Posts

Export Outlook for Soybeans | an interview with Todd Hubbs

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Recent data on the soybean export pace indicates stronger weekly sales. This offers hope for meeting the USDA marketing year export projection. The size of the 2018 crop in South America and the competitiveness of U.S. export prices, says University of Illinois Agricultural Economist Todd Hubbs, remain essential to determining U.S. export possibilities for the remainder of the marketing year.
     ILLINOIS Ag Economist Todd Hubbs discusses the potential for U.S. soybean exports to meet USDA's stated marketing year goal with Todd Gleason.

Secretary Perdue Comments on Trade Disputes

Trends in Farm Balance Sheets Over Time

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Trends in the financial position of Illinois farms are presented in this article.


University of Illinois Agricultural Economist Gary Schnitkey explored Illinois Farm Business Farm Management balance sheets to see how they have changed over time. He discusses those changes with University of Illinois Extension Farm Broadcaster Todd Gleason.

Overall, farms gained financial strength from 2006 to 2012. Since 2012, working capital has declined. The net worth and debt-to-asset position of most farms remain strong, but per acre net worth has decreased and the debt-to-asset ratios have increased in recent years. Those are worrisome trends. Future financial performance depends on returns. Likely financial performance given differing commodity prices are presented at the end of this article.

The Early Birds | a Master Naturalist Journal Entry

by Rose Moore, Illinois Extension Certified Master Naturalist

Just about this time every winter, subtle changes begin to occur in the natural world. There still may be snow on the ground and in the air but that doesn’t seem to affect the invisible clocks of the creatures around us.

Every morning as winter gradually lessons it’s grip, these changes become more noticeable to me. On this late February day, I immediately heard the noisy chatter of blackbirds as I stepped outside. This is a distinctive change from previously quiet mornings. Sure enough down near the creek a large flock of blackbirds could be seen in the honey locusts. I spotted a few red-winged blackbirds a distance away. Their cackles are the harbinger of spring to me as much as the robin. This chatter is a comfort to me and reminds me of childhood days spent outside in the spring.

Hundreds of European Starlings are also evident in the countryside now. They fly in organized shapes across the fields, swirling and spinning like a twister. Each year it seems these groups are getting larger and blackening the skies as they fly over.

Another bird I can hear now but have not seen yet is the Meadowlark. The song of the Meadowlark also takes me back in time to the once open meadows and fields surrounding my childhood home. It is a lover of the prairies and fields and there is plenty of space here for it to exist. I am never sure about which species lives here but it’s songs are always a delight. It is also a fairly large bird with beautiful yellow plumage accented by black markings.

Overhead is the constant cackling of geese flying north in large groups. Both the Snow and Canada Goose fly together in these groups.

Every year is different of course as to the timing of the return of spring and summer birds but I have observed that it is pretty consistent as to the species that return every year. There may be less of some of them as the years go on but sometimes new ones appear or at least get my attention.

In 2006, I witnessed an extraordinary bird I had never seen in Illinois before. On a sunny warm April morning the bird chatter was louder than usual. Upon investigating what was happening I saw a small flock of black birds with distinctly yellow plumage on their heads. As I approached the birds, they got louder and seem disturbed by me but did not fly off. I had brought by bird book out with me to look them up and figured out they were Yellow-Headed Blackbirds. They are found in Illinois but not as common as they once were. This was probably a flock migrating through and had used my property as a resting place. The year before there were no humans occupying it so they were no doubt upset by my presence. I am honored that they stayed long enough for me to observe them. I have not seen them since that time.

So every year as the ground thaws and the air begins to warm, I pay close attention to the changes around me hoping to catch a glimpse of something wonderful. I consider these daily observations into nature’s character a privilege and a delight that will never grow old.

Rose Moore – Master Naturalist – February 2018

Today’s post was written by Rose Moore. Rose is a Certified Master Naturalist serving Henderson, Knox, McDonough & Warren Counties. She enjoys exploring the natural world around her and recording the experiences in art and writing.

