Ohio Beef Checkoff Referendum Vote on January 12-14, 2005

With the national Beef Checkoff still in the midst of litigation and supreme court deliberations, the Ohio Cattlemen’s Association has organized a referendum that, if passed, would increase the Ohio Beef Checkoff from fifty cents to one dollar per head in the event that the national Beef Checkoff program ceases operation. The statewide referendum on the Ohio Beef Checkoff Program will be held January 12-14, 2005 . Producers may vote at their local Extension offices.

Those wanting to vote by mail can do so by calling the Ohio Department of Agriculture, Division of Markets at 800/282-1955 to request absentee ballots. Ballots also will be available through the Ohio Cattlemen’s Association office by calling 614/873-6736. Additional voting eligibility questions should be directed to Bruce Benedict at the Ohio Department of Agriculture, Division of Markets at 800/282-1955 or to the Ohio Cattlemen’s Association office at 614/873-6736 or at www.ohiocattle.org.

For a summary of the court cases that have led to the Supreme Court case and a history of checkoff program impacts, see John Anderson’s ( University of Mississippi Livestock Extension Economist ) article on the topic: http://msucares.com/ag_markets/farmbill/newsletters/2004/200406.pdf.

Food Spending Trends

Consumer spending on food will continue to increase 2-3 percent annually over the next decade. USDA projections show total food spending up 26.3 percent between 2000 and 2020. The unclear issues at this point are where that food will be prepared and eaten, and the full impact on commodities of changes in demographics. What is probably more clear is that change brings some opportunities and challenges to producers and processors of food products. This article examines some of the relevant trends and potential impacts.

Director of Farm Operations Sought for Ohio State ATI

Responsibilities include, but are not limited to, planning and directing the fiscal, personnel, equipment, crop, and animal operations of the Ohio State ATI farm, including the coordination of efforts to utilize farm laboratories/property as an integral part of the instructional programs and to yield maximum benefits. The individual will consult with faculty, staff, and administrators and develop a long range plan for the farm. He/she will serve as a liaison for farm operations of the Institute with offices/agencies having vested interest in the farm. The individual will supervise and evaluate regular and student farm employees. Since the farm is operated as a commercial business, he/she will maintain all production, financial and inventory records of the farm, administer farm operations budgets, closely monitor sources of income and expenses, cultivate sources of external funding, and direct the allocation of funds.

The individual will coordinate public relations with the ATI farm and maintain contacts with government, university, agricultural organizations, and vendors. Qualifications: Bachelor’s degree, preferably in agriculture or business, with a minimum of five years agricultural/farm business management experience. Experience with both crop and animal enterprises is preferred. Supervisory experience and excellent communication skills required. Start date negotiable. Send resume, 3 letters of reference and official grade transcripts to: Dr. Wesley Greene, Chair, Agricultural and Engineering Technologies Division, Ohio State ATI, 1328 Dover Rd. , Wooster , OH 44691 . Phone: (330)287-1372, Fax (330)264-0137, E-mail: greene.2@osu.edu. Applications received until position is filled.

THE OHIO STATE UNIVERSITY IS AN EQUAL OPPORTUNITY/AFFIRMATIVE ACTION EMPLOYER. WOMEN, MINORITIES, VETERANS, AND INDIVIDUALS WITH DISABILITIES ARE ENCOURAGED TO APPLY.

Computerized Farm Record Keeping with Quicken 2005 Self Study Manual Now Available

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.

Crop Profit Game Agronomy Information

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

Profitable Soybean Seeding Rates

The most profitable seeding rate for any crop is a function of the size of its’ plants at maturity. Very large plants like corn need only about 30,000 plants per acre for maximum yield. Soybeans and wheat are much smaller and need about 150,000 and 1,250,000 plants per acre respectively for good yield. This function works for various sizes of soybean plants also. Recently conducted seeding rate studies indicate that when soybean plants are short at maturity (20 inches tall or less) a seeding rate of 225,000 to 250,000 plants per acre and a final population of about 210,000 plants per acre was the most profitable. When plants grew to a height of 30 inches the most profitable seeding rate was around 175,000 seeds per acre and a final population of about 160,000 plants per acre. For plants that got 40 inches tall the most profitable seeding rate was around 125,000 seeds per acre and a final population of about 110,000 plants per acre.

Producers can reduce their seed cost for the 2005 crop by reducing the seeding rate for tall varieties or for fields or soil types where plants get tall. The average cost of Glyphosate Tolerant varieties in 2005 is expected to be about $32.00 per 50-pound bag of seed. The following table indicates the cost of 125,000 seed per acre in 7.5- inch rows for different sizes of seed and varying seed cost.

For a seeding rate of 150,000 seeds/ac multiply table values by 1.2. For a seeding rate of 175,000 seeds/ac multiply table values by 1.4. For a seeding rate of 200,000 seeds/ac multiply table values by 1.6. For a seeding rate of 225,000 seeds/ac multiply table values by 1.8. For a seeding rate of 250,000 seeds/ac multiply table values by 2.0

The effect of seed size and seed price on the per acre soybean seed cost when planting (125,000 seeds per acre in 7.5” rows.

