Farm Bill Deadline Nears

Deadlines are nearing for decisions farmers need to make to comply with provisions of the new farm legislation, Keith Coble reminded peanut producers at the annual meeting of the Mississippi Peanut Growers Association in a recent interview with Delta Farm Press.

“You have until Feb. 27 to update yield history and/or reallocate base acres,” he said. “You have until March 31 to make a one-time choice between ARC (Agricultural Risk Coverage) and PLC (Price Loss Coverage) for crop years 2014 through 2018. From mid-April through summer 2015, you can sign contracts for 2014 and 2015 crop years.”

Coble, who is Giles Distinguished Professor of Agricultural Economics at Mississippi State University, served as chief economist for the minority staff of the Senate Agriculture, Nutrition and Forestry Committee during the 2013/14 farm bill debate.

He notes that help is available to producers from MSU’s Agricultural Economics Department in the form of spreadsheets that can be used in making the calculations (http://bit.ly/1tW5dLl). “You can plug in your own circumstances and figure out how it will work for you.”

Coble says also  that the Mississippi Farm Service Agency has been “very cooperative in providing knowledgeable people to go to meetings and bring farmers up to speed on these provisions.” And he and other Mississippi Extension specialists have been on the meetings trail for the past few months.

Among the things farmers need to keep in mind about the new legislation, he says:

• “You can’t build base. If you have 200 acres of base on a farm serial number for a particular set of crops, when you get done you’re still going to have 200 acres of base. You can’t build it, but you can reallocate it.

• “Yield updating is probably one of the big no-brainers. Because of past programs and the inability to update base yields, we have a lot of farmers who have relatively low base yields. You now have the opportunity to take 90 percent of the 2008-2012 average, and in a lot of instances that will be a higher number. I would suggest you take a look at that.”

• PLC program: “The peanut industry and rice industry wanted a traditional price-triggered program however a price-triggered program was created for all program commodities. The corn reference price is $3.70, and the Congressional Budget Office said that would cost almost nothing — now look where corn prices are.”

In terms of ARC versus PLC, Coble says, “for rice and peanut farmers most analyses suggest PLC. I’d think really hard before I chose ARC on either of these crops. But for beans, corn, and wheat, it depends on what you think the price path is.

Decisions on ARC/PLC

Beans still look pretty favorable toward ARC; for corn, it’s more of a toss-up with an slight edge to ARC in most cases. In Mississippi, we have some counties that have a pretty good history with ARC, and others that don’t, so look at your own county.”

Farmers also need to keep in mind, he says, that “you can be in the PLC program and SCO (Supplemental Coverage Option), but if you’re in the ARC program you can’t purchase SCO insurance.

“The two versions of the ARC program are a shallow loss revenue program. The county-triggered program is commodity specific and pays on 85 percent of base acres. The area-triggered program is paid on 65 percent of base acres, and it is going to lump your farm serial numbers together and it’s going to be across all your commodities.”

While the farm level ARC program was designed for wheat farmers in Montana, Coble says, “I could envision a few cases in Mississippi where someone has one farm serial number and is only growing one crop. This is a scenario where individual ARC might work.”

It’s also important to understand, he says, that with ARC, “rather than a fixed legislative target, it uses an olympic average on yield and price. Take the last five years, drop the high and the low, and average the other three.

We were at pretty high commodity price levels when this bill was written; now we’re at lower price levels for several crops. What we’re going to see is that ARC will likely ride these price levels down.  We’ve got a lot of upward-trending yields, so it’s going to move in the opposite direction.”

SCO is very similar to ARC, he notes. “It’s a shallow loss insurance product, delivered by RMA (Risk Management Agency), with a premium subsidy of 65 percent of the total. The top coverage level is 86 percent, the same as ARC. For these products, RMA is moving toward using their own data rather than NASS county data for these yield series. It will be interesting to see how it works.

“You may purchase either STAX (Stacked Income Protection Plan) or SCO on cotton. STAX is just for cotton and is very similar to SCO, but has a higher premium subsidy — an 80 percent subsidy and a 90 percent guarantee. I think a lot of cotton producers will prefer STAX to SCO.”

Crop insurance coverage levels in Mississippi “have been going up fairly rapidly,” Coble says. “I thought we were catching up with the Midwest, but I was wrong. They’ve been moving to higher coverage (75 percent to 85 percent) and the primary reason for it is enterprise units — growers have gone to enterprise units in order to get higher coverage.