WILLAg Newsletter | February 18, 2018

February 18, 2018

The CME Group commodity markets are closed Monday in observance of President’s Day.

Last week I ignored the markets, mostly. My wife and I took some time to visit Savannah, Georgia. However, we still managed to find a way to incorporate corn & soybeans into our lives. I can remember taking a vacation in the late 1970’s with mom and dad to Estes Park in the Rocky Mountains. We went the long way through Iowa that summer so dad could get a look at the corn crop.

Naturally, there isn’t a corn crop to look at the United States right now so Claranne and I did the next best thing. We stopped in Kentucky where bourbon is made from corn, and then spent about an hour looking for a sign commemorating the place where the soybean was first introduced into North America. That is outside of Savannah. Both are chronicled here.

Don’t forget to buy your ticket for the All Day Ag Outlook. It is Tuesday, March 6, 2018. The markets are getting more interesting, and so are the agricultural politics. Each has a direct impact on your back pocket. We’ll take both up at the Beef House in Covington, Indiana.

Thanks! Todd

Todd E. Gleason, WILLAg.org
University of Illinois Extension
(217) 333–9797 or tgleason@illinois.edu

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Crop Insurance & USDA’s Agricultural Outlook Forum

There are just seven more trading days left in the crop insurance price setting month of February. As of Friday, February 16 the December corn futures contract trading at the CME Group in Chicago has averaged $3.95 for corn. This compares to last year’s February average of $3.96. The November soybean contract is currently averaging $10.09. Last year it was $10.19. The September Hard Red Spring wheat trading in Minneapolis is currently averaging $6.32. This is the biggest departure from 2017. It is about 70 cents a bushel above last year’s price of $5.65.


from USDA’s website | The Agricultural Outlook Forum (AOF), now in its 94th year, is the USDA’s largest annual meeting. This year’s Forum is titled The Roots of Prosperity. Along with the plenary panel discussion, attendees will choose from 30 sessions with more than 80 speakers and be able to visit a host of agriculture-related exhibits.

AOF is a platform facilitating conversation among those in the agricultural community, including producers, processors, policy-makers, government officials, and both foreign and domestic non-government organizations, on key agricultural issues and topics.


use this youtube portal to watch the 2018 Agricultural Outlook Live

USDA’s Risk Management Agency (RMA) will lead a panel discussion titled “Crop Insurance in the U.S. and Abroad” in the Agricultural Policies Here and Abroad track that will be held Friday, February 23, 2018, at 10 a.m. EST.

Moderator
-Thomas Zacharias, President, National Crop Insurance Services

Panel
- Federal Crop Insurance Following the 2014 Farm Bill - Dr. Kent Lanclos, RMA
- Crop Insurance: A Producer Perspective - Chalmers Carr III, President & CEO, Titan Farms
- The International Market for Agricultural Insurance - Dr. Lysa Porth, Assistant Professor / Chair,
Ag Risk Management & Insurance, University of Minnesota

To obtain more information and register, visit the 2018 Agricultural Outlook Forum website.
View the full AOF Agenda.





Frankfort, Kentucky - Todd and Claranne Gleason took the Buffalo Trace Hard Hat tour to learn how bourbon is made. Grains, mostly corn some rye and wheat, are ground and the alcohol distilled from the mash. After distillation, the mash is dried (distillers dried grains & solubles - DDGS). This is sold and fed to animals.

The alcohol is stored in white oak barrels which have been charred on the inside. Temperature changes in the warehouse cause the alcohol to move in and out of the wood giving the bourbon its amber color.

The longer it is warehoused the smoother the taste. There is, for example, a big difference in the taste of Buffalo Trace bourbon, aged 8 years, and its Eagle Rare brand, aged 10 years. The only difference in the two barrels of bourbon is the age, but not the ingredient mix or distillation process.

Barrels stored lower in the warehouse and towards the center produce higher quality bourbon. This is because the temperature swings are slower than on the outer edges of the warehouse.





Pre-register and find full details of the upcoming Strategic Farm Marketing winter meetings at www.sfarmmarketing.com. Meetings run through mid-February. Be sure to check the full schedule online for a program near you.




Erected by the Georgia Historical Society, the Georgia/Florida Soybean Association, and the Georgia Agricultural Commodity Commission for Soybeans

Marker Text: In 1764, Samuel Bowen, a former seaman employed by the East India Company, brought soybeans (Chinese vetch) to the Georgia colony from China via London. Not having land available to sow seeds, Bowen asked Henry Yonge, the Surveyor-General of Georgia, to plant what is believed to be the first North American soybean crop in the spring of 1765. Yonge’s property,
Orangedale, was located nearby on Skidaway Island. Bowen’s successful cultivation led to a 1769 patent for the production of soy sauce for exportation to England. Soybeans in Georgia were soon eclipsed by other crops, and not widely cultivated in North America until the late 19th century. But since the 1940s, soybeans have become one of the most widely grown and lucrative cash crops in the United States.



The following is a history of the soybean as recounted by University of Illinois emeritus plant geneticist Ted Hymowitz. Over the years videographer Steve Parker and I nicknamed him “The Wild Soybean Hunter”. Hymowitz scoured Asia and Australia for wild relatives of the soybean. He found them, and brought them back to the University of Illinois for inclusion in the USDA Soybean Germplasm Collection.

Today these wild soybeans are used in the University of Illinois soybean breeding program to capture favorable alleles for yield that were lost during domestication. College of Agricultural, Consumer and Environmental Sciences researchers are also mapping traits from wild soybean that were involved in domestication or that have significantly different phenotypes from soybean.

The first written record of the soybean dates to the 11th century BC. The plant originated in the wilds of modern day Laos, Cambodia and Viet Nam. From these points it spread first to China in the north says University of Illinois Plant Geneticist Ted Hymowitz. This is where Chinese farmers adapted glycine soja or the wild annual soybean for cultivation.

It was a small black seeded wild annual. The Chinese selected for just two traits. The wild glycine soja trails and climbs. The Chinese made it an upright plant. They also selected for larger seed size. Those two traits mark the only differences between the first domesticated soybean and its wild ancestor. It happened about 3000 years ago.

It wasn’t until the twentieth century that the next real evolution of the soybean occurred. With the mechanization of agricultural processors, farmers and soybean breeders quickly realized a third trait had to be added to the soybean. It shattered at maturity and this was bad. Farmers needed to be able to harvest soybeans without having them pop out of the pod before they could be put into a machine. The trait was found in a soybean called CNS for Clemson non-shattering and was incorporated into all commercially grown varieties of the crop says Hymowitz.

So, domestication of the soybean started about 3000 years ago. The first written record comes from the 11th century Before Christ. The bean is derived from a wild annual called glycine soja that looks a bit like a morning glory… it’s a viney plant that climbs and trails and produces small black seeds. It can still be found today. This plant was domesticated by Chinese farmers who made it stand-upright and increased the seed size. And then, in the twentieth century, U-S farmers added a third trait. They bred the soybean so it wouldn’t shatter at harvest.

It wasn’t until the 1960’s and 70’s that the soybean as a crop really began to take off in the United States. This is about 200 years after it first arrived in America. The journey here from China was a long one.

In 1758 Samuel Bowen signed on as sailor for the East India Company with a ship called the Pitt. He was an Englishman. The ship sailed to India, and then on to Hong Kong. From there, says Plant Geneticist Ted Hymowitz, Samuel Bowen signed off the Pitt and onto a ship called the Success. Hymowitz and a friend spent two years tracking Mr. Bowen’s movements by researching the University of Illinois library. The Success, says Hymowitz, sailed north from Hong Kong to Tein Sein, China. It was not supposed to be in these waters and was likely scuttled by the Chinese. Samuel Bowen was imprisoned for four years.

He was eventually released and made his way back to the American colonies, in this case to Savannah, Georgia. Bowen brought with him a bag of soybeans. It was 1764.  Mr. Bowen was something of an entrepreneur. In 1767 he was issued a royal patent for soy-sauce. He’d acquired some property in Georgia, and was growing and pressing soybeans into soy-sauce on a farm he called Grenich. The sauce was grown for export to England. Bowen also pressed the soybean for oil.

Despite his death 1777, Bowen managed to leave a legacy. The first recorded evidence of the soybean in the United States belongs to him. The minutes from a 1765 meeting of the Philadelphia Society for the Promotion of Agriculture acknowledges the receipt of 6 bottles of soy and seeds of Chinese vetch from Samuel Bowen. This is one story of how the soybean arrived in North America. There are others and Ted Hymowitz harbors one of them, but they cannot be proven.

So, it is a ship called the Success, Chinese imprisonment, and Samuel Bowen that are credited with the introduction of the soybean to North America in 1764. Sixty-five years later two Americans set off for Asia to hunt down more types of soybean.

Just as the Great Depression was taking hold in the United States, the U-S government sent plant scientists to Japan, Korea, and northeast China on a mission. It was February 18, 1929 when Howard Dorsett of Carlinville, Illinois and Bill Morse a native of Lowville, New York set out from the states for east Asia. The United States Department of Agriculture dispatched the two and their families on a mission to collect accessions, different types, of the soybean.

In the late 1920’s it was apparent the soybean was about to become a very important crop in the US. USDA wanted as many different versions of this asian native as possible. Dorsett and Morse were both plant scientist. By April of 1929, they and their families had settled in Tokyo. Over the next two years the men…primarily Morse, because Dorsett fell ill with double pneumonia, collected exactly 4,451 different accessions of the soybean.

These were soybeans, says University of Illinois Plant Geneticist Ted Hymowitz, grown throughout east Asian by native farmers. All but about 800 of the original accessions have been lost. In the 1930’s there was no germplasm repository, and Hymowitz says the seeds were probed, and if found useless, thrown away.

What happened with collection in the 1950’s says Hymowitz was unexpected, yet predictable. He says when you collect a diverse set of materials, in this case lots of different types of soybeans, you do not know the value of the collection until something in it becomes useful.

In the 1950’s one of the accessions collected by Dorsett and Morse, a soybean called Peking 88788 was found to be resistant to the soybean cyst nematode. The cyst nematode was and remains a major pest problem for U.S. farmers. The resistance found in 88788 is now incorporated, says Hymowitz, in 95% of the hybrids grown in the United States.

Hymowitz believes the material collected by Dorsett and Morse will become more valuable overtime because it was collected before modern soybean varieties were developed. This is because we do not know what pathogens, diseases, may inflict the soybean in the future. It, therefore, is important to maintain the diversity of the remaining Dorsett and Morse accessions. Those accessions are housed at the University of Illinois in the Soybean Germplasm Collection.



All Day Ag Outlook

The annual WILLAg All Day Outlook is just a month away. Please plan to join us at the Beef House in Covington, Indiana Tuesday, March 6, 2018. Our line up is stellar this year. Check out the agenda below and buy your tickets today. The $30 price tag includes Beef House coffee and rolls in the morning and an always worth-the-wait lunch. Come met our analysts and bring your questions! We’ll open our doors at 8am central / 9am eastern time.

buy tickets online today

Beef House
16501 Indiana 63
Covington, Indiana 47932

Agriculatural Weather Outlook
* Eric Snodgrass, Meteorologist - Agrible, Inc.

Cash Grain Panel
* Aaron Curtis, MIDCO - Bloomington, Illinois
* Todd Hubbs, University of Illinois * Brian Stark, The Andersons - Champaign, Illinois
* Chuck Shelby, Risk Management Commodities - Lafayette, Indiana

Dicamba Unfiltered
* Aaron Hager, Extension Weed Scientist - University of Illinois

Soybean Panel
* Ellen Dearden, AgReview - Morton, Illinois
* Bill Gentry, Risk Management Commodities - Lafayette, Indiana
* Pete Manhart, Bates Commodities - Normal, Illinois
* Bill Mayer, Strategic Farm Marketing - Champaign, Illinois

How Grain Marketing is Changing
Block Trades, Variable Rate Storage, & the Tax Law
* Curt Strubhar, Advance Trading | Alliance Director Grain & Feed Association of Illinois

Corn Panel
* Curt Kimmel, Bates Commodities - Normal, Illinois
* Wayne Nelson, L&M Commodities - New Market, Indiana
* Mike Zuzolo, Global Commodity Analytics & Consulting - Atchison, Kansas
* Dan Zwicker, Zwicker Consulting - Waco, Texas





The Illinois Performance Tested Bull Sale has been a leader in introducing Illinois seedstock breeders and commercial cow-calf producers to the latest evaluation technologies and practices. The sale has offered some of the best genetics based on performance standards utilized by the beef industry. During the past 49 years 4,690 bulls have sold through the sale for over $8.5 million. This year’s sale is set for Thursday, February 22 on the Illinois State Fair Grounds in Springfield, though it is possible to bid remotely.



Soil & Water Management Webinar for Certified Crop Advisors
earn 4.5 hard to get Soil & Water Management CEU’s

Certified Crop Advisors in the state of Illinois looking for the hard to get Soil and Water Management credits should registered today for a University of Ilinois Extension Webinar. The soil and water management webinar will be held February 20 at locations around the state. Crop Advisors can earn 4.5 CEU’s, or Continuing Education Units, by attending. The cost is $45 and includes lunch and snack. The program runs from 9 to 2 Tuesday, February 20th. Check with your local Illinois Extension office for complete details.

WILLAg Newsletter | February 11, 2018

February 11, 2018

Last Thursday USDA released the monthly World Agricultural Supply and Demand Estimates report. It increased U.S. corn exports for this fiscal year by 125 million bushels. It is a very large change. A rough rule of thumb is that every 100 million bushel change is worth about a dime in the market when prices are at mid-point (say $4.50 for corn). The 10 cent move is relative to the old mid-point at the lower plateau and we really haven’t been in the new era long enough to know if this amount has expanded to say to 15, 18, or 20 cents or if it is still 10 cents per 100 million. None-the-less 100 million bushels is a big move.

However, the further you are from the mid-point the less the bushel change is worth. Consequently the 125 million bushel change on Thursday was only worth a couple of cents to the upside.
Soybeans are a more interesting story. USDA added 60 million bushels to U.S. ending stocks taking them from 470 million bushels to 530 million. Do you remember when the expected carryout was a 130 million bushels not so long ago! How things have changed.

This should have tanked the market, but it didn’t. Soybeans rallied a dime just after the report. It has to do with Argentina, but not the ongoing drought say some of our analysts. Soybean meal appears to have been the driving force in this case.

The market analysts take this up in some depth on Commodity Week. Just after recording it Thursday afternoon, I popped out to the iHotel here on campus to listen to Dan Basse of Ag Resource Company. He was addressing the 90th annual meeting of the Illinois Society of Professional Farm Managers and Rural Appraisers. Basse filled in details to the “soybean-meal-as-a-positive-price-driver” argument. This interview did not air on the radio, however it is included in the Friday Closing Market Report online.

CLICK HERE IF YOU DO NOT SEE THE CLOSING MARKET REPORT AUDIO


Some final notes…
  1. If you find this newsletter and our ag programming valuable please make a pledge of financial support. You’re dollars help to fund the effort. You may do this online now at www.willpledge.org. Be sure to note it is in support of agriculture.
  2. The annual All Day Ag Outlook is Tuesday March 6 at the Beef House. Tickets are on sale now. The cost is just $30 online or by calling 800–898–1065. You may see the agenda in this letter.
  3. I’d be glad to help set up a panel of analysts for your meeting. Just give me a call or drop me an email.
  4. Do pass this newsletter along to others you think might find it of interest.
Thanks!
Todd

Todd E. Gleason, WILLAg.org
University of Illinois Extension
(217) 333–9797 or tgleason@illinois.edu



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Commodity Week

Panelists
- Jim McCormick, Allendale - McHenry, Illinois
- Brian Stark, The Andersons - Champaign, Illinois
- Arlan Suderman, INTL FCStone - Kansas City, Missouri
- Mike Zuzolo, Global Commodity Analytics & Consulting - Atchison, Kansas



access past Commodity Week programs in the archive





Limiting Per Farm Crop Insurance Payments
read the original farmdocDaily article

Farm Sizes Impacted by a $40,000 Crop Insurance Premium Support Limit
by Gary Schnitkey, Jonathan Coppess, Nick Paulson, & Carl Zulauf

Proposals have been made to limit the amount of Federally-paid crop insurance premiums on a per farm basis. A $40,000 limit was proposed in the last farm bill and the 2016 Trump budget included this limit as well. The sizes of corn and soybean farms that reach a $40,000 limit are examined for two counties in Illinois: a low risk county (McLean County) and a higher risk county (Saline County). For the low risk county, the farm size impacted by the limit is near 3,000 acres, not a particularly large farm. In the higher risk county, the farm size impacted by the limit is near 1,000 acres, a farm size that is relatively small by commercial grain farm standards. The 3,000 and 1,000 acre benchmarks assume 100% of share in crop production on farmland. Use of share rent agreement increases proportionally the acres necessary to reach the limit.

Background

The Federal government subsidizes a portion of the total premium of Federal crop insurance policies and this premium support represents a large portion of total Federal outlays associated with crop insurance. An often-made proposal has been to limit Federal premium support on a per farm basis. A crop insurance subsidy limit has some precedence in that commodity title programs have had limits throughout history (see farmdoc daily, March 24, 2017). Except for peanuts, program crop payments under the 2014 Farm Bill are limited to $125,000 per individual (farmdoc daily, August 21, 2014). Limits generally arise from equity concerns about individuals receiving too large benefits from the government. An often-discussed limit on crop insurance subsidies is $40,000 per farm. Once a farm reaches the $40,000 limit, all remaining premium would be paid entirely by the farmer. The remainder of this article shows farm sizes at which the $40,000 limit is reached.

Low Risk County

Table 1 reports farmer-paid, Federally-paid, and total premiums associated with a Revenue Protection (RP) policy for corn sold in McLean County, Illinois. McLean is a county in central Illinois that would generally be viewed as having low risk. These premiums are calculated using 2018 rates, a $3.96 projected price and a .19 volatility. The $3.96 projected price and .19 volatility are 2017 values. The values for 2018 will be known at the end of February. Premiums in Table 1 are for a 100 acre enterprise unit given a trend adjusted yield of 190 bushels per acre. RP is by far the most popular product sold for corn. In 2017, 95.2 percent of the acres in McLean County were insured using RP (Summary of Business data from the Risk Management Agency). Additionally, the most popular coverage level is 85%, which was used to insure 62.5% of the corn acres in McLean County.



The total premium for the 85% coverage level RP policy is $33.57 per acre. This total premium is set by the Risk Management Agency (RMA). RMA sets premiums so that expected payments (indemnities) over time from a policy will approximately equal total premium. In other words, the expected payment for the 85% coverage level is $33.57 per acre. In central Illinois, these payments will not occur every year. Rather, most years will have no payments or small payments. There will be a number of years with larger payments. Very occasionally, there will be a drought year like 2012 when large insurance payments will occur. Over that variety of possible years, RMA estimates that the total payment for these policies will be $33.57 per acre.

