USDA Milk Income Loss Contract Program (MILC) Sign Up Begins for Ohio Dairy Farms

While the 2009 milk price outlook looks bleak, there is some comfort in the reauthorization of the Market Income Loss Contract Program (MILC) and the three new changes in the program.
These changes included modification to the MILC payment rate and per-operation poundage limits as well as the addition of a feed cost adjuster.

The 2008 Farm Bill reauthorized the MILC Program and operates similarly to the counter-cyclical payment program for crops.  When available, MILC payments are based on a payment rate percentage that is multiplied by the difference between a now-flexible target ($16.94 per cwt. or higher) and the specific month’s Boston Class I price of milk. USDA’s Farm Service Agency issues MILC payments on an operation-by-operation basis up to a maximum of 2.4 million pounds of milk produced and marketed (about 120 cows) from October 1, 2007, through September 30, 2008. The production limit per operation increases to 2.985 million pounds (about 145 cows) for each fiscal year.

The 2008 Act adjusts the trigger price of $16.94 cwt., depending on the extent to which feed costs increase. The feed cost adjustment takes effect when the monthly National Average Dairy Feed Ration Cost greater than $7.35 per cwt. beginning Jan. 1, 2008, through Aug. 31, 2012. Calculations from Jan. 1, 2008, through Aug. 31, 2012, will be made at 45 percent of the percentage that the National Average Dairy Feed Ration Cost exceeds $7.35 per cwt.

Beginning with Fiscal Year 2009 marketings, which started Oct. 1, 2008, the 2008 Act made changes to the provisions for payment eligibility to add an adjusted gross income (AGI) limit. If the individual or entity has annual non-farm AGI for the relevant base period greater than $500,000, the individual or entity is not eligible for MILC benefits. The base period will be set pursuant to AGI regulations yet to be issued. That rule will also define what is considered to be non-farm income.

During the signup application period, participating dairy operations must select the month of the fiscal year to start receiving payments for eligible production. Producers submitting a contract application within 30 days of the beginning of the application period can select any preceding month as the start month. Producers submitting contract applications after Jan. 21, 2009, will not have the option of selecting an earlier month as the payment start month for the dairy operation for a fiscal year; and will be limited to applicable start month selection rules. Those general rules are that the start month must either be the month the contract is submitted or some later month. Changes in the month may be made from year to year so long as the designation is made by the fourteenth of the month proceeding the new start month. Pound limits run from the start month and all pounds for which payment is received count against the limit for that fiscal year.

Eligible dairy producers are those who commercially produce milk in the United States . To receive program approval, producers must enter into a MILC contract with CCC and provide monthly milk marketing data. Dairy producers can apply for MILC at local FSA offices.

Business Transition Resources Available from OSU Extension

As the age of farm operators increases, transferring the ownership and management of the family business to the next generation will become one of the most important issues farm families will face. No two succession plans are alike. Given the complexity of individual farm businesses and the unique personalities and characteristics of family members, a cookie-cutter plan, which families can adopt, does not exist. Legal issues, tax laws, and personal differences between family members are some of the issues families must confront when deciding how to transfer the managerial and asset control of a family business.

To help families address their future, OSU Extension has developed a variety of resources. A fact sheet series is available for quick reading on business succession.  These 3-4 page fact sheets address specific topics and can be accessed at: http://ohioline.osu.edu/bst-fact/index.html or can be received by calling your local OSU Extension office. The current fact sheets are: A Comparison of Business Entities, Conducting a SWOT Analysis, Conducting Successful Family Business Transition Meetings, Developing a Useful Mission Statement, Developing Goals, Developing the Next Generation of Managers, Planning for the Successful Transition of Your Agricultural Business, Starting an LLC for a Farm Business, Tax Characteristics of Business Entities, Using LLC to Manage Liability Exposure, Whole Farm Planning Model and Is a Prenuptial Agreement Right for Your Farm Business.

The OSU Extension transition team is also pleased to announce the newly revised Bulletin 862 titled, Transferring Your Farm Business to the Next Generation is now available as a resource for families to use as they plan for the future. This 89 page bulletin helps families plan for he future of their business by examining the following questions:

1) Do I want to pass my farm operation to my heirs as an ongoing business or do I want to pass it on as a group of assets?

2) How can you tell if the business is profitable enough to provide for the next generation?

3) Are there enough income and assets to provide for the older generation’s wants and needs?

4) How can you help the two generations get along?

5)What should you transfer and in what order?

6) How can you avoid paying too much income, gift and estate taxes?