Seed Cost ($/50 lbs)
Seeds/pound 26 28 30 32 34
2000 32.50 35.00 35.50 40.44 42.50
2200 29.55 31.82 34.10 36.37 38.64
2400 27.08 29.16 31.25 33.33 35.41
2600 25.00 26.92 28.85 30.77 32.69
2800 23.21 25.00 26.78 28.57 30.35
3000 21.70 23.37 25.04 26.71 28.37

Other facts to keep in mind are:
The most profitable seeding rate is 10-15 percent lower than the “highest yield” seeding rate. As the cost of seed increases the most profitable seeding rate decreases. As the value of grain increases the most profitable seeding rate also increases. A pound of seed cost six to seven times as much as a pound of grain, so each extra pound of seed planted must increase yield by six to seven pounds to pay for itself.

Estate Planning Help Available

The third lesson of the OSU Extension Estate Planning Letter Study Course, which can be viewed at http://lorain.osu.edu/ag/Lesson32.pdf compares the pros and cons, including cost of transferring appreciated property by sale, inheritance and giving. The lesson also discusses the pros and cons of different property ownership, such as fee simple, life estate, tenancy in common, joint tenancy with right of survivorship (JTRS) and tenancy by the entirety. Pros and cons of owning personal property such as bank accounts by JTRS is also discussed. If you would like all 12 lessons, visit http://lorain.osu.edu/ag/pg1.htm for enrollment and other information on the letter study.

2007 Farm Bill Under Pressure

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.

When will IRC Section 179 Expensing Go Back to $25,000?

Under section 179 of the Internal Revenue Code, a business may elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year it was placed in service.  Eligible property commonly included, both new and used, are:  machinery and equipment, breeding livestock, grain bins, single purpose livestock or horticulture structures and field drainage tile.  The 2004 tax year has a limitation for direct expensing of $102,000 of eligible property, up to an investment limitation.  For 2004, the investment limitation is $410,000, whereby the dollar limit of $102,000 is reduced dollar for dollar for qualifying investments,  In other words,  once a person exceeded $512,000 of total qualified investments, no section 179 expensing would be allowed to be taken in 2004.

Former tax legislation reverted the section 179 expensing limit back to $25,000 in 2006.  However, the American Jobs Creation Act of 2004, signed by the President on October 22, 2004, extended the increased amount for two additional years or through 2007.  Therefore, the section 179 limitation will be $100,000 adjusted for inflation, until 2008 whereby it reverts to $25,000.   Likewise, the investment limit of $400,000, adjusted for inflation, will be extended as well.

Health Savings Accounts-A Tax Friendly Way to Help With Health Care Costs

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 included a provision that permits self-employed individuals or individuals who are employees to establish Health Savings Accounts (HSAs) beginning in 2004. HSAs are custodial accounts or tax exempt trusts that are created to pay qualified medical expenses for the account holder, their spouse and dependents. Contributions to HSAs are tax deductible if made by an eligible individual or not included in an individual’s gross income if contributions are made by their employer. Distributions from the HSA are tax-free if they are used to pay for qualified medical expenses.

To qualify for an HSA, the individual must be covered under a high deductible health plan (HDHP). A qualifying HDHP for 2005 must have an annual deductible of at least $1,000 for individual coverage and $2,000 for family coverage and a maximum annual out-of-pocket expense limit of $5,100 for individual coverage ($5,000 for 2004) and $10,200 for family coverage ($10,000 for 2004).

The maximum annual contribution to an HSA for 2005 is 1) the lesser of the annual deductible of the HDHP or 2) $2,650 for individual coverage ($2600 for 2004) or $5,250 for family coverage ($5,150 for 2004). Individual policyholders and covered spouses who are 55 or older are allowed an annual catch-up contribution. For 2005, the catch-up amount is $600 ($500 for 2004) and will increase $100 each year until it reaches $1,000 for 2009 and thereafter.

An eligible individual can establish an HSA with a qualified trustee or custodian by executing the agreement in Form 5305-B for a trust account or Form 5305-C for a custodial account. A qualified trustee or custodian is any bank or insurance company, or any other person already approved as a trustee or custodian for IRAs or Archer MSAs. The trustee does not have to be the provider of the high-deductible health coverage.

Contributions can be made to an HSA at any time prior to the filing of the individual’s tax return, not including extensions. Contributions made by an individual are deductible in determining the individual’s adjusted gross income; that is, they are deductible “above the line.” Form 8889 must accompany the Form 1040 to claim the deduction. A self-employed individual will be able to claim the self-employed health insurance deduction in addition to the deduction for contributions made to an HSA.

There is no “use-it or lose it” provision for HSAs so any unused contributions can be carried forward and used for eligible medical expenses in later years. Any investment earnings of the HSA are not taxable. Any distributions used for non-medical expenses are taxable and subject to a 10% penalty.

To determine if any HSA will work for your situation, check with your tax advisor. More information concerning the provisions affecting HSAs is available in IRS publication 969.