The newly updated Computerized Farm Record Keeping with Quicken 2005 self-study manual is now available as on online bulletin in pdf format at: http://ohioline.osu.edu/b920/ This bulletin has been developed as a result of the demand from Ohio producers seeking assistance on using an inexpensive, easy to use program for farm record keeping. The objective of this manual is for Quicken users to begin keeping farm records on their home computer by following the step-by-step procedures outlined in each chapter. The manual will also be useful to experienced Quicken users as they upgrade to a newer version and continue to improve their record keeping skills.

This manual has been written for Quicken 2005 Basic. We will make every attempt to keep the manual updated with each new version. Past and future manuals and updates will be available on the OSU Agricultural, Environmental and Development Economics at: http://aede.osu.edu/ .

A commonly asked question is, “Which version of Quicken should I get for my farm records?” Quicken offers four different versions for 2005, Quicken 2005 Basic, Quicken 2005 Deluxe, Quicken 2005 Premier and Quicken 2005 Premier Home and Business. While each product has different features, our experience is that the basic program, Quicken 2005 Basic, will perform most farm record keeping tasks adequately. We also receive questions about the use of the Quicken Home & Business version versus the use of basic Quicken for farm record keeping. If your farm business requires you to create customer invoices and statements and to have accounts for payables and receivables, you need to be using the Home & Business version of Quicken. The Home & Business version can also generate accrual-based profit and loss statements if the program is set up and used properly throughout the year. However, for the majority of cash-basis farm record keepers, the basic version of Quicken will provide more than enough information for management decisions and income tax planning.

Ohio State University Extension is on tap to offer this year’s “The Crop Profit Game,” a satellite series for Ohio crop producers, agronomy retailers and other agribusiness individuals. The next two broadcasts, being held Jan. 11 and Feb. 15, will be hosted by ABN Radio’s Dale Minyo, and feature Ohio State University Extension specialists with the latest information in agronomic crop production. The event is designed to highlight current production practices, input recommendations and economic concerns for Ohio’s crop industry.

Topics for discussion during the broadcasts will include:

• Jan. 11: Weed control issues, corn rootworm, precision agriculture update and getting the most from your nitrogen dollar.
• Feb. 15: Soybean aphid, wheat fungicides, soybean rust, grain marketing outlook and using crop revenue coverage in developing a grain marketing plan, and evaluating harvest date and plant population effects on corn standability and final yield.

Ohio residents have three ways to view the programs. Many OSU Extension offices are making the program available. Call your local Extension office or visit http://cropprofit.osu.edu for details. Options exist for those who want to view the broadcast at home via Dish Network Satellite or Internet streaming video. Cost for these at-home options are $30 in-state or $50 out-of –state for the series of broadcasts. Requirements and registration information are available at http://cropprofit.osu.edu or by contacting Greg LaBarge at (419) 337-9210, or e-mail labarge.1@osu.edu.

Materials from the December 14th broadcast can be found at http://www.oardc.ohio-state.edu/cropprofit/newresources.asp

Introduction:

Hearings on the next farm bill will begin this year. For several reasons this farm bill is likely to be under budgetary and programmatic pressure. The reasons include the federal budget deficit, pending retirement of the baby boomers, international trade negotiations, and uncertainty surrounding farm policy leadership. I briefly examine each of these factors. I then examine potential implications.

Federal Budget Deficit:

The budget deficit for the recently completed 2004 Fiscal Year (FY) was $422 billion. The Congressional Budget Office currently estimates a deficit of $298 billion for FY 2010 and $65 billion for FY 2014. These projections do not include the cost of the Iraq war. They also assume that, consistent with the original legislation, many of the tax cuts enacted in President Bush’s first term will be allowed to expire. However, President Bush has indicated that making these tax cuts permanent will be a priority in his second term. In short, the potential budget deficit most likely exceeds the current projections. Pending Retirement of Baby Boomers:

The Congressional Budget Office recently projected that by 2019 annual revenue to the Social Security Trust Fund will fall below payouts. The importance of this event can be illustrated by noting that the budget deficit for FY 2004 is actually composed of a $149 billion surplus in the Social Security Trust Fund and a deficit of $571 billion in all other spending. Thus, at about the time experts expect the economy to outgrow the current deficits, a Social Security driven deficit emerges. This sequential deficit has attracted the attention of many in Congress.

