Month: March 2007

Impacts of Livestock Marketing Agreements – New USDA Report

Over time, the variety, complexity, and use of alternative marketing arrangements (AMAs) have increased in the livestock and meat industries. Marketing arrangements refer to the methods by which livestock and meat are transferred through successive stages of production and marketing. Increased use of AMAs raises a number of questions about their effects on economic efficiency and on the distribution of the benefits and costs of livestock and meat production and consumption between producers and consumers.

A report recently released by the USDA’s Grain Inspection, Packers and Stockyard Administration (GIPSA) focuses on AMAs used in the beef, pork, and lamb industries from the sale of live animals to final meat sales to consumers. They studied detailed information collected from packers from 2002 through 2005 about the prices paid for animals and the terms of the purchase (auction, direct negotiation, or alternative marketing arrangement).

A few of the key findings:

Cattle : Hypothetical reductions in AMAs, as represented by formula arrangements (marketing agreements and forward contracts) and packer ownership, are found to have a negative effect on producer and consumer surplus measures. For example, if such AMA’s were banned, the analysis suggests a 16% reduction in the benefits generated by feeder cattle producers, an 8% reduction for fed cattle producers, a 5% reduction for packers and a 5% reduction for consumers.

Hogs : In analyzing the economic effects of hypothetical restrictions on the use of AMAs in the hog and pork industries, we found that hog producers would lose because of the offsetting effects of hogs diverted from AMAs to the spot market, consumers would lose as wholesale and retail pork prices rise, and packers would gain in the short run but neither gain nor lose in the long run.

The report is a comprehensive effort to resolve some major questions about how various marketing arrangements impact this sector. It is a very long report, but the ‘executive summary’ portion does a nice job laying out what the investigators have done and their key conclusions.

For the full report, go to: http://www.gipsa.usda.gov/GIPSA/ and search on the term ‘meat marketing study’.

Farmers, Do Not Forget to Consider Form 8903

Last year a new deduction became available for many businesses, including farmers. It was the Domestic Activities Production Deduction and requires a new IRS Income Tax Form 8903 to be filed. Many farmers and their income tax preparers neglected to check and see if the farm business qualified for this deduction. The deduction amount is equal to the smallest of 1) 3% of taxable income derived from a qualified production activity (basically Schedule F income and 4797 Sales of Raised Breeding Livestock), 2) 3% of adjusted gross income (AGI) for the tax year, or 3) 50% of the Form W-2 wages paid by the taxpayer during the calendar year that ends in the tax year. The 3% limit raises to 6% for taxable years 2007-09 and will be 9% for years after 2009.

Choices – The Magazine of Food, Farm and Resource Issues

This Edition: “Setting the Stage for the Next Farm Bill”

“Choices” is an online magazine published by the American Agricultural Economics Association (AAEA) for readers interested in the policy and management of agriculture, the food industry, natural resources, rural communities, and the environment. Online subscriptions are free of charge.
You can access the web version of “Choices” at:

http://www.choicesmagazine.org/


You can also subscribe to receive an email message upon release of each new issue and it’s availability at the “Choices” website:

http://www.choicesmagazine.org/

The latest edition of “Choices” includes a group of articles on “Setting the Stage for the Next Farm Bill:” They include:


Introduction: Setting the Stage for the Next Farm Bill: No Easy Choices
The economic and political environment for debating and writing the 2007 Farm Bill has changed significantly since the 2002 Bill was enacted. Concerns over WTO compliance, budget, environment, and renewable fuels will have to be weighted against the goals of farm policy in drafting the next farm bill. Farm program justifications have changed over time so policy makers may also consider if the old justifications are still valid.


Domestic Farm Policy for 2007: Forces for Change
The potential for substantial changes in the structure of the U.S. farm programs exists as policy makers consider the tradeoffs among WTO commitments, budgetary concerns, and a broader array of interest groups and issues to be encompassed in agricultural policy. The prospect of these pressures moving in opposite directions could make for a lively 2007 Farm Bill debate.


What Happens if You Try to Run Current Farm Programs on a Tighter Budget?
As budgetary concerns increase, policy makers are asking, how would agriculture fair with lower payments? Budget savings can come in the form of reductions in direct payments, countercyclical payments, or loan deficiency payments. The impacts of these different payment reductions are examined as to their effects on producer returns, planted acres, prices, and net farm income.


The Evolution of the Rationale for Government Involvement in Agriculture
Many justifications for government involvement in agriculture have been put forward over the past 200 years. As Congress prepares to write a new farm bill, policy analysts need to reexamine the justifications to see if they are still valid or if there are new justifications.

Other articles in this edition include a group of articles on Produce Marketing, Obesity, and Competitive Funding of Ag Research.

Food vs. Fuel vs. Environment: Creating a Win-Win Solution Through Yield

The increasing use of farm products to produce fuel combined with the increasing demand for food from rapidly growing less developed countries, especially in Asia, has outstripped the historic increase in the supply of farm products, resulting in higher prices.

Higher prices will bring adjustments. Likely primary adjustments are (1) less livestock production, (2) returning to production removed for environmental reasons by government programs, and/or (3) a biofuel market limited in size to legislative mandates tied to clean air. Each adjustment contains negative trade-offs, including reduced availability of food (a problem especially for the poor), less U.S. produced livestock., a loss of environmental benefits from land retirement programs (notably, the 36.7 million acres in CRP (Conservation Reserve Program), and a lost opportunity to develop a second demand source for farm products to reduce the long term problem of surplus farm production. The full article is available here:

http://ohioagmanager.osu.edu/resources/zulauf_foodfuelenviron.pdf

Free Money at Tax Time

Early returns of Federal Income Taxes have indicated that many tax payers are not completing the line on the various income tax forms to receive the Federal Excise Tax Credit or Refund. This is like “free money” since a credit reduces taxes dollar for dollar. The refund is for the 3% federal excise tax on long-distance telephone service billed after February 28, 2003. Individuals may either use a safe harbor method, without documentation, or claim the actual tax paid as substantiated by telephone bills and proof of payment and filed on Form 8913. Business entities must use the Form 8913 to claim the actual tax paid. Most individuals will use the safe harbor or standard amounts on their 2006 federal income tax return, based upon the number of exemptions claimed in 2006. These are: $30 for one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions. If a person is not required to file an income tax return, a new form 1040EZ-T will be used to claim the refund of the telephone excise tax.

It is my understanding that the Long Distance Telephone Excise Tax came about in 1898 to help fund the Spanish American War. It is nice to have that bill finally paid!

OSU Extension to Host Two Women in Agriculture Conferences

The balancing act that goes along with being a woman involved in agriculture is a theme addressed by the 2007 Women in Agriculture Conferences to be held by OSU Extension in Ashland and Wood Counties. The Wood County Conference will be held on March 16, 2007, and the Ashland County Conference on March 23, 2007. The role women play in agriculture and more specifically within the family farm has always been very important and multifaceted. However, women’s managerial responsibilities have grown and evolved over the years.

Today, many women are the farm’s account, commodity marketer, and human resource manager. In other situations, one may find the primary farm operator is a woman. The 2002 Census of Agriculture found that the number of female operators in Ohio had increased by almost thirty percent from 1997-2002. More women have assumed this position for a variety of reasons. For example, some women have taken responsibility through inheritance, either from parents or a spouse, more young girls are encouraged to consider farming as a career and others have chosen farming as a second career after retirement.

In addition to the farm responsibilities many women now work away from the farm. Off farm employment has been increasingly important to the bottom line of many farm households. According to a survey of 1,209 Illinois farm families enrolled in the Illinois Farm Business Farm Management Association, family living expenses averaged $52,743 in 2005. Over half of the family living expenses are contributed by off farm employment. In many cases, it is the farm wife that works away from the farm. Thus, she plays a much different role as compared to the past in support of the family farm. Her off farm employment not only adds a significant contribution to the family’s income, but often provides health insurance coverage for the family. Both are vital aspects to many family farm businesses.

As a result of an increase in the number of women in farm managerial roles and other agricultural professions, a need has been recognized throughout the United States to provide more agricultural programming geared toward women. Programming has been developed to not only target women’s educational needs related to their roles within the farm business, but to also create a network of support for women involved in the world of agriculture.

Both Women in Agriculture Conferences will be day-long events planned to provide an opportunity for women to learn, network and enjoy a day where some else cooks and waits on them. They will address topics which affect the everyday lives of farm women and will be beneficial to women who are involved in agriculture part time as well as those involved full time.

The Wood County conference will be held on Friday, March 16, 2007, at Nazareth Hall (Route 65, Grand Rapids, Ohio). The conference will begin at 8:00 a.m. and end at 3:00 p.m. The keynote speaker will be Carolyn Cooksie, Deputy Administrator for Farm Loan Programs, USDA – Farm Service Agency, Washington, DC. There will be several breakout sessions held throughout the day on topics such as farm loans for women, using a digital camera with a computer, farmland protection options and rejuvenation spa with The Body Shop at home. Registration for the day is $40 which includes continental breakfast, lunch and materials. Sponsors for the day include Ag Credit, Blanchard Valley Farmers Co-op, Inc., Grelton Elevator, Inc., Luckey Farmers, Inc., Mid-Wood, Inc., Monsanto Company, Pioneer Hi-Bred International, Inc., Sky Bank, and Wood County Farm Bureau. Please contact the OSU Extension office at 419-354-9050 for registration information or visit the website at:

http://wood.osu.edu/fcs/documents/2007WIARegistrationFlier.pdf.

The Ashland County conference will be held on Friday, March 23, 2007 at Celebrations by Sallie! (1256 E. Main St., Ashland, Ohio). The conference will begin at 9:00 a.m. and end at 3:30 p.m. Pat Leimbach will kick the conference off as the featured keynote speaker. Topics throughout the day will include health savings accounts, FSA update, work-farm-family balance, marketing and financial statements. There will also be time for networking and catching up with friends and neighbors. Registration for the day is $25 which includes, refreshments, lunch and program materials. Sponsorship for the day has been provided by local Farm Bureau Boards in Ashland, Lorain, Erie, Wayne, and Medina Counties. As well as the Ashland County Cattlemen and Dairy Service Unit. Please contact the OSU Extension office at 419-281-8242 for registration information or visit the website

http://ashland.osu.edu/agriculture-and-natural-resources/women-in-agriculture-conference

Gift Taxes and the Annual Exclusion

Federal gift tax applies to lifetime direct or indirect transfers of real or personal property. Indirect transfers include gifts of property for less than a full and adequate consideration in money or money’s worth. These include bargain sales or exchanges. The lifetime exemption amount for gift tax purposes remains at $1,000,000 through 2010. The IRS Tax Form 709 is used to record annual gifts above the annual exclusion amounts.

In 2006, the annual exclusion amount is $12,000 for a person to gift to each donee. Therefore, a Form 709 is not required for gifts totalling less than $12,000 per person, per year. Remember too, that a husband and wife may double this exclusion amount given to an individual ($24,000 per year). Beginning in 1999, the exclusion amount increased annually based on a cost-of-living adjustment. Any adjustment that is not a multiple of $1,000 is rounded to the next lower multiple of $1,000. In years 1977-1981 the exclusion amount was $3,000, in years 1982-2001 the exclusion amount was $10,000, in 2002-05 it was $11,000 and in 2006 raised to $12,000. Generally, gifts made to a souse is not included on a gift tax return, therefore there may be unlimited transfers between spouses. Other transfers not subject to gift taxes include: payment of tuition directly to a qualifying education organization (like The Ohio State University), payment of certain medical expenses paid directly to a medical provider, and transfers to political organizations for use by the organization. See your income tax professional for additional details.