Agribusiness Blog http://blogs.claconnect.com/agribusiness Farm CPA Today Tue, 20 Jun 2017 15:49:14 +0000 en-US hourly 1 https://wordpress.org/?v=4.8 53853350 http://blogs.claconnect.com/agribusiness/wp-content/uploads/2017/06/Man-in-Sugar-Factory.jpg Single Member LLC Update http://blogs.claconnect.com/agribusiness/single-member-llc-update/ http://blogs.claconnect.com/agribusiness/single-member-llc-update/#comments Tue, 20 Jun 2017 15:49:14 +0000 http://blogs.claconnect.com/agribusiness/?p=5900 In our previous post, we indicated that the IRS had recently released a ruling indicating that a single member LLC is not an individual for purposes of getting out of the late filing penalty for small partnerships.  Our language could have been a little better.  The ruling is actually from 2004 (Revenue Ruling 2004-88) and the Ninth Circuit of the Court of Appeals in the Seaview Trading, LLC case just affirmed the IRS ruling.

Therefore, if you have any partnership with fewer than 10 partners in a partnership and if any of the partners are a single member LLC or revocable living trust, the partnership does not qualify for the small partnership exception.  This means that if the partnership is late in filing its tax returns, it will owe the penalty for being late (or the partners can be hit with tax adjustments after their individual statute of limitations expires).

Although the tax rules indicate that single member LLCs and revocable living trusts are disregarded entities, they are still considered “flow-through” entities for purposes of Revenue Ruling 2004-88.  Just something to watch out for.

A more detailed discussion on this matter can be found here.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2017/06/Farmers-Looking-at-Laptop-Grain-Elevators-in-Background.jpg Single Member LLC is not an Individual http://blogs.claconnect.com/agribusiness/single-member-llc-is-not-an-individual/ http://blogs.claconnect.com/agribusiness/single-member-llc-is-not-an-individual/#comments Tue, 13 Jun 2017 14:17:49 +0000 http://blogs.claconnect.com/agribusiness/?p=5816 I probably get at least two or three small partnerships each year that file their tax returns late due to various reasons.  The penalty for filing a partnership tax return late can get very steep very fast.  It is about $200 per month per partner that the return is late up to a maximum of 12 months.

For example, assume you have a partnership with 5 partners and they are five months late in filing the return.  The penalty in this case is almost $5,000.

A way to abate the penalty is to be a qualified small partnership.  This involves having 10 or fewer individual partners who all timely report the partnership income on their tax return.  A recent ruling from the IRS indicated that a single member LLC is not an “individual”.  Normally, a single member LLC is ignored for income tax purposes and you would assume since it is ignored, that the “individual” would count in this case.  However, the IRS ruled otherwise.

Therefore, if you own a partnership interest via a single-member LLC make sure to file the tax return timely.  Otherwise, it can cost you and your partners some money.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Older-Couple-Planning.jpg Late Portability Elections Available Until January http://blogs.claconnect.com/agribusiness/late-portability-elections-available-until-january/ http://blogs.claconnect.com/agribusiness/late-portability-elections-available-until-january/#comments Mon, 12 Jun 2017 12:55:14 +0000 http://blogs.claconnect.com/agribusiness/?p=5814 One of the old estate planning techniques was to make sure that each spouse had approximately the same amount of assets for separate property states.  In this case, a spouse passing away owning assets would get a step-up in basis and would not be subject to a “double-tax” if the other spouse passed away first.

As an example, assume Bert and Ermine were married and Bert owned $10 million in assets and Ermine owned none.  Ermine passed away first and owed no estate tax (assume $5 million exemption).  Now, Bert passes away and his heirs owe $2 million of tax on his $10 million estate.  If Bert had passed first, he could have given $5 million to his kids tax-free and $5 million to Ermine and when she passed, no estate tax would be due.

As a result of this “inequity”, Congress several years ago put in place the “portability” election by estates.  Under this procedure, the surviving spouse can elect to “port” over any unused exemption from the first spouse to pass away.  In our example, Bert could have elected to port over Ermine’s unused $5 million exemption and his heirs could have used it when he passed and no estate tax would be owed.

However, in order to take advantage of portability, an election must be made by the estate.  This requires filing a Form 706 “Estate Tax Return” even if no tax is owed.  However, many estates were not aware of this requirement and the IRS was bombarded with late filings of estate tax returns to simply elect portability.  These late elections required a $10,000 filing fee and more work by the IRS.

