1. Kansas State University has a site called ag manager info and there is always some interesting tidbits that they have on the site.  They recently posted an article on the world wheat market supply and demand trends.  I thought I would recap the article with what I found interesting.

For the current year, total acres planted to wheat is estimated at about 557 million acres or over 870 thousand square miles.  This acreage is about the size of Greenland. Since the study started in 1987-88, the average acres in production has decreased by about 1 million acres annually.

The 10  largest wheat production areas produced on average about 80% of the world’s total wheat production.  The top 5 areas (in acreage terms) were:

1. Russia – 71 million acres (slightly smaller than Arizona)
2. India – 69 million acres (about the size of Colorado)
3. European Union – 63 million acres (about the size of Oregon)
4. China – 59 million acres (slightly larger than Idaho)
5. United States – 49 million acres (about the size of Minnesota)

I always thought that Canada was a large producer, however, the country of Kazakhstan has almost twice the acreage in wheat production as does Canada.

The highest average yields per acre are:

1. European Union (76.9 bu/acre), increasing about 1 bu per year,
2. China (65.0 bu/acre), increasing by 2.2 bu per year.

United States yield is about 41.6 bu/ac with it increasing by about 1 bu per year.

Total wheat production by the top 5 countries are as follows:

1. European Union – 5.1 billion bushels
2. China – 4.2 billion bushels
3. India – 3.0 billion bushels
4. Russia – 2.3 billion bushels
5. United States – 2.2 billion bushels

Even though the United States is the 5 largest producer of wheat, it is the largest exporter of wheat and the top 5 exporters are as follows:

1. United States – 1.1 billion bushels (50% of production)
2. European Union – 705 million bushels (14% of production)
3. Russia – 600 million bushels (26% of production)
4. Australia – 450 million bushels (55% of production)

Canada exports about 67% of its production.

The top importer of Wheat is North Africa at about 610 million bushels, with the Middle East, South America, Sub-Saharan Africa, Southeast Asia and East Asia next.

Another interesting fact is that China has by far the largest ending wheat stocks at about 1.8 billion bushels.  The United States is the next largest at about 635 million bushels.  China is at about 47% of total ending stocks, while their historical trend is about 30%.

I always find this information interesting and I hope you find something of interest in the data.

As the old saying goes “Go west, young man, go west”, the corn belt will probably be expanding at least 300 miles to the west over the next few years.  As part of the two-day agricultural symposium held in Omaha last week, this was one of the central themes of the meeting.

Drought resistant corn seed could expand the corn belt at much as 300 miles to the west.  Assuming that the depth of this expansion would be 500 miles north and south would put up to 150,000 square miles of additional area that could grow corn.  This is a gross area of about 96 million acres.

In addition, new non-thirsty corn varieties could let corn belt growers raise just as much corn with far less water for irrigation, while protecting non-irrigated fields from drought damage.

Echoing comments by several panelists at the conference, C.G. “Kelly” Holthus, chairman and CEO of Cornerstone Bank of York, Neb. said the future of agriculture looks bright.  He called today’s farm economy “the golden age of agriculture”.

William Wilson, a distinguished professor of agriculture from North Dakota State University, said Monsanto and other biotech companies are in the final stages of developing corn varieties to thrive in low-moisture conditions.  The seeds are due to come onto the market in about three years, he said, joining herbicide-resistant seed and other genetically modified crops that have improved farm yields and profits in recent years.

However, this does not mean that corn will stretch all 300 miles wide.  Farmers will decide what to plant based upon the financial yield that the various crops offer and other factors.

Scott Heintzelman of The Exuberant Accountant has a very good post on the new rules coming for 1099 reporting for all businesses starting in 2012.  In one of my previous posts, I had indicated that these rules were coming, but Scott does a very good job of highlighting the changes.

One thing that needs to be stressed on these rules that most of us probably have ignored is that if we do not comply properly with the rules, two bad things can happen.

First, if you do not report the transaction to the IRS, they can assess a penalty of $50 per form 1099 not reported up to a current maximum of $100,000.  Under the current rules, if you missed one or two 1099s that should have been reported, the total penalty might be less than $500.  Under the new rules, if you are required to issue form 1099 to all businesses that you purchase goods and services from, the penalty could add up very fast.  For example, if you deal with 100 vendors that you paid more than $600 to during 2012 and do not report any of these transactions on form 1099, then your potential penalty is at least $10,000.

