publication archive: November 2012
November 30, 2012
Supreme Court Reviewing Important Ag Biotech Patent CaseThe US Supreme Court receives approximately 10,000 petitions per year asking it to review a particular dispute--called a petition for a writ of certiorari or petition for "cert." As the Court cannot possibly hold an oral argument and decide each requested case, it usually selects the most critical 75-80 cases per year, with the term starting in October and running through the following summer. Lawyers anxiously await the Court's decision on which cases it will hear and then speculate as to why it may or may not have accepted "cert" in a particular case and what this may mean for that area of law going forward.
November 29, 2012
Farmland Turnover in IllinoisThere have been several very notable land sales in Illinois and surrounding states setting new high per acre sales prices in many areas, and leading to increased interest by others in evaluating both potential sales and purchasing opportunities. This year, there again seems to be a flurry of end-of-year farmland auctions and new listings of farm properties. Recently, at two separate meetings I have heard reports by professional appraisers that new requests are "flooding in" for farmland appraisals supporting end of year decisions about trust creation or sale. Casual explanations of the turnover activity include elevated concern about tax and estate law changes, efforts to take advantage of market momentum, strong balance sheets and derived demand from recent high income years, and continuing strong investor demand. Others have suggested that the level of activity in the farmland market is not that unusual and that there are often peaks in the 4th and 1st quarters each year -- and that this year is thus not abnormal at all. And on the other side of the argument, farmers and investors seeking additional land to continue to cite thin market conditions; neighbor bidding wars are noted as explanations of high sales prices; numerous reports occur of auctions that fail to meet reserve requirements; and there remains low interest by absentee owners in selling in the majority of cases.
November 28, 2012
Risks Faced by Farms with High Cash Rents
Generally, farms with more of their acres cash rented at higher cash rent levels will face more downside income risk compared to farms with fewer acres cash rented at lower cash rent levels. As a result, farms with high cash rent levels could face large losses in some future year. This is illustrated by projecting 2013 incomes for farms with different rental situations
November 27, 2012
Expiring Tax ProvisionsStarting with tomorrow's date (11/28/2012), you have 34 days to put your 2012 tax planning strategies in place. In those same 34 days, it is possible that Congress could enact and the President could sign new legislation that might make you reconsider the tax plans you've put in place using the current tax provisions. This year more than ever be very aware of the changes that could take place prior to the end of the year that might make you re-think your tax plan. If we are fortunate, any legislated changes will occur prior to 1/1/2013 and not after.
November 26, 2012
Focus on Soybean OilListen to MP3 podcast
The sharp increase in soybean prices that began in June 2012 and peaked in early September 2012 was carried more by soybean meal prices than by soybean oil prices. From the June low to the September peak, January 2013 soybean futures increased by 43 percent, January soybean meal futures increased by 51 percent, and January soybean oil futures gained 20 percent. Soybean oil futures are now back to the level of early June, while soybean futures are 13 percent above the early June level and soybean meal futures are 21 percent higher.
November 21, 2012
How Many Acres of Corn are Needed in 2013?The corn market will continue to be influenced by an array of factors over the next several months. One of the important price factors in the new year will be the prospective size of the 2013 U.S. crop. Prospective crop size begins with the magnitude of planted acres. Rather than forecast the likely magnitude of those plantings, we pose the question of how many acres are needed?
November 20, 2012
2013 Net Farm Income ProjectionsCurrent futures prices suggest harvest-time 2013 prices of $5.80 per bushel for corn and $12.40 per bushel for soybeans. Given these prices, 2013 farm incomes likely would be above average. Worst case incomes depend on levels of projected prices used to set crop insurance guarantees. Likely projected prices will provide significant downside revenue protection. To quantify income projections, farm incomes for a 1,200 Illinois grain farm are simulated and presented.
November 19, 2012
Pork Producers Did Not PanicListen to MP3 podcast
Here is some good advice: If you are in a crisis, DO NOT PANIC! Pork producers were facing a drought driven crisis late last summer. December corn futures had risen as high as $8.49 per bushel, December soybean meal futures had reached $540 per ton. Markets anticipated a fairly rapid period of sow liquidation which depressed the December lean hog futures price to $70 per hundredweight. The bleak outlook called for losses of as much as $50 to $60 per head in the final quarter of this year. A panic response might have been to cover substantial amounts of feed needs at record high prices, to forward price lean hog futures before the outlook worsened, or just sell out altogether.
November 16, 2012
Management Review of 2012 - Consider the Role of Advisers to Your Farm BusinessThe work of harvest may be complete, but the work of managing never ends. Many of you have, or will soon, begin your tax planning strategies now that we know the number of bushels produced and the size of your crop insurance claim (or estimated amount).
November 15, 2012
2012 Drought, the Harvest Price Option, and Forward ContractingDroughts always cause farm policy issues because of the stress they cause. A policy issue that has emerged during the 2012 drought concerns whether or not crop insurance should have a harvest price option (HPO). HPO permits the insurance guarantee to be calculated using the insurance price determined at harvest when it is higher than the insurance price determined prior to planting. This article examines the HPO policy issue. See the end of the post for a note on the use of the term, harvest price option.
November 14, 2012
Farm Losses DemystifiedFarmers are sometimes surprised to find that the full amount of a year's loss from farming isn't the same loss amount that they can claim as a deduction on their tax return for the year. There are several sets of tax rules that must be met in order for a farm loss to be deductible. Farmers without crop insurance to cover losses should be aware of these rules that may limit the amount of deductible losses that can be claimed. The rules to be aware of include: the "at-risk" rules, the excess farm loss rules, and the passive income rules.
November 13, 2012
Crop Insurance and Rental Arrangements: Lessons from the 2012 DroughtThe 2012 drought raised two issues related to crop insurance and rental arrangements. First, it appears that a significant number of share rent landlords did not take crop insurance, resulting in much lower returns for these share rent landlords. Second, variable cash rental arrangements typically have not included crop insurance proceeds in calculating rental payments, leading landlords to receive less of gross revenue than anticipated. Both of these issues are discussed below.
November 12, 2012
Corn and Soybean Prices Following Short-Crop PatternListen to MP3 podcast
The USDA's November forecasts of the size of the 2012 U.S. corn and soybean crops were larger than expected, particularly for soybeans. As a result, the general downtrend in soybean prices since mid-September has accelerated, with January futures now at the lowest level since June 29. Corn prices have moved into the lower half of the trading range that has been in place since mid-September and December futures are at the lowest level since September 28. So far, prices seem to be following the classic pattern associated with small crops -peaking early in the marketing year and then declining as the year progresses.
November 9, 2012
U.S Corn and Soybean Production Forecasts Are Larger Than ExpectedToday, the USDA released new forecasts of U.S. and world crop production as well as updated forecasts of 2012-13 marketing year consumption. Following is a brief summary of the new forecasts and implications for corn, soybean, and wheat prices.
November 8, 2012
Crop Insurance: Tax Rules and Issues for 2012Generally, crop insurance proceeds received by a farmer using the cash method of accounting must be reported in the year in which the insurance proceeds are received. However, both the farmer and insurance payment qualify, the farmer can elect to postpone the reporting of the crop insurance payment until the following year.
November 7, 2012
2012 ElectionWhile votes remain to be counted and races to be determined, the U.S. has chosen to stay with its current split-party alignment of a Democratic President, a Democratic Senate, and a Republican House of Representatives. This post briefly looks at the key issues in this election while also examining what the election potentially tells us about ourselves and the forthcoming policy agenda.
November 6, 2012
2013 Crop Revenue Risk: Waiting for Projected PricesFor farmers taking revenue crop insurance, the lowest possible revenues for 2013 largely will be determined when projected prices for crop insurance are set of the end of February 2013. Currently, Chicago Mercantile Exchange (CME) futures contract used to set projected prices are near $6.35 for corn and $13.40 for soybeans. Herein, projected prices of these levels are placed in historical context. Then, historical changes in futures prices from December to February are examined to quantify downside risk to futures prices between now and February.
November 5, 2012
Which Way for Soybean Prices?Listen to MP3 podcast
Soybean prices reached a peak on September 4, with November 2012 futures trading to $17.89 per bushel. The price of that contract declined to about $15.50 by the end of September and has been in a range of $14.86 to $15.74 since then. The price is currently in the lower half of that range.