The IRS just announced in Revenue Procedure 2017-34 that these estates will now be granted an automatic extension to January 2, 2018 to file these types of returns.  This applies for any estate from 2011 forward (portability was not available before 2011).  Therefore, your family has had anyone pass away that the unused exemption amount would have value for the surviving spouse, don’t delay in making this filing.  It can save the family a lot of taxes.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Man-Standing-Desk-Filling-Out-Chart.jpg Emerging Issues in Agricultural Lending http://blogs.claconnect.com/agribusiness/emerging-issues-in-agricultural-lending/ http://blogs.claconnect.com/agribusiness/emerging-issues-in-agricultural-lending/#comments Thu, 08 Jun 2017 15:00:56 +0000 http://blogs.claconnect.com/agribusiness/?p=5812 Today (June 8, 2017), I spoke at the University of Missouri Emerging Issues in Agricultural Lending Symposium in Columbia, Missouri.

One of the speakers today was Dale Nordquist from the University of Minnesota FINBIN program.  They maintain financial data for over a 1,000 farmers in Minnesota and other states.  Some key data is as follows:

  • In constant 2016 dollars, farm income peaked in 2012 at almost $200,000 per farm and have now dropped to about $35,000 in 2015 and 2016.
  • For median Top Producers, average income peaked at $272,000 and now have dropped under $50,000 in 2016 ($17,000 in 2014).  High yields helped in 2016.
  • Dairy farms have been even more erratic. Average farms made $116,000 in 2007, then $6,000 in 2009 then peaked at $140,000 in 2014 and back under $30,000 now.
  • Average return for a conventional dairy cow in 2016 was $200 and $1,400 for organic dairies.
  • Hog operations peaked at over $300,000 in 2010-2012 and back to under $5,000 in 2015.  2016 is now at $27,000.
  • Beef operations very similar to hog operations.  A median loss of $7,000 in 2015 and about breakeven in 2016.  Current rallies in prices may help.
  • On the balance sheet side, net worth rapidly increased from 2005 to 2012, but have essentially flattened out over the last several years.
  • Working capital as a percent of gross revenue are still above 35% for crop producers which is better than all years before 2008.
  • Debt to asset ratios peaked at 51% in 1999 and have dropped to about 40% in 2012 and have slightly ticked up to about 42% over the last couple of years.
  • In 2015, the median farm was not able to meet their term debt coverage.  This ratio exceeded 4 to 1 in 2012 and was only 1.04 to 1 in 2016.  A projection for 2017 likely shows this number well under 1 to 1.
  • The top 20% of farmers generated net income of almost $700,000 in 2012 and still at the $200,000 range in 2016.  The low 20% of farmers peaked at $21,000 in 2012 and are now $60,000 in the hole (for four consecutive years).
  • The average machinery cost per acre for farms over $1 million in revenues is around $600 per acre.
  • The large farms in 2012 made far more than smaller farms, however, in 2016 the larger farmers in the bottom 20% lost over $300,000 (not just 2016, but 2013-2016).
  • Price received for corn does not seem to have much correlation between high and low income farmers.  The range for 2015 between low and high income farmers was a penny, however, hedging gains were much higher for high profit farmers than low profit farmers.
  • The trend in cash versus accrual income continues to have a wide spread.  2013 was the highest “cash” income in several years, however from an accrual standpoint, it was one of the lowest on record.
  • An interesting point was that the education level of the farmer did not have a correlation to farm profitability, but the education level of the spouse did have a high correlation (high non-farm income helped the farm).

As you can see, net farm income has dropped over the last several years, but there continues to be very profitable farmers out there even in times of low prices.  What are you doing to be one of these farmers.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Farmer-Talking-to-Younger-Man.jpg Are you Ready for the New Lease Accounting Rules http://blogs.claconnect.com/agribusiness/are-you-ready-for-new-lease-accounting-rules/ http://blogs.claconnect.com/agribusiness/are-you-ready-for-new-lease-accounting-rules/#comments Mon, 05 Jun 2017 22:20:21 +0000 http://blogs.claconnect.com/agribusiness/?p=5802 The accounting profession periodically updates their accounting standards.  One of updates that will go into effect in 2020 for most farmers will change how y0u account for operating leases.  If you prepare financial statements (or have them done for the bank), you currently expense all operating leases and simply show a footnote to the financial statements indicating the future amount of minimum lease payments per the lease agreement.  None of the future payments show up on your balance sheet.