Budget Deficits and the Farm Bill

History suggests that federal budget deficits of the size forecast by the Congressional Budget Office will trigger cuts in farm program. Unlike the 2002 Farm Bill, the 1996 farm bill was enacted in an atmosphere of budgetary constraint. My calculations suggest the 1996 Farm Bill cut average annual farm program spending by 10% to 20%. This cut did not materialize because budget surpluses replaced budget deficits shortly after the 1996 farm bill was passed. It is arguable whether the economic assistance packages enacted in 1998 through 2001 and then codified into the 2002 Farm Bill would have occurred if surpluses had not emerged.

The lesson from history is consistent with the current actions of Congress to bring the federal budget deficits under control. In FY 2004, 31% of the cuts in mandatory program spending involved agricultural programs. In contrast, agricultural programs account for only 2% of federal spending. The disproportionately large cut in spending on mandatory agricultural programs indicates that Congress currently believes that agricultural programs can be targeted for cuts.

International Trade Negotiations:

The reelection of President Bush means that international trade negotiations will continue. In particular, the current round of multi-lateral trade talks likely will end in a new agreement. The working outline of the proposed agreement for these trade talks contains cuts in the maximum amount the U.S. and other developed countries can spend on farm programs. Furthermore, international efforts to challenge U.S. farm policy are growing, as best illustrated by the case that brought against the U.S. cotton program before the World Trade Organization. It is pre-mature to conclude that these international trade events will force the U.S. to revise its farm policy, but it is not pre-mature to conclude that the next U.S. farm bill will be watched closely by the international community. It is also not pre-mature to note that, if the final agreement follows the current working outline, the possibility increases that current U.S. farm programs may be out of compliance during years of large government expenditures. In short, concern over international trade obligations will overhang the next farm bill, thus at least indirectly impacting the farm bill deliberations.

Farm Policy Leadership Uncertainty:

Arguably the three most important members of Congress in terms of impact on the 2002 Farm Bill no longer are members of Congress. Representative Larry Combest, a Texas Republican who was chair of the House Agriculture Committee during the 2002 farm bill debate, retired. Representative Charles Stenholm, a Texas Democrat and Ranking Minority Member on the House Agriculture Committee during the 2002 farm debate, was defeated in the 2004 elections. Senator Tom Daschle, a Democrat from South Dakota and Minority Leader in the Senate, was defeated in the 2004 elections. Leadership is critical in a bill as complex as the farm bill. Who will fill the role of Representative Stenholm, who was able to reach out to all the various and diverse farm bill constituencies? The loss of a seat at the leadership table (i.e., Senator Daschle) raises additional concerns. These questions and concerns do not mean that leadership will not emerge, but at present it is not clear who will provide leadership.

Implications:

As of the present time, these factors, especially the federal budget deficit, suggest to me that the 2007 Farm Bill will be under intense scrutiny, with spending cuts of 10% to 40% as a distinct possibility. Obviously, many factors can alter this assessment, including the major unknown of weather (i.e., prices). I also think that the recent annual expenditures of $2 billion plus on crop insurance make it possible that insurance provisions could be brought into the farm bill umbrella. The role of conservation programs will be intriguing. Will farmers embrace stronger conservation compliance rules in exchange for smaller cuts in farm program spending? Will the Conservation Security Program be folded into another program or will funding be found from some other source?