Second and perhaps more important is that if you do not provide your federal identification number to your customers, they may be required to perform backup withholding on payments to be transmitted to you.  This backup withholding is usually 20% of the total sale.  Therefore, if you sold grain for $250,000 to your local elevator and backup withholding applies, the elevator would only give you a check for $200,000 and send $50,000 to the IRS.  You would be able to get this $50,000 back when you file your return, but that means you have to wait until the following year to get your money.

Under current rules, backup withholding does not apply to  the sale of farm products, but it is my opinion that with the new rules, backup withholding will probably apply on the sale of any product including farm products.  Therefore, it will be very important to provide your EIN to any customer you sell products to.

I would strongly suggest that you review your current accounting system and Trprocedures to make sure that you are ready for 2012.  As the scientist Carl Sagen would say, the IRS is about to get Billions and Billions of form 1099 starting in 2012.

It is projected by 2019 that Russia may become the world’s largest wheat exporter and Russian, Ukranian and Kazakhstan (RUK) wheat exports collectively may double the United States wheat exports according to the June 2010 issue of Amber Waves.  This growth in wheat exports may help mitigate global food security concerns and help offset the the shift in US acreage to corn, soybeans and other more profitable crops.

USDA is projecting that wheat exports by there three counties could increase by about 50 percent to over 50 million metric tons by 2019 or about 1.9 billion bushels.  The region may account for over half of the increase in wheat exports and could supplant the US as the “wheat breadbasket of the world”.

The US has been in second place since World War II but could easily slip to second place especially if the trend to more corn and bean acres at the expense of wheat production continues.

The US share of wheat exports may drop from the current 24 percent range for 2001-09 to an estimated 16 percent by 2019.  The European Union, Canada and Argentina will also lose market share while Australia is expected to remain flat.  The three former Soviet Union counties should see their market share go less than 20 percent to over 33 percent by 2019.

There are two main reasons why RUK have become larger wheat exporters.

1. The region’s transition from planned to market-orientated economies that began with collapse of the former USSR in the early 1990s.  During the late Soviet period of 1987-91, the USSR imported 35 mmt of grain, while in 2009, the former USSR nations exported nearly 55 mmt.  This is a turnaround of over 90 mmt or about 3 billion bushels of grain.  Also, the large contraction in the livestock sectors led to market driven importation of meat and exports of grain.
2. The region’s yield has risen steadily during the 2000s.  During the 1990s, wheat yields actually decreased primarily due to bad weather and a lack of inputs, especially fertilizer.  However, during the 2000s, wheat yields have risen about 32 percent in Russia and about 25 percent in Kazakhstan.  A lot of this increase is due to the large vertically integrated enterprises that are in charge of the crop from the very beginning to the final wheat sale.

If the world market for grain was expected to remain steady, this increase in Soviet production could lead to much lower prices, however, the world will add another 750,000 or so people over the next 10 years and they will eat a lot of wheat so wheat prices may actually rise over this period.

I thought I would update the readers on my so-called motorcycle trip.  As you know, I was planning on riding my motorcycle to Omaha, however in looking at the long-range weather report, it showed rain for four of the days that I was to be in Omaha, so I decided to fly there.  I am glad I did since it rained hard on Monday and rained on and off from Tuesday to Thursday.

I was scheduled to fly home on Friday evening, but my business was done quicker than I thought, so I went to the airport to fly standby since the agent on the phone indicated there were plenty of seats available.  You guessed it, another flight was delayed which caused all of the seats for the day to get filled up.

I decided to rent a car and make a quick trip up to Sioux Falls, SD and really enjoyed seeing that part of the country.  My father was from northern South Dakota and I had never really seen this part of the state.  I got back to the airport, dropped off the car, and checked in for my flight.  You guessed it again, the plane had “mechanical issues” and since I could not make my connection to Spokane, I got to spend another night in Omaha.

The good thing is that they bumped me to First Class and the trip home on Saturday had no issues.

Now, I am getting ready to drive to Los Angeles and was planning on taking my bike (shown in the picture), however, as I look out the window, rain is imminent and the weather forecast calls for rain today, Tuesday, Thursday and Friday.  Needless to say, I am driving a car down.

I actually hope to get a good ride in when I know there is no rain.  My bike is fun to drive, but it does not like the rain (or maybe I should say the driver does not like the rain).