For example, assume you lease a combine for 4 annual payments of $75,000.  On your income statement, you simply deduct the $75,000 as an expense and if you prepare financial statements for bankers or others, you let the reader know that you will continue to pay $75,000 each until the lease terminates.

Under the new standards, you will now be required to capitalize these payments on a net present value basis as both and asset and a liability.   Using our example above, when the farmer entered into the lease, they would be required to capitalize an asset for around $275,000 (present value of 4 payments at $75,000).  Each year, they would expense approximately the same amount, however, their balance sheet would now be shown on a gross up basis.

The above example is for equipment leases.  Similar rules can apply to your cash rented farm ground too.  If you have been farming this ground for several years and it is expected that you will continue to farm this ground, the amount posted to your balance sheet can be substantial.  For example, assume you pay $750,000 each year for cash rent.  This is ground that has been farmed for several years and most of it is paid to related parties.  You may be required to capitalize 20 or more years of cash rent to your balance sheet.  If your current balance sheet shows $5 million of assets and $3 million of equity; the new standard will increase assets by almost three times, yet equity will remain exactly the same.

You may say if the income state does not change, how does this affect me.  The main issue is that many covenants that you have with banks have certain net-worth to debt ratios (or related one) and by adding all of this “debt” to the balance sheet, you may now be in danger or violating your covenants.

If you have a fair amount of operating leases, it is important to discuss this with your CPA and your banker to make sure you are ready for when the rules go into effect.

Although the rules are not applicable until 2020, you will need to get prepared over the next year or so to implement the new rules.  Don’t wait to long.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Woman-Kitchen-Laptop.jpg Minnesota Tax Credits Approved for Young and Beginning Farmers http://blogs.claconnect.com/agribusiness/minnesota-tax-credits-approved-for-young-and-beginning-farmers/ http://blogs.claconnect.com/agribusiness/minnesota-tax-credits-approved-for-young-and-beginning-farmers/#comments Thu, 01 Jun 2017 13:10:23 +0000 http://blogs.claconnect.com/agribusiness/?p=5800 I talked with Minnesota House of Representatives Nels Pierson (R-Rochester, MN) today about his recent efforts co-authoring a neat bill for agriculture. No matter the business there are often barriers to entry and in agriculture young and beginning farmers will take any break they can get. In Minnesota just 6% of farmers are 35 years old or under and on Tuesday Minnesota Governor Mark Dayton signed Nels bill that included tax credits supporting the transition of farms to young and beginning farmers.

Landowners and ag producers can receive a state income tax credit when they sell or rent land or agricultural assets like machinery or livestock to a beginning farmer. (Beginning farmer = entered farming within the last 10 years.) The credit equals 5% of the sale price or 10% of the cash rent or 15% of a cash share agreement. Sales to related parties do not qualify and equipment dealer sales do not qualify.

The beginning farmer must take a farm management course to quality for the tax incentive and could be eligible for a tax credit to cover the cost of the training. The tax credit is effective for the 2018 tax year and is funded at $12M with a sunset in 2023. The credit is available on a first-come first-serve basis and is subject to some annual limits.

Looks like a win for agriculture in Minnesota and should help pave the way for the next generations of farmers. Helping farmers of all sizes, rural or urban, conventional or organic the credit is a real nice bargaining chip for a beginning farmer to negotiate with an established ag producer or landlord saying work with me and you will save on income tax. Farmers love saving on income taxes, don’t we all.

Special thanks to Joseph Duda of our Rochester, Minnesota office for this post.

 

 

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Businessman-Thinking-At-Laptop.jpg How Might Congress Limit Lower Passthrough Rate? http://blogs.claconnect.com/agribusiness/how-might-congress-limit-lower-passthrough-rate/ http://blogs.claconnect.com/agribusiness/how-might-congress-limit-lower-passthrough-rate/#comments Wed, 31 May 2017 16:23:29 +0000 http://blogs.claconnect.com/agribusiness/?p=5798 Both President Trump and the House have proposed a lower tax rate for farm income that comes from a pass-through (S corporation, partnership, etc.).  Wage and other income would be subject to a higher rate, while the pass-through income would be capped at a possible lower rate (25% for the house and 15% for President Trump).  With these lower rates, taxpayers will have an incentive to convert high-tax income to lower rates.