Switching for more benefit

The higher percentage the subsidy, the more benefit you get. That’s why I think we’ve got a lot of people switching from basic units to enterprise units. However, with enterprise units, you’re going to have some offsetting losses. If you’ve got a low yield field with a yield loss, and another field that doesn’t, they’ll be averaged together.

With SCO, Coble says, “You’re topping off an individual coverage policy with an area trigger policy. In the past, you were never able to buy two insurance policies on the same acre — now you can. They’re intended to cover layers of loss. You can have two policies insuring the same acre.

“The ARC program, an FSA-delivered program, is doing much the same thing as SCO, but it’s not tied to the crop insurance choice you make. So, you can buy a coverage level that doesn’t match up to ARC, or you can buy a coverage level that laps over into the ARC range.”

As decision times near, Coble says, “I would suggest you ask your crop insurance agent five questions:

1.    Can you give me a quote for enterprise units and trend adjusted yields?

2.    Will you show me the premium for different coverage levels?

3.    What about topping off individual coverage with SCO?

4.    Will you give me a quote for separate coverage levels by practice?

5.    What about the APH (Actual Production History) yield exclusion?”

And he cautions, “There is a lot of bad information out there. Be very careful about using information from the Midwest to make decisions here in the South.

Questions growers “need to be asking” about the ARC/PLC issue, Coble says:

1.    How much do you want to protect yourself from risk or increase government payments? “Are you trying to protect yourself from risk, or are you trying to get the most money from the government?”

2.    How much do you value having a price floor under the price of a crop? “If you sleep better at night when you’ve got a $3.70 floor under your corn, then take the PLC program, even though ARC might pay you more money. We don’t know what these programs are going to pay you in 2018. It’s just a guess.”

3.    How much are you willing to depend on individual crop insurance for risk protection?

4.    How much are you willing to depend on area-triggered crop insurance for risk protection? “Remember that area-triggered programs may not trigger when your farm has a loss. It’s not about whether your average yield is higher or lower — it’s about whether the county yield is low when your yield is low.”

5.    How much are you going to worry about relatively small commodity program payments versus controlling cost?

Some “easy calls” for producers, Coble says, will be conversion of cotton base to generic base and yield updates. He notes that farm level ARC “may not be a good fit” for diversified producers, and says STAX will likely be preferred over SCO for cotton unless crop insurance coverage is low.

Among important things to remember: “Area-triggered programs may not trigger when you have a loss. Title 1 programs are on base acres, not planted acres. And, compared to direct payments which are paid every year, ARC, PLC, and SCO are expected to pay less than 50 percent of the time.”

FSA Meets Farm Bill Target

$100 million is a lot of money, even by government standards. But, by the time it’s all said and done, there’s one $100 million amount that farmers will more than likely agree was money well spent.

This $100 million is the money Congress provided in the Agricultural Act of 2014 to help USDA get the word out to farmers about the many new provisions in the 2014 farm bill and how they differ from those of the 2008 law.

Using those funds, USDA has held more than 2,000 farm bill education meetings since August. Some were training sessions for FSA county office employees, but the majority were meetings held by county FSA directors to introduce the new insurance-oriented Title I safety net programs to farmers.

USDA also contracted with Texas A&M University’s Agriculture and Food Policy Center, the University of Missouri’s Food and Agricultural Policy Research Institute and the University of Illinois to develop decision aid software that allows producers to plug in their information and determine how different farm bill decisions will impact them.

Land-grant university personnel are working with farmers on how to use the new software.
“Many farmers have just finished harvest, and now they’re turning their attention to the farm bill,” says Val Dolcini, administrator of the Farm Service Agency. “We’re trying to do everything we can to make sure they have all the information they need to make good decisions.”

Dolcini, interviewed by telephone from Nashville, Tenn., where he was attending a national FSA employee farm bill training conference, agreed with an oft-repeated expression that it will take more than one meeting for many producers to fully understand the many options available under the Agricultural Act of 2014.

“It is complicated, and I think many farmers may need to hear the information from more than one source,” said Dolcini, who served as state executive director of the California Farm Service Agency before assuming the top FSA post in September. “That’s why we have partnered with the land-grant universities at most of our farm bill education meetings.”