On of my favorite business magazines that I started reading as a teenager was Forbes.  This used to be a really great business magazine and it still fairly good, but with all the changes going on with the digital revolution, their web-site seems to be taking a higher priority than their magazine.  However, almost every issue has one or two good articles and in the most recent issue, there was an article on how getting a state income tax refund can create additional taxes.

I thought I would try to set up a real world example and see what type of tax rate we would end up with.  I set up a fictitious farmer couple with $125,000 of farm earnings, a rental loss of $25,000 and three kids under the age of 17.  In this example, their total federal income taxes was $10,244 for 2009. 

I then added in a taxable state refund of $15,000.  The farm couple probably overpaid their estimates for the year before and thought it was pretty good to get a nice size refund until they did their income tax return for this year.  The new federal tax bill for this couple went from $10,244 to $16,963.  This is an increase of $6,719 or an effective tax rate on this income of almost 45%, even though they are only in a 25% tax bracket.

The primary reasons for the increase is that they can no longer deduct as much of their passive loss and their child credit is almost cut in half.

Most farm families live in states with a state income tax.  You need to be cautious in paying this tax.  With most farmers, you usually pay both your federal and state income tax by March 1 and do not do estimates, however, in many states this might not be true.

Therefore, touch base with your tax advisor before paying any large state income tax estimates for the current year since you may get a large federal tax bill in the next year.

Just like a farmer coming to the last row of the last field of the fall harvest, today is my last day of what I call harvest time for CPA.  We have put in long hours since the first of the year (my last day off was on January 10), but this is my favorite time of the year.  Just like when I was growing up driving the combine was my favorite time.

I just want to wish my readers my thanks for their questions and feedback and now that things will be a little more back to normal, I will try to do more posts and keep the site going strong.

Thanks.

Facebook has a game called Farmville that has become very popular.  When my wife first started playing the game, I almost thought I was going to have to get her some treatment for her addiction.  I would constantly get messages from Facebook asking me to do something for her Farmville game.  The first couple of times, I did what it asked and after that, I decided was too much work and stopped doing it.

I have found that this game seems to appeal to women more than men.  I am not sure why that is true since I like all things about farming, but I think the main reason for me, is that it is not real farming.  The process of planting, growing and harvesting a real crop has much more appeal to me than a game.

This post is simply a reflection of my opinion.  I am sure there are others who disagree with me, but I know that millions play the game.

For those people living in rural areas, the smells associated with hogs, cows, etc. can be a nuisance.  Usually most people grin and bear it, however, there are many times when they try to do something about it.

The High Plains Midwest Ag Journal recently reported on a civil trial filed in Kansas City regarding the hog odors from a large commercial hog operation about 80 miles north of Kansas City.  This operation usually contains about 80,000 head of hogs and encompasses over 2,000 acres.  Fourteen rural neighbors had already received $100,000 apiece from a 1999 lawsuit, however, they have taken Premium Standard Farms back to court arguing that these payments are not enough to compensate them for the continuing odors.

The company argues that they are not suffering “substantial impairment” from the odors.  They agree that hogs stink, but it does not meet the qualifications of a nuisance under the law.

Kansas City attorney Charlie Speer has won over $10 million from Premium Standard and its affiliates since 1999 on these types of cases.  In 2009, he indicated a lawsuit that was settled for $1.2 million will “set the bar” for future cases.

PSF attorneys contend these lawsuits are driven only by money and are causing damage to the local ag economy.

I believe that both sides have some merit to their cases.  These smells can be overpowering when you have that many animals in a small area, however, most people living in farm country usually know this when they move there.  I think, however, that these large operators sometimes believe it is cheaper to just settle the lawsuits than to try to fix the problem which can cost substantially more.

To claim the credit, you will need to fill out form 5405.  For the first time credit, you will need to attach either of the following to the tax return:

• A copy of your closing statement from the home purchase, or
• If purchasing a mobile home, a copy of the retail sales contract, or
• If building a house, the certificate of occupancy and most likely the bills from the contractor to back up the cost claimed on the form.

If you are claiming the long-time credit (which means you lived in the same house for five consecutive years), you will most likely need to provide five consecutive years of either:

• Home mortgage interest statements,
• Real estate tax records, or
• Homeowners insurance.

The IRS has indicated they will not start processing any of these returns until mid-February and the soonest that any refund checks will be mailed will be around late March.

Remember, if you are claiming the homeowner credit, file your return by mail.