To prevent this type of “gaming” of the system, there will likely be rules in place to maintain the higher rate.  However, how will these rules look like.  Here are some possible provisions:

  • Reasonable compensation – Currently, there are provisions in place to require reasonable compensation to be paid to owners from S-corporations.  However, there is no definition in the income tax code as to what reasonable is.  Therefore, most business owners, including farmers, err on the low side when it comes to compensation. The reduction in taxes under current law lowers self-employment taxes and has little effect on income taxes since the income is taxed at the same rate (whether wages or S corporation pass-through income).  However, under the new law, there would be an incentive to keep wages low and pass-through income high.  This would lower both payroll and income taxes.
  • Mechanical Rules – Under this option, Congress could have a hard-and-fast rule that would apply some percentage of pass-through income at the higher rate and part at the lower rate.  Former House Ways and Means Chairman Dave Camp had proposed a 70-30 rule in his 2014 tax reform.   Under this rule 70% of pass-through income would be subject to regular tax rates and 30% to the lower rate.  Self-employment tax would also be owed on 70% (silent on how it might effect pass-through farm rental income).
  • Rate of Return Calculations – This option would apply some type of rate of return rules to each industry.  This rate of return would be applied to the capital base of the business and this income would be subject to the lower pass-through rate.  Amounts above this calculation would be subject to the higher tax rate.  For example, assume a farm business has $1 million of capital and the rate of return allowed is 8%.  The farm generates $300,000 of net income.  $80,000 ($1 million times 8%) would be taxed at the lower rate and $220,000 would be taxed at the higher rate.  A possible problem is whether this is based on FMV of farm assets or tax basis.  If based on tax basis, it is likely that a greater percentage of farm income would be subject to a higher rate.

As you can see, this can quickly get very complicated.  It is suggested that the last option may be the most “fair”.  The first option has been very messy for both taxpayers and the IRS to determine “reasonableness” and mechanical rules are usually too arbitrary.

We will keep you posted as to the final outcome (if there ever is one).

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Farmer-Inspecting-Corn.jpg Rain Makes Grain http://blogs.claconnect.com/agribusiness/rain-makes-grain/ Tue, 23 May 2017 20:47:33 +0000 http://blogs.claconnect.com/agribusiness/?p=5793 The old saying “rain makes grain” may apply again this year.  Currently a lot of the corn belt (especially the Eastern portion) is under a fair amount of water and much replanting is going on.  That will likely build a weather premium into corn prices over the next few weeks.

My friend Ken Morrison at “Morrison on the Markets” had a good article yesterday about how this current pattern is very similar to 2008 and 2013 (a subscription is required, but you can get two weeks free; I would highly recommend checking it out).

During 2008, December futures entered June fairly flat around $6.  Between then and the end of the month, prices jumped to almost $8.  That was the good news.  As it became apparent that spring rains make grain, the price slowly dropped and ended at $3.59 when it went off the board.  Farmers had a chance to lock in very good prices, but the timing was short.  The round trip between $6 – $8 – $6 was less than 50 days.

During 2013, December futures bounced between $5.10 and $5.70 and entered the month of June right at the top.  During the month, the dropped to $5.20, rallied back to $5.70 and then dropped all the way to $5 in less than 30 days.  By the end of the year, the expired contract price was $4.20.

What will 2017 bring.  We don’t know, but history may rhyme and if it does, the month of June should provide a very good chance for farmers to lock in profits for the year.  As we can see in two years that are similar to the current year, the month of June provided great opportunity that was all gone by the end of July.  Don’t make the same mistake this year.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Man-Laptop-Online-Purchase.jpg Are You Taming The Deferred Tax Monster?! http://blogs.claconnect.com/agribusiness/are-you-taming-the-deferred-tax-monster/ http://blogs.claconnect.com/agribusiness/are-you-taming-the-deferred-tax-monster/#comments Mon, 22 May 2017 13:04:24 +0000 http://blogs.claconnect.com/agribusiness/?p=5790 The Farm Doc Daily just released a new article today titled “The Deferred Tax Monster“.  Current deferred taxes is comprised of the estimated taxes owed on deferring crop sales and prepaying farm expenses.  Intermediate deferred taxes are the taxes owed on selling farm equipment.  Long-term deferred taxes are the amounts owed on selling farm land.  It is highly unlikely that all deferred taxes would ever be owed at one time, but it can happen.

The article presents three graphs.  In the first graph, it shows the average deferred tax by type of asset from 2003 to 2016 based on their database of Illinois farmers.   Beginning with the ethanol mandate, current deferred taxes accelerated compared to the others.  It peaked out in 2012 with the extra revenue generated by high corn and soybean prices and crop insurance proceeds.  It has now dropped back to being on par with intermediate and long-term deferred taxes.  Intermediate and long-term deferred taxes increased at a steady rate and did not have the volatility of current deferred taxes.