This bulletin is one which each generation should read. This bulletin can be purchased at your local county Extension office for $9.25 or can be accessed for free at: http://ohioline.osu.edu/lines/bulls.html

Working together, families can answer the tough questions and develop a succession plan that will provide the opportunity for the farm to be successful for many generations. For more information on succession planning or any of OSU Extension’s resources, contact David Marrison at marrison.2@osu.edu or 440-576-9008.

The Global Financial Crisis: To Regulate or not to Regulate?

The December 2008 Andersons Policy Bulletin titled The Global Financial Crisis: To Regulate or not to Regulate? was recently released.  The Andersons Policy Bulletins are discussions of key trade and policy issues.  In the past year, the world economy has been dominated by the global crisis in financial markets, the bursting of the housing price bubble in a number of advanced economies, and, until quite recently, a strong surge in commodity prices. Click the following link to read the complete article:
http://aede.osu.edu/programs/Anderson/trade/Andersons%20Policy%20Bulletin-4%20.pdf

Working Towards Flexible Cash Rents

Wide fluctuations in input prices over the past few years and the high cost per acre to produce crops has more farmers interested in looking at flexible cash rent arrangements. Flexible cash rental arrangements have been around for many years. The more commonly used flexible arrangements flex for crop prices, crop yields or a combination of both. Typically, a base floor (minimum per acre rent price) guaranteed the landowner’s payment would not drop below an agreed level.

More recently, interest has grown to flex cash rent arrangements for input costs as well. A farmer could flex for fertilizer and other major crop inputs. Barry Ward, Ohio State University Production Business Management Leader, has developed a flexible cash lease calculator for farmers and landowners. The calculator is available as a Microsoft Excel worksheet from

http://aede.osu.edu/Programs/FarmManagement/Budgets/download.htm

Farmers can gather information for putting together their own cash rent agreements by viewing examples from various sources. Borrowing sentences and paragraphs from these sample agreements can speed up the development of your own farm rent agreement. Websites where flexible cash rent agreements are either discussed or can be viewed include:

Flexible cash rent lease examples from Iowa State University Extension

http://www.extension.iastate.edu/agdm/wholefarm/pdf/c2-22.pdf

Flexible cash rents for farm ground from Ohio State University Extension

http://ohioline.osu.edu/fr-fact/0002.html

Illinois University Extension cash rent form

http://www.farmdoc.uiuc.edu/legal/Farmdoc_Form_CL01_0912.pdf

Iowa cash rent lease (short form)

http://www.extension.iastate.edu/AGDM/wholefarm/html/c2-16.html

Midwest Plan Service Lease Forms

http://www.mwps.org/index.cfm?fuseaction=c_content.view&pageID=257&catList=239,254,257

Section 179 and Additional 1st Year Depriciation Guidelines

Farmers and others in an active trade or business can elect to treat the cost of up to $250,000 of qualifying property purchased during 2008 as an expense (rather than as a depreciable capital expenditure). Congress has aggressively increased and extended the Section 179 deduction in recent years. Under current legislation, the Section 179 limit is scheduled to drop back to $133,000 for 2009 through 2010(with indexing). To qualify for Section 179 expensing, all of the following requirements be met:

•  The property must be tangible personal property used in a trade or business.

•  The property must be purchased; either new or used property can be expensed.

•  For property acquired in like-kind exchanges, only the boot portion is eligible for expensing.

The Economic Stimulus Act of 2008 provides an additional first-year depreciation deduction equal to 50 percent of the adjusted basis, after Section 179 expensing, of qualifying property placed in service after December 31, 2007 and before January 1, 2009. This additional first-year or bonus depreciation is allowed for both regular and AMT tax purposes. To qualify for the additional first-year depreciation, the property must meet all five of the following requirements.

•  The original use of the property must start with the taxpayer (property must be new).

•  The property must be MACRS property with a recovery period of 20 years or less.

•  The taxpayer must purchase the property or enter into a binding contract to purchase the property in 2008.

•  The property generally must be placed in service in calendar year 2008.

•  The taxpayer is not required to use the Alternative Depreciation System (ADS) for the property. A producer with orchards, vineyards, or groves who elected not to capitalize pre-production expenses is generally required to use ADS.

Make sure to check with your tax preparer to see how these rule changes can assist you in managing your tax liability.

What are the Skills of Financially Successful Farmers?

At few times in history has making the right decisions at the right time in agriculture been more important than now. A recent survey of several hundred farmers showed that, of seven categories of expertise, these farmers rated financial management skills and risk management skills as most important for their success and indicated, as an average, that they were more proficient at these skills than the others. But it was production management skills and personnel management skills that were more related to financial success.
Read the complete article at:  http://www.agecon.purdue.edu/topfarmer/newsletter/TFCW12_2008.pdf .