Dolcini said FSA employees have overcome a number of challenges since President Obama signed the 2014 law in February, working through a number of issues to get to the point where they are now signing up farmers for the new programs.

“Our first step was to roll out the Livestock Forage Disaster Program, which was designed to help producers who had experienced livestock losses from droughts, floods and blizzards,” said Dolcini. “Then, in September, we launched the Dairy Margin Protection Program to provide help for dairy farmers.” (Dolcini visited a dairy farm in Orlinda, Tenn., to discuss the MPP-D program while in Tennessee.)

Farm Service Agency personnel just completed the signup for the Cotton Transition Assistance Program, a program that will provide about 5 cents per pound to producers who will not receive a direct payment or insurance payment in 2014.

And since Sept. 29, they have been working with landowners on updating yield history or reallocating base acres and, since Nov. 17, signing farmers up for the Agricultural Risk Coverage or ARC or the Price Loss Coverage (PLC) programs. Signup for updating yields or reallocating base acres ends Feb. 27, 2015 and for ARC or PLC ends March 31, 2015.

“These are very serious decisions for farmers,” said Dolcini. “When growers sign up for ARC or PLC, they’re committing their operations to those programs from 2014 to 2018. Our county FSA employees cannot provide advice to growers on what they should do, but they will provide all the assistance they can.”

Enrollment in the new, complicated farm bill comes at a time when FSA and USDA have fewer full-time employees (FTEs) and reduced funding for general operations. As a result, FSA has been consolidating county offices and reducing FTEs where possible. Tennessee, for example, now has 59 county offices instead of an office in each of its 95 counties.

“We’ve been able to make good use of temporary employees to stay on schedule for farm bill implementation,” said Dolcini. “We’re having them do some of the paperwork and freeing up full-time employees to handle the more complicated tasks and work with farmers.

“I won’t say it hasn’t been challenging, but we have a great group of employees, and they’ve been working very hard to keep us on schedule.”

For more information on the remaining deadlines for signing up for 2014 farm bill programs, see http://www.fsa.usda.gov/FSA/printapp?fileName=nr_20141002_rel_0161.html&newsType=newsrel

"Right to Farm" Could Expand to Other States

Constitutional amendments normally go unnoticed.  And that's usually for a good reason.  Most of the time the are archaic, outdated and doesn't apply to modern times.  Politicians usually just tack things on they want to pass for lobbyist and away we go.

So when the amendment "Right to Farm" was passed in Missouri, it came as no surprise no one noticed it.  The ballot asked, "Shall the Missouri Constitution be amended to ensure that the right of Missouri citizens to engage in agricultural production and ranching practices shall not be infringed?"

Basically it asserted the right to farm.  Why would anyone need to have that written into the constitution?  Isn't the right to farm your own land an unalienable right?  Unfortunately, in today's age, we need to have everything spelled out for us.

The law seems reasonable enough.  Proponents of this law were reasonably concerned about what's been going on in other states.  For example, in 2008, California voters approved roomier living conditions for hens.  And in Oregon, a rural county overwhelmingly passed a ban on genetically modified crops.

Considering all the hysteria surrounding GMO's recently, it's not out of the question that similar laws like the one in Oregon couldn't be passed in other states.

Missouri isn't the first state to pass a "Right to Farm" law.  South Dakota passed a similar law two years ago.  North Dakota State University law professor David Saxwosky says he hasn't seen any resulting court cases in a recent interview with South West Farm Press.

Maybe sometime in the next decades there will be some technology that even producers will say, 'Hey, wait, are we really aren't sure if we want that within our industry.'  And at that point, this language will be tested," Saxwosky said.

Other states are looking to add similar laws like the ones in Missouri and North Dakota.  Indiana recently added right to farm legislation in the form of a law.  Oklahoma had legislation that didn't make it pass the general assembly.  Many other Midwestern states have also begun conversations about "Right to Farm".

Why the Opposition?

You would think in a state like Missouri, with nearly 100,000 farms, the "Right to Farm" would pass easily.  Actually it passed by the narrowest of margins.  So slim in fact there may be a recount.

Unofficial results showed in the 3,898 precincts, it passed with only 50.1% of the vote.  Out of the 1 million votes casted, it passed by a mere 2,528 votes.

You may be asking yourself, why would anyone oppose the right of an individual to farm?  But Missouri is the "Show Me" state.  The message became muddled.  