Graph 2 shows the amount of deferred tax due to land, machinery and buildings.  As expected, the greatest amount of deferred tax in this chart is land at an average of about $1.8 million per farm.  This is an increase of almost $1.3 million from 2003.  Machinery deferred taxes has increased from about $200,000 to $600,000 during the same time period.  This is primarily due to the use of Section 179 and bonus depreciation.  Farm buildings has showed the lowest amount of increase primarily due to Section 179 not being allowed on farm buildings (in most cases).  It has not quite reached the $200,000 level yet.

Graph 3 shows Total Deferred Tax vs. Net Worth.  The ratio of deferred tax to net worth peaked in 2008 at 27.3% and had decreased slightly to 24.5% in 2016.

Most farm financial statements do not show deferred taxes since most expect it not to be owed.  However, as farmers approach retirement (especially if there is no successor), deferred taxes becomes a “real” liability.  A good farm financial manager will calculate this liability each year and know how to manage it.  Others will be surprised when it “comes home to roost”.

 

 

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Business-People-On-Wheat-Field1.jpg Soybean 2016 ARC-CO Reports http://blogs.claconnect.com/agribusiness/soybean-2016-arc-co-reports/ http://blogs.claconnect.com/agribusiness/soybean-2016-arc-co-reports/#comments Sun, 21 May 2017 19:10:38 +0000 http://blogs.claconnect.com/agribusiness/?p=5778 I am attaching reports for several of the major soybean producing states that show the estimated 2016 soybean ARC-CO to be paid in October.  As mentioned before, these calculations are based on NASS data and the final yields can be different.  However, due to the large increase in soybean yields for most states, the difference will likely not affect payments if the chart shows no payment for your county.  If there is no NASS data, then the final column will show “N/C”.

The state reported are as follows:

Illinois

Indiana

Iowa

Minnesota

Nebraska

Ohio

South Dakota

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Man-Laptop-Online-Purchase.jpg Only One Minnesota County to Get Soybean ARC Payment http://blogs.claconnect.com/agribusiness/only-one-minnesota-county-to-get-soybean-arc-payment/ Wed, 17 May 2017 12:46:35 +0000 http://blogs.claconnect.com/agribusiness/?p=5767 In our previous post, we estimated that only two Iowa counties would get 2016 soybean ARC payments (to be paid this October).  This is due to the higher yields in that state.

In Minnesota, it now appears that only one county may get a 2016 soybean ARC payment.  We are estimating that Kittson County might get a $12.17 payment based on NASS yields.  All of the other counties reporting NASS yields indicate no payments.  It is likely that more countries will result in payments since many of the upper state counties did not have NASS yields.

As a comparison, for the 2014 crop, 57 counties had soybean ARC payments.  For the 2015 crop, 34 counties received soybean ARC payments.

For Illinois, in 2014 only 7 counties received soybean ARC payments.  For the 2015 crop year, this jumped to 90 counties receiving payments and for the 2016 crop year, we are projecting that 5 counties will receive soybean ARC payments as follows:

  • Alexander $48.67
  • DeWitt $10.18
  • Gallatin $.97
  • Pope $48.67
  • Pulaski $18.75

We will continue to provide this information on additional states in later blog posts

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Farming-Family-in-Field.jpg Only Two Iowa Counties Projected to Get Soybean ARC Payments http://blogs.claconnect.com/agribusiness/only-two-iowa-counties-projected-to-get-soybean-arc-payments/ Mon, 15 May 2017 19:24:11 +0000 http://blogs.claconnect.com/agribusiness/?p=5765 Corn has been the big payer of ARC payments for 2014 and 2015 crop years and even 2016 appears to be getting good size payments in several states.  Soybeans on the other had has not paid any PLC payments for 2014-2016 (2016 is not final, but there is no chance of the final MYA price dropping below $8.40).  Soybean ARC payments have been sporadic and the size of payment is usually lower than corn payments.

I am updating my spreadsheets for soybean payments and started with Iowa.  The 2014 crop year resulted in 51 Iowa counties getting ARC payments.  Clayton County had the largest payment at $65.27 and Palo Alto was not too far behind at $60.12.  The 2015 crop year bumped the number of counties reporting payments to 67 (out of 99) with Cedar and Clayton tying at the highest with $67.49.