Two concerns are sure to arise if cuts in farm programs approach the level mentioned above: what will be the impact on land prices and what will be the impact on farmers’ ability to survive? The likely answers will vary by area of the U.S. and by whether or not a new era of prolonged and permanent increases in farm input prices is underway. For Ohio, the impact of cuts in farm program spending will be moderated by Ohio’s strong urban land market and by the fact that, as a group, Ohio farmers are currently in fairly good financial condition, with reasonable debt loads. Furthermore, recent studies suggest that only 10% to 30% of farm program payments are being capitalized into land values. This capitalization rate is much smaller than previously thought, and again will moderate any decline. However, the recent increases in fertilizer prices and the likely need to spray for Asian Soybean Rust in the future underscore that speculating about a new era of higher crop input prices is not an academic exercise. Such a situation would clearly compound the negative effects of cuts in farm program spending, both on annual income and on land prices. This situation bears close watching as deliberation on the next farm bill gets underway.

Given the potential combination of higher input prices and cuts in farm programs, farmers may want to take a conservative approach to financial management until they see the outcome of the next Farm Bill debate. Adjustments in farming operations may be necessary on more than a few farms if cuts approach 40% and input prices remain high. Furthermore, some farmers who are currently experiencing cash flow problems may have difficulty surviving a 10% cut in farm program spending. Hopefully, the farm bill will recognize the need to help these farmers adjust if cuts in the 10% to 40% range materialize.

Last, while my current farm bill scenario raises difficult questions about the future, it also offers farmers and others an opportunity to recast farm programs for the 21 st century rather than just tinkering with programs developed for the 20 th century. Risk management has become a bigger issue, as illustrated by the growth in spending on crop insurance programs. For most Ohio farmers, it would be desirable if the farm support programs and crop insurance would be integrated into a coherent program. Hopefully, farmers will see the opportunity that lies in front of them.

Beginning with assets placed in service after February 27, 2004 the IRS now allows a choice in calculating the depreciable basis for an asset acquired in a like-kind exchange. Since January 3, 2000 the calculation of the depreciable basis for an asset acquired in a like-kind exchange was outlined in Notice 2000-4. It stated that any cash or “boot” paid to acquire the new asset would be the new basis for depreciation. Any carryover basis (remaining basis) in the traded asset would continue to be depreciated over the remaining life of the traded asset as if it was still on the farm. This created “phantom assets” on the depreciation schedule; assets still being depreciated, but that were no longer in the possession of the producer.

For assets placed in service after February 27, 2004 a taxpayer can make an election out of Notice 2000-4 under Temporary Regulation § 1.168(i)-6T. This election allows the basis remaining in the traded asset to be rolled into the new basis of the acquired asset that is then set up on a new depreciation schedule. The election out of Notice 2000-4 is similar to the “old” way of calculating depreciable basis prior to January 3, 2000 ; the basis of the new asset is the boot money paid plus any basis remaining in the traded asset. However, electing out means that a partial year’s depreciation is claimed on the traded asset in the year of the trade to determine its remaining basis.

An example: A new tractor is acquired on July 1, 2004 for $20,000 plus the trade of another tractor with a remaining basis of $24,502 that had been acquired in 2001 and had an original basis of $50,000. Under Notice 2000-4, the total MACRS depreciation for the new tractor would be the new basis depreciation of $2,142 ($20,000 * 10.71%) plus the carryover basis depreciation of $6,125 ($50,000 * 12.25%) or $8,267. Electing out of Notice 2000-4 gives a new depreciable basis of $44,502 and total MACRS depreciation of $4,766 (($20,000 + $24,502) * 10.71%) for the new tractor plus $3,063 ($50,000 * 12.25% * ½ yr.) for the traded tractor or $7,829. Election out of Notice 2000-4 will result in a smaller amount of deprecation in the year of acquisition if the traded assets have any remaining basis. There is no difference in deprecation of the new asset in the acquisition year if the traded assets are depreciated out.

The election is made by attaching a statement indicating “Election made under section 1.168(i)-6T(i) to Form 4562, Depreciation and Amortization. Check with your tax adviser to see what is the best strategy for your situation.