud of the women who are active in running a farm or an agribusiness.  Based upon the women that I met at the conference, these farms are in very capable hands.
• Management of a farm operation from a women’s perspective seems to be more about active communication between management and the employees.  In my observations of most farm operations, one of the things most lacking is communication.  Farm management still requires there to be a boss, but equally important is letting the employees know what the boss needs to happen and these women can do a better job of this, however, if us men engage our right side of our brain more often, we can catch up.
• The newer generation coming up is very comfortable with having a woman as a boss and for a lot of our younger male farmers and employees out there, the idea of work-life balance is extremely important.  The days of expecting our male employee/managers to work the hours that us “older” management workers are used to and expect are most likely gone.  We find this to be true in our CPA firm also.
• From a speaker standpoint, I found the conference very enjoyable since the women attending my two breakout discussions were extremely competent with their questions and actually asked them.  I have spoke at a couple of conferences where there were only male attendees and there were times when I was not sure if I would get any questions (although if I am talking on taxes and farming, I always get questions).  It was very easy to get feedback from the women and this helps maintain a very vibrant give and take.

In conclusion, American Farmers should be proud of the women that attended and I look forward to next year’s conference.

I was an attendee at the First Annual Top Producer conference for Executive Women in Agriculture in Chicago.  There were well over 100 women executives in  attendance and the speakers lined up for today were outstanding.  American agriculture is well represented by these woman executives and I look forward to more getting involved in the future.

Several of the sessions were focused on their role in the farm and management, but almost all of the topics discussed were applicable to all farms, whether managed by a man or woman.

I have two break-outs sessions on farm taxes in the morning and I look forward to the interaction with the group.

The USDA-Risk Management Agency (RMA) in conjunction with several Universities has just announced a new site for financial and tax information for farmers.  The site is located at www.ruraltax.org.

The site is comprised of:

• Tax Topics
• Sample Farm Tax Return
• Small Farm Tax Guide
• Links

Plus some information on who has contributed to the site and the history of the program.

I have briefly reviewed the small farm tax guide and it has very useful information on not just taxes, but budgeting and how financial statements work, etc.  Having this site in conjunction with the farmer’s tax guide at the IRS web site will answer many of the common questions that farmers might have.

However, this information is of a fairly general nature and this blog is designed to help our farmers with more complex tax and accounting needs.  Make sure to review these two useful publications, but we look forward to helping you with your other tax and accounting needs.

With the increased Section 179 deduction available in 2011 of $500,000 farmers need to be very careful if they have ownership in multiple partnerships and S corporations that will be purchasing large amounts of used equipment and deducting it under Section 179.  The partnership and S corporation have an overall $500,000 Section 179 limitation on deducting at their entity level and when this amount flows through to the farmer, there is another $500,000 limitation level on his tax return. 

If more than $500,000 of Section 179 expense flows through to the farmer, then this excess amount is permanently lost as a deduction.  In this case, the farmer should have one or more of the entities look at amending their tax return to take a lower amount of Section 179 or if it new equipment, the 100% bonus depreciation rules would apply and it would result in the same deduction to the entity.

Another trap to watch out for is if the farmer has multiple C corporations that he controls, the Section 179 rules require the $500,000 limitation to be allocated among all of the C corporations that he controls.  This will result in only $500,000 being able to be deducted among all the C corporations.

If you think these limitations may apply to you, make sure to review it with your tax advisor.  The worst thing that can happen from a tax standpoint is to permanently lose a tax deduction that can be prevented.