Now we come to 2016.  The current soybean MYA price from FSA is $9.55.  Kansas State University is estimating a soybean MYA price of $9.57.  I have assumed the FSA price of $9.55 and inputted that data along with the NASS yields for Iowa counties.  All counties reported yields, however, final ARC yields can vary a bit from NASS yield.  In most cases, the final soybean revenue for each county was so high compared to the guarantee revenue that a bump down in yields by even 5 bushels would not change the bottom line.

For 2016, we are estimating that Dubuque County might get a soybean ARC payment of $27.97 per base acre (remember final payment will be lower due to the 85% of base acre adjustment and the sequestering adjustment).  Washington County is expected to receive $6.23.

The soybean benchmark price is $11.87.  86% of this number is $10.21.  Although the final MYA price is lower than the “guarantee” price, the primary reason for almost no county in Iowa getting a payment is the increase in soybean yields.  The average bump in yield for 2016 was 23%, thus resulting in little or no soybean ARC payments for Iowa counties.

I will release the Iowa breakdown along with the other key corn belt states later.  I still need to do a fair amount of inputting.

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Farm Income Appears to Stop Dropping???? http://blogs.claconnect.com/agribusiness/farm-income-appears-to-stop-dropping/ Thu, 11 May 2017 16:11:23 +0000 http://blogs.claconnect.com/agribusiness/?p=5755 The Federal Reserve of Kansas City just released their latest Ag survey and based on the title “Regional Farm Sector Stress Intensifies” you would think the news was bad.  But as I ready the article, the news seems to suggest that the farm economy, although not in great shape, is also not getting worse and may be bottoming out.

Bankers have reported expectations for lower income for four straight years, but the number of bankers reporting lower levels is decreasing.  In their district which is Wyoming, Colorado, Northern New Mexico, Nebraska, Kansas, Oklahoma and Western Missouri, the stress levels are more significant in the western region than the east.  This is primarily due to the heavier concentrations of livestock and wheat in those areas.

There is a good chart breaking down the number of bankers reporting lower farm income in the two regions (West and East).  Up until 2013, this number for both regions was less than 20% (very healthy).  Beginning in 2014, this number jumped to 30% for the East and 40% in the West.  In 2016, the numbers peaked out at 75% for the East and almost 90% for the West.  This year, the numbers dropped down to less than 60% for the East and about 80% for the West.

Expectations are still for lower income, however, the extent is starting to drop.  Credit conditions are also worse in the Western portion of the District versus the East.  Higher renewal/extension rates and lower repayment rates are hovering around 60% in West and under 35% in the East.  Carryover debt increased by 40% in the West region and less than 20% in the East.

Values for farmland decreased by about 3% in the East since the first quarter of 2015 but have dropped 24% in the West during the same time period.

In conclusion, this district shows stress on farmers, however, it appears for the Eastern portion, the stress is getting lower, while in the West, it may be getting worse.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Open-Road.jpg More County Corn ARC data http://blogs.claconnect.com/agribusiness/more-county-corn-arc-data/ Tue, 09 May 2017 17:57:13 +0000 http://blogs.claconnect.com/agribusiness/?p=5748 As per our previous blog post regarding corn ARC-CO estimates for 2016, here are four more states.  Remember that these are estimates based on NASS data.  Final yields can be different and the difference can be material.

Here are the states:

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Advisor-Working-with-Client.jpg 2016 ARC-CO County Data for Key Corn Belt States http://blogs.claconnect.com/agribusiness/2016-arc-co-county-data-for-key-corn-belt-states/ http://blogs.claconnect.com/agribusiness/2016-arc-co-county-data-for-key-corn-belt-states/#comments Sun, 07 May 2017 17:29:34 +0000 http://blogs.claconnect.com/agribusiness/?p=5738 I had promised last week to provide data by county for several states for 2016 corn ARC-CO payments to be received in October of this year.  This data is based upon NASS county yield data posted February of this year.  Final yield data can be different and in some cases, the difference can be material.

The listings below show the estimated gross payment per base acre.  To get your final payment, you will need to multiply by 85% times the sequestering discount (which I believe is around 7%).  I have included the 2014 and 2015 payment data as a reference point.  If the final column has a dollar amount in it, then that is the estimated payment amount.  If it has a zero, then no payment will be made for that county.  If there is an N/C in the column, then no yield data was available for that county.

You can estimate the yield for any of those countries by multiplying your county estimate yield by the 2016 National MYA corn price of $3.40 (as of April 2017).  You will then compare that to the 2016 Guarantee Revenue calculation.  If your calculation is less than the guaranteed, then you will get a payment subject to the 2016 maximum payment limit in that column.