Those supporting the amendment were portrayed as large corporate agricultural interest that were trying to avoid regulation relating to environmental and animal welfare while opponents were painted as over-zealous environmentalist who wanted to destroy traditional farming.  The debate pitted urban interests against rural ones.  The areas of Kansas City and St. Louis largely opposing the amendment.

Essentially, politics as usual.

Where ever you stand on the issue, we might be seeing similar legislation soon in Southern states.  In states like Alabama and Georgia, the "Right to Farm" issue would seem like a softball issue.  And we all know our esteemed legislators love softball issues.

Crop Insurance Is A Good Investment

"We believe a lot of people are farming this year who wouldn't be without crop insurance," says Brandon Willis, administrator, USDA Risk Management Agency in a speech he gave to the Plains Cotton Growers annual meeting in Lubbock, TX.  It was covered by South West Farm Press.

Around 296 millions of acres in the US are covered by crop insurance.  It has saved many farmers from going under and many employees their jobs.

Farmers need to be aware of the new programs so they can sign up before later this year.  Farmers need to be educated on what works best for their area so they can choose the right plan for them.  Otherwise, there could be some problems.  As a matter of fact, the sign up date for Livestock producers started April 15th for disaster assistance.

In the fall, farmers need to update their production history and be ready for publications of farm program details.  By late fall they can choose between Price Loss Coverage (PLC) or Agriculture Risk Coverage (ARC).

In 2015 there will also be available a STAX program for Cotton growers and a Supplemental Coverage Option (SCO).

Beginning farmers, with less than five years in farming, can get benefits from a new program yield adjustments and a 10 percent reduction in premiums.  This will begin in 2015.

Any criticism of crop insurance is usually due to the lack of understanding how it works.  Most farmers are working today because of crop insurance.  And there are things in place to make sure farmers aren't taking advantage of it.  For example, the farmer must follow good farming practices and can't receive more than 85 percent of what they would have made without a disaster.  This makes sure farms break even and never make more than they would have normally.

It's good for consumers because it saves money.  It allows farmers to invest in new technology making them more efficient and productive.  Government likes it as well because it saves the tax payers dollars.

Disaster Assistance

The 2014 Farm Bill, formerly known as the Agricultural Bill of 2014, makes the Livestock Forage Program (LFP) and Livestock Indemnity Program (LIP) permanent programs and provides retroactive authority to cover eligible losses back to Oct. 1, 2011.

LFP provides compensation to eligible producers who suffered grazing losses due to drought and fire.  LIP provides compensation to livestock producers who suffered livestock death losses in excess of normal mortality due to adverse weather and attacks by animals reintroduced into the wild by the Federal Government or protected by Federal law, including wolves and avian predators.

USDA is determined to make implementing the livestock disaster programs a top priority and plans to open program enrollment by April 15th, 2014.

As USDA begins implementing the livestock disaster assistance programs, producers should record all pertinent information of natural disaster consequences, including:

• Documentation of the number and kind of livestock that have died, supplemented if possible by photographs or video records of ownership and loss.
• Dates of death supported by birth recordings or purchase receipts.
• Cost of transporting livestock to safer grounds or to move animals to new pastures.
• Feed purchases if supplies or grazing pastures are destroyed.
• Crop records, including seed and fertilizer purchases, planting and production records.
• Pictures of on-farm storage facilities that were destroyed by wind or flood waters.
• Evidence of damaged farmland.

Many producers still have questions.  USDA is in the process of interpreting the Farm Bill program regulations.  Additional information will be provided once enrollment period is announced.  In the meantime, producers can review the LIP and LFP fact sheet.  The USDA is working dilligently to put the Farm Bill programs into action to benefit the Farmers and Ranchers of rural America.

1031 Exchange Under Attack

Proposed Tax Reforms Includes Ending 1031 Exchange

The ninety two year old 1031 tax exchange is once again up for abolishment in current tax reform proposals.  Congressman Dave Camp, Chair of the US House or Representatives Committee on Ways and Means, has a bipartisan tax reform group tasked with identifying eleven subjects including real estate tax matters as potential revenue raisers.  Senator Max Baucus, Chair of the Senate Finance Committee has targeted the elimination of the 1031 exchange as one of many means of tax reform.

Section 1031 "like-kind" exchanges is estimated to cost of $42 billion over the five year period 2012-2016 by the Joint Committee on Taxation (JCT).  Estimated by the JCT in prior years estimated the tax deferral to be $16.2 billion over the five year period 2010-2014.  The two fold difference is attributed to a change in accounting methodology.

The Treasury Department 1031 Regulation is enforced by the Internal Revenue Service in Section 1.1031 stating that "no gain or loss shall be recognized on the exchange of property held for productive use in trade business or investment, if such property is exchange solely for property of like ind which is to be held for productive use in trade or business or for investment."  Individuals, married partnerships, trusts, corporations use 1031 exchanges when selling and replacing real and personal property to defer federal and state capital gain and recaptured depreciation taxes.  The taxes are deferred until the replacement property is sold and not replaced, effectively cashing out.  The economic position of the taxpayer does not change in a 1031 exchange; they have the same amount of cash and debt if not more.  If the taxpayer receives cash or reduction in debt, then a tax is due.

Sixty percent of 1031 exchanges involve properties for sales of less than one million dollars with a third for less than $300,000 owned by small investors and businesses.  The majority of investors are individuals and small businesses with exchange proceedings of less than $300,000.  Corporate entities do utilize 1031 exchanges to replace worn equipment and reposition low income producing properties with higher income producing properties.  In the Florida Panhandle, from Perdido Key West of Pensacola, Florida to Panama City Beach, Florida, investment properties saturate the real estate market with the local counties benefiting from the country bed taxes on properties held for short term rentals.  Titleholders are individuals, husbands and wives, trust and small limited liability companies generating business for Realtors, lenders, contractors, title companies, attorneys, CPAs, appraisal, pest and survey companies.

Positive Impact of 1031 Exchanges

• Encourages the rate by which money is move from one transaction to another; otherwise, known as the velocity of money.
• Property located in the US must be exchanged with property located in the US requiring reinvestment in the US rather than overseas.
• Stimulates taxpayers to acquire properties of equal or greater value often times greater including improvements in real estate.

What a 1031 is Not

• A tax loop hole for the rich.  Ninety percent of investors are individuals, families and trusts within a seven hour driving distance to their investments.
• A tax scheme robbing US taxpayers and government, rather a temporary tax deferral with the tax due when replacement property is cashed out or due upon decedent's taxable estate.

Negative Impact of 1031 Exchange Elimination

• Fewer real estate transactions, real and personal property will be held longer with many families electing to hold until death.
• Increase in depreciation deductions offsetting income tax revenue.
• Businesses will downsize due to no longer having access to or qualify for loans and paying tax on the gain or depreciation recapture of relinquished or old asset.

1031 exchange provide significant benefits to the taxpayer and local economies where the asset is located encouraging reinvestment versus the hoarding of cash and removing those dollars from the economy.  The 1031 exchange allows many others to benefit in the transaction before ultimately deposited with the US Treasury.

Small Farms Get Help

Recently Occupational Safety and Health Administration (OSHA) has been allowing inspectors on to farms with fewer than 10 employees.  While the point of the OSHA's inspections are valid this is a violation.  Small farms a supposed to be exempt from from inspections.  Inspections are only allowed when a farmer is buying and selling grain in an unrelated farming operation.

What's The Point of These Inspections?

In 2010 and 2011, there was a rise of deaths involved with employees dying in grain bins.  Employees would walk on grain or attempt to remove build up.  The employees would sink and get stuck in the grains like quick sand and die.  It then became law for the OSHA to inspect large farming operations to ensure employee safety.  This resulted in a significant decrease in grain bin deaths.  So it's not like the OSHA inspections are a bad thing.

What Went Wrong?

It's a simple misunderstanding but one that had major ramifications against small farm operations.  A memo inside the OSHA stated drying and fumigating is not central to agriculture operations.  This gave OSHA inspectors the go ahead to inspect.  Also, the memo didn't clearly spell out the guidelines and was interpreted incorrectly.

In one such a case, according to Brownfield Ag News, "A Nebraska farmer with one non-family employee was recently assessed a fine of over $130,000 dollars by OSHA."  Clearly a small farm operation can not pay such a fine.

What Was The Solution?

Congressman Sam Graves of Missouri, along with several other congressmen, wrote a letter to the OSHA.  In it they asked OSHA to adhere to the law and clarify the guidelines for the inspectors.  OSHA did so and the problem seems to be resolved.  Below are links to the letter Sam Graves wrote and OSHA's response.

Letter From Congress

Letter From OSHA