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.

The two most important tools for grain producers in 2005 appear to be a sharp pencil and calculator.  Grain prices are much lower than last season, nitrogen is at historically high prices, and there is the new risk of the Asian Soybean Rust.

Dr. Gary Schnitkey, University of Illinois Farm Management Economist , has forecast next years returns to be near the 1998-2000 levels. He also indicated that corn variable costs would be as much as $9 more per acre and soybean costs up $5 for Illinois farmers.  These costs do not include any possible spraying for rust, which may add $20-25 per acre, per spray application.  Gary ‘s article may be found the FarmDoc site:  http://www.farmdoc.uiuc.edu/manage/newsletters/fefo04_19/fefo04_19.html .

Dr. Bob Nielsen, Purdue Corn Specialist, suggests that farmers should apply nitrogen based upon realistic yield goals, not upon record yields.  Credit all nitrogen you can from all sources, to include last years crop and manures. Evaluate the cost of nitrogen sources based upon the cost per actual pound of N.  Given high nitrogen prices, consider shaving rates up to 10% if cash flow or fertilizer is in short supply.

Look at crop insurance for soybean acres to protect against losses due to a possible, overwhelming effect of soybean rust (see last months article).   Put together a crop budget for 2005, considering all costs that must be paid by production.  Consider sensitivity of both yields and prices given production costs.  Ohio has a long list of budgets. These may even be used on your computer as an interactive spread sheet.  http://aede.osu.edu/People/Moore.301//index.htm is the link to OSU Budgets.

Many states have added budgets to a national data base, maintained at the National AG Risk Education Library: http://www.agrisk.umn.edu/Budgets/.   Perhaps, you may find other formats, from other states, that even more closely match your style of analysis.

The first version of the 2005 Premium Calculator is now ready for use at http://www.farmdoc.uiuc.edu/cropins/index.html This calculator provides estimates of insurance premiums for federally subsidized insurance products for all counties in 12 Midwest states, including Ohio . These estimates are preliminary because base prices and price volatilities will not be known until the beginning of March. Best estimates of these parameters are placed in the model.

Information on group products has been revised ( http://www.farmdoc.uiuc.edu/cropins/group_crop_products.html ). This information includes calculators that estimate premiums and average payments for alternative group products.

The above information will be revised as more information about base prices and volatilities become available.

The Iowa State University plant pathology Extension group has started a website on Asian soybean rust.  The address is:
http://www.plantpath.iastate.edu/soybeanrust/ . William Edwards, Farm Management Specialist from the Department of Economics at Iowa State, contributed a short article on crop insurance coverage.  Within it he writes that the Risk Management Agency of the U.S. Department of Agriculture stated:  ” … losses to soybean production due to soybean rust disease is an insurable cause of loss provided the insured can verify that the cause was natural and available control measures were properly applied. If there are no effective control measures available or there are insufficient amounts of chemicals available for effective control, resulting loss of production would be covered.”  Producers should obtain further information from their crop insurance agents.

Source: Cheol-Ho Park and Scott H. Irwin , University of Illinois AgMas Project

The purpose of this report is to review the evidence on the profitability of technical analysis. To achieve this purpose, the report comprehensively reviews survey, theoretical and empirical studies regarding technical trading strategies. We begin by overviewing survey studies that have directly investigated market participants’ experience and views on technical analysis. The survey literature indicates that technical analysis has been widely used by market participants in futures markets and foreign exchange markets, and that about 30% to 40% of practitioners appear to believe that technical analysis is an important factor in determining price movement at shorter time horizons up to 6 months. Then we provide an overview of theoretical models that include implications about the profitability of technical analysis. Conventional efficient market theories, such as the martingale model and random walk models, rule out the possibility of technical trading profits in speculative markets, while relatively recent models such as noisy rational expectation models or behavioral models suggest that technical trading strategies may be profitable due to noise in the market or investors’ irrational behavior. Finally, empirical studies are surveyed. In this report, the empirical literature is categorized into two groups, “early” and “modern” studies, according to the characteristics of testing procedures. Click http://www.farmdoc.uiuc.edu/agmas/reports/04_04/AgMAS04_04.html to view the report as a web page, or http://www.farmdoc.uiuc.edu/agmas/reports/04_04/AgMAS04_04.pdf to view the report in PDF format.

Copyright 2004 by Cheol-Ho Park and Scott H. Irwin. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies.