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Newsletter | Past Issues
January,
2009
In This Issue:
Working
Towards Flexible Cash Rents
Section
179 and Additional 1st Year Depreciation Guidelines
Farmers
Tax Guides Available at Local County Extension Office
USDA's
Milk Income Loss Contract Program (MILC) Sign-up Begins
for Ohio Dairy Farms
The
Global Financial Crisis: To Regulate or not to Regulate?
Business
Transition Resources Available from OSU Extension
What
are the Skills of Financially Successful Farmers?
Do
you have a question that you would like to ask the Ohio
AG Manager Team? If so, click here to email your
question
Working
Towards Flexible Cash Rents
Glen
Arnold, Extension Educator for Putnam County
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
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Section
179 and Additional 1st Year Depreciation Guidelines
Chris
Bruynis, Extension Educator in Wyandot County
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.
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Farmers
Tax Guides Available at Local County Extension Offices
The
Ohio Ag Manager Team
Farmers can
receive a free
copies of IRS Publication 22, the Farmers Tax Guide,
at their local county Extension office. Click
here to find the location of the OSU Extension County
Extension offices. A reminder from last month's
newsletter about the tax changes was written by
Dr. George Patrick's. The paper titled, "Income
Tax Management for Farmers in 2008," is available
at http://www.agecon.purdue.edu/extension/pubs/taxplan2008.pdf
.
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USDA
Milk Income Loss Contract Program (MILC) Sign up begins
for Ohio Dairy Farms
David
L. Marrison, Extension Educator in Ashtabula County
The
financial crisis has hit our country with a resounding
thud. Sadly, it looks like a rough year is ahead for
our dairy industry as the projections for the upcoming
year's milk prices are bleak. It is no secret that 2009
will be a tight year; one which dairy producers will
need to save a nickel here and a dime there to cash
flow their operation. While our 2009 milk price outlook
looks bleak, there is some comfort in the reauthorization
of the Martket Income Loss Contract Program (MILC) and
the three key changes contained in the 2008 Farm Bill
version of the MILC program.
The
USDA's Farm Service Agency (FSA) recently announced
that signup for the MILC program has begun and will
continue through the program's expiration date, Sept
30, 2012. This program operates
similarly to the counter-cyclical payment program for
crops. Under the 2008 Act, the MILC payment rate
and the per-operation poundage limit are modified, depending
on when the milk is produced. In addition, a "feed
cost adjuster," is introduced over the life of
the 2008 Act, which adjusts the $16.94 per hundredweight
(cwt.) benchmark price upward depending on the cost
of feed rations. 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.
MILC
payments are awarded on an operation-by-operation basis
up to a maximum of 2.4 million pounds of milk produced
and marketed from Oct. 1, 2007, through Sept. 30, 2008.
The production limit per operation increases to 2.985
million pounds for each fiscal year from October 1,
2008, through August 31, 2012. The production limitation
will revert back to the original limit of 2.4 million
pounds per fiscal year in September 2012.
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 is greater than $7.35
per cwt. beginning January 1, 2008, through August .
31, 2012. Calculations from January 1, 2008, through
August 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 the current fiscal year, which started on October
1, 2008, the reauthorization 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 their local Farm Service Agency
office. Click
here to find the location of your location FSA office.
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The
Global Financial Crisis: To Regulate or not to Regulate?
Dr.
Ian Sheldon, Anderson's Professor of International Trade,
Department of Agricultural, Environmental and Development
Economics, Ohio State University
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, notably the US and UK, and, until quite recently,
a strong surge in commodity prices. The collective impact
of these factors has been a marked slowdown in global
economic activity, with a significant risk that the
crisis in the global financial system will have a severe
impact on the real economy. This paper examines the
global financial crisis and examines if whether this
crisis should be regulated by governments. The
complete bulletin can be accessed at: http://aede.osu.edu/programs/Anderson/trade/Andersons%20Policy%20Bulletin-4%20.pdf
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Business
Transition Resources Available from OSU Extension
David
Marrison, OSU Extension Educator, Ashtabula County
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. While many farmers dream
of seeing their legacy passed on to the next generation,
many postpone initiating a plan for the transition of
their business for a variety of reasons. In order to
help farms plan for their future, the Ohio Ag Manager
Team has developed educational materials for families
as they plan for the transfer of their farm business
to the next generation.
A
fact sheet series is available for quick reading for
businesses. These 3-4 page fact sheets address
specific topics. The Building for the Successful
Transition of Your Agricultural Business fact sheets
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:
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::
- 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?
- How can
you tell if the business is profitable enough to provide
for the next generation?
- Are there
enough income and assets to provide for the older
generation's wants and needs?
- How can
you help the two generations get along?
- What should
you transfer and in what order?
- 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 a bargain price of $9.25 or can be accessed
for free at: http://ohioline.osu.edu/lines/bulls.html
Transferring
a family farm or farm business to the next generation
can be a challenging task. 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. Working together, families can answer the
tough questions and develop a transition plan that will
provide the opportunity for the farm to be successful
for many generations. Let's prove that Ohio farms are
great places for our younger generation.
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What
are the Skills of Financially Successful Farmers?
Jason
Oliver & Bruce Erickson, Purdue University Report
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. This suggests
that all farmers may need to be on top of the financial
and risk side of the business just to compete, but that
production management and personnel management distinguish
the financially great farmer from those that might just
be getting by. Click
here to access the complete research summary or access
it at: http://www.agecon.purdue.edu/topfarmer/newsletter/TFCW12_2008.pdf
.
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Readers
can subscribe electronically to this newsletter by sending
an e-mail message to: ohioagmanager-on@ag.osu.edu.
A successful subscription message will receive by an
automatic reply from the listserv. Contact your local
Ohio State University Extension Office or e-mail marrison.2@osu.edu
if you have problems subscribing.
The
Ohio Ag Manager newsletter is published in collaboration
by OSU Extension Educators and Faculty members of Ohio
State University's Department of Agricultural, Environmental
and Development Economics.
Ohio
Ag Manager Team Leaders: Chris Bruynis & David Marrison
Web
Page Managers: David Marrison & Andy Kleinschmidt
Information
presented above and where trade names are used, they
are supplied with the understanding that no discrimination
is intended and no endorsement by Ohio State University
Extension is implied.
Ohio
State University Extension embraces human diversity
and is committed to ensuring that all research and related
educational programs are available to clientele on a
nondiscriminatory basis without regard to race, color,
religion, sex, age, national origin, sexual orientation,
gender identity or expression, disability, or veteran
status. This statement is in accordance with United
States Civil Rights Laws and the USDA.
Keith
L. Smith, Ph.D., Associate Vice President for Agricultural
Administration and Director, Ohio State University Extension
TDD No. 800-589-8292 ( Ohio only) or 614-292-1868
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