Here are the state county estimates that I have prepared so far:

These estimates could be used for your 2017 budgets and bankers may want to use it in creating work-ups for their farm clients.  However, please understand that these are estimates only and final numbers may change and the change may be material.

I will continue to add more states in the near future and will post those results at that time.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Advisor-With-Seniors-Table.jpg Where’s Waldo (Paul)? http://blogs.claconnect.com/agribusiness/wheres-waldo-paul-2/ Thu, 04 May 2017 14:41:33 +0000 http://blogs.claconnect.com/agribusiness/?p=5723 I am starting to get many queries about where I will be speaking this year.  The following is a list of where I am speaking based on my schedule so far.  Many of these will qualify for CPE for CPAs.  I look forward to meeting as many readers as possible over the next few months.  Here is a listing along with links as applicable.

These are the public seminars that are on my schedule for now.  The Farm Tax Update sponsored by the individual state societies is a full day update on farm income tax.  We present this seminar for state societies on an every other year basis.  My colleague Chris Hesse is also doing several of these as follows:

  • May 4, Kansas Society of CPAs, Salina, Kansas
  • June 2, Oregon Society of CPAs, Portland, Oregon
  • July 18, Indiana Society of CPAs, Indianapolis, Indiana
  • August 15, South Dakota Society of CPAs, Sioux Falls, South Dakota
  • August 17, North Dakota Society of CPAs, Grand Forks, North Dakota
  • August 24, North Dakota Society of CPAs, Bismarck, North Dakota
  • August 28, Iowa Society of CPAs, Des Moines, Iowa
  • September 25, Minnesota Society of CPAs, Detroit Lakes, Minnesota
  • September 28, Montana Society of CPAs, Lewistown, Montana

I have several other private seminars lined up through out the year.  If you would like our firm to do a presentation on farm income taxes, estate taxes, succession planning, farm financial standards, etc., please send me an email and we can get it lined up for you.

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Iowa ARC-CO Update http://blogs.claconnect.com/agribusiness/iowa-arc-co-update/ Mon, 01 May 2017 14:55:04 +0000 http://blogs.claconnect.com/agribusiness/?p=5720 In my post yesterday, I indicated that Iowa might only have 19 counties that qualify for corn ARC-CO payments for this year.  After inputting more data for additional counties in other states, I noticed that I had made an error in my spreadsheet.  Some of the 2015 county yield data had not come over correctly.  In some cases, this would affect the calculation of the benchmark yields.  In other cases, it would not since that yield would be thrown out in calculating the Olympic average yield.

After correcting these yields, the actual number of counties in Iowa that should get some type of payment has now changed from 19 to about 49.  There are 17 countries showing less than $10 of estimated payments and if the corn MYA increases a bit or final yields increase, they would likely not receive any payment.  This means the final number may be closer to 30 counties than 49.

The high range for some counties has gone up too.  The highest county is now Johnson County at a maximum payment of about $85. Grundy County is around $61 and there appear to be no other counties over $50.

I will continue to update the spreadsheet with additional counties over the next week or so and once I have most of the county data for the key corn belt states inputted, I will release the spreadsheet so you can look up your county.  It takes a fair amount of time to input NASS data since there is no one full database.  There is a fair amount of manual entry to get the county yield into a spreadsheet.

I am sorry about the mistake, but dealing with this much data, it can catch you once in a while.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Farmer-Inspecting-Corn.jpg Only 19 Iowa Counties Likely to Get Corn ARC Payments http://blogs.claconnect.com/agribusiness/only-19-iowa-counties-likely-to-get-corn-arc-payments/ http://blogs.claconnect.com/agribusiness/only-19-iowa-counties-likely-to-get-corn-arc-payments/#comments Sat, 29 Apr 2017 18:48:12 +0000 http://blogs.claconnect.com/agribusiness/?p=5717 We have entered the 2016 NASS county yield estimates for Iowa into our ARC-CO estimator and it appears that for the 2016 crop based on the current MYA corn price of $3.40 that only 19 out 99 Iowa counties will receive any corn ARC-CO payment in October of this year.  The payment range goes from a low of $.42 in Jones and Webster County to a high of $57.70 in Johnson County.  These are gross payments per base acre.  They have not been reduced to reflect the 85% of a base acre payment rate or any Sequestering adjustment so actual payment amounts will be even lower.

The breakdown in payment ranges are as follows:

  • Zero to $10 per acre – 11
  • $10 to $20 per acre –  4
  • $20 to $30 per acre – 1
  • $30 to $40 per acre – 1
  • $40 to $50 per acre – 0
  • $50  to $60 per acre – 2

These payment amounts and number of acres is substantially lower than the payments made for the 2014 and 2015 crop year.  Since the yields were so high in 2016 and the 2016 Benchmark price was lowered from $5.29 to $4.79, we knew that payments would likely go down, we just did not know by how much.  Now we have an idea.

These yields are based on NASS data provided back in February.  Final yield numbers may be off, but usually not by more than a bushel or 2.  It is likely that even if final yields are adjusted down a bit, the bottom line numbers will not change much.

If you are doing budgets for this year and farm in Iowa, I would not count on much of a corn ARC-CO payment.  We will be calculating other state payment estimated rates here in the near future and we will post those estimates as we update them.  You can always send an email to me to request your actual estimated county rate if you do not see the numbers published.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Family-Looking-at-Combine-in-Field.jpg Fuzzy Details On Trump Tax Plan http://blogs.claconnect.com/agribusiness/fuzzy-details-on-trump-tax-plan/ http://blogs.claconnect.com/agribusiness/fuzzy-details-on-trump-tax-plan/#comments Thu, 27 Apr 2017 14:08:15 +0000 http://blogs.claconnect.com/agribusiness/?p=5714 As expected the Trump Tax Plan released yesterday is very fuzzy on the details.  Here are the key points that we know and don’t know:

  • Top corporate tax rate of 15% – This would be a great benefit to large corporations.  For a lot of farm corporations, they are already keeping income at the 15% tax rate so benefit may be minimal.
  • Top Flow-Through tax rate of 15% – This could be very beneficial to farmers.  However, this is likely to be only the top tax rate on “business income” since Trump is trying to create growth and jobs.  Whether this top rate will be applied to rental income for farmers is to be seen.
  • Allowing only mortgage interest and charitable donations as itemized deductions – Many farmers do not itemize so this may not create issues for them.  However, for farmers with larger amounts of income in high tax states such as California, Oregon, Minnesota, etc. this could create a 3-5% bump in their tax rate.
  • Eliminating the estate tax – Sounds great, but we need to see the details.  If it eliminates the estate tax, keeps step-up in basis and does not have capital gains tax at death, then farmers will be happy, but we need to see the details.  Also, if the gift tax is still in place, then farm families may still have issues to deal with.

Again, details on these proposals are not available right now.  President Trump’s economic team is meeting daily with Congress on working out these details and we may see the final proposal in the next few months or it may blow up like health care repeal and reform (which may still happen).  We will keep you posted.

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http://blogs.claconnect.com/agribusiness/wp-content/uploads/2016/08/Businessman-Thinking-At-Laptop.jpg Will Farmers See Top 15% Tax Rate Under Tax Reform http://blogs.claconnect.com/agribusiness/will-farmers-see-top-15-tax-rate-under-tax-reform/ Wed, 26 Apr 2017 14:18:19 +0000 http://blogs.claconnect.com/agribusiness/?p=5712 President Trump is in the process of releasing his plans for tax reform over the next few days.  We have heard his plan is to tax all business income whether in the form of a corporation or a pass-through entity at a top rate of 15%, down from the current top rate of 39.6% for individuals and 35% for corporations.

If this happens, farmers would then likely see a top tax rate of 15%.  However, the devil is in the details and we have not seen those yet and may not see them for several months.  Some of the details I would worry about are the following:

  • This top rate applies to business income.  Over the years, farmers have set up many entities to separate their land holdings from the business.  Part of this was for liability and ease of transfer purposes, but much of these entities were set up to reduce self-employment tax.  The income from these entities under the tax proposal would be subject to the top rate (whatever it might be).  It likely would not qualify for the lower rate.
  • There is a good chance that the top tax rate could be 15-20% on pass-through entities, but it is likely that Congress may implement the application of some percentage of income automatically subject to self-employment/payroll taxes.  A 70/30 split has already been discussed.  This means all of your income including wages paid to you would be calculated and the self-employment/payroll taxes would be applied to 70% of this income and 30% would be exempt.  This would increase the tax rate to about 30% on net farm income under the $125-200,000 level and then the amount above that could be a few percentage points higher.  We have posted on this in the past.
  • There will likely be restrictions in place to prevent normal “wage” income being converted to business income.  We don’t know what these restrictions are, but they could be material.

As you can see, a top rate of 15% sounds great, however, many farmers could actually see their tax burden go up dramatically if some of the above “details” happen.  We will keep you posted.

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