Farmers do not pay the total premium. The Federal government pays a portion of the premium as a means to encourage crop insurance use. The proportion of total premium paid by the Federal government varies by coverage level. For enterprise units, the proportion paid by the Federal government is 80% for 70% and lower coverage levels, 77% for 75% coverage levels, 68% for 80% coverage levels, and 53% for 85% coverage levels (see farmdoc daily, May 5, 2016 for rates on other insurance units). In Table 1, the portion of total premium paid by the Federal government for the 85% coverage level is $17.79 per acre. The $17.79 per acre value equals the 53% of the premium paid by the government at an 85% coverage level times the total premium of $33.57. The farmer then pays the remainder, or $15.78 ($33.57 total premium - $17.79 Federally-paid premium).

It is important to realize that the Federally-paid portion of the premium does not flow directly to the farmer. The final destination of the Federally-paid portion is influenced by a complex set of factors that include losses of crop insurance policies in a state relative to premium, decisions made by private crop insurance companies, and a “standard reinsurance agreement” that controls how losses are shared between the private crop insurance companies and the Federal government. The final destination of the Federally-paid portion could be to farmers as crop insurance indemnity payments when losses are experienced, to private crop insurance companies as underwriting gains, or it could be retained by the Federal government.

The Federally paid portion of the premium is the focus of proposals to limit premium support, such as the $40,000 limit. This limit would restrict Federally-paid premium to $40,000 per farm. If a farm in McLean County, Illinois only insured corn, the $40,000 limit would be reached with 2,247 acres at an 85% coverage level (2,247 = $40,000 limit / $17.79 Federally-paid premium). A further analysis of limits will be shown for a blended corn and soybean acres below.

Higher Risk County

McLean County, Illinois would generally be viewed as a relatively low production risk area. The $40,000 limit will be reached at a much lower acreage level in a higher risk area because per acre premiums are higher in these higher risk areas. To illustrate, corn premiums are also shown for Saline County, Illinois for a farm with a trend adjusted yield of 152 bushels per acre (see Table 2). Saline County is located in southern Illinois and is a riskier region than central Illinois.



Note that total premiums are much higher for Saline County. The total premium for an 85% coverage level policy is $98.62 per acre (see Table 2). This $98.62 premium compares to a $33.67 premium in McLean County. The 85% premium in Saline County is almost three times that of McLean County. Because it’s a higher total premium, the Federal-paid portion of the premium is higher. At an 85% coverage level, $52.27 per acre are Federally-paid. At an 85% coverage level, the $40,000 limit would be reached at 765 acres.

In practice, most Saline County farmers do not purchase crop insurance at an 85% coverage level. The most used coverage level in Saline County is the 75% coverage level. In 2017, 56.5% of the corn acres were insured using RP at the 75% coverage level. The 75% coverage level has a $16.05 farmer-paid premium and a $53.73 Federally-paid portion of the premium (see Table 2). Note that the Federally-paid premium is about the same at the 75% level ($53.73 per acre) compared to the 85% level ($52.27 per acre). While total premium is lower at the 75% level, the Federally-paid portion of the premium is higher at the 75% level as compared to the 85% level (77% at 75% versus 53% at an 85% coverage level). The higher percentage offsets the lower premium. At a 75% coverage level, the $40,000 limit is reached at 744 acres.

Premium Limits and Farm Size

Most farmer grow and insure both corn and soybeans. Soybean crops typically have lower risk than corn, resulting in lower premiums for soybeans. Those lower premiums will then impact acres required to hit the $40,000 limit. Table 3 shows Federally-paid premium for a blended acre of 50% corn and 50% soybeans, a fairly common crop rotation in Illinois. Corn premiums are those provided in Tables 1 and 2. Soybean premiums are shown in the Appendix Tables 1 and 2.



For the McLean County case, the most popular coverage option is 85%, and the $40,000 limit is reached at 2,813 acres. By way of comparison, average farm size in Illinois is 359 acres. The 359 acres include many farms that are small and receive a majority of their income from off-farm sources. The average grain farm size enrolled in Illinois Farm Business Farm Management is about 1,300 acres, representing a size that is closer to receiving more of their income from on-farm sources. There are many farms over 1,300 acres and a 2,813 acre would not be viewed as a particularly large farm.
For Saline County, the most popular coverage level is 75% and the $40,000 limit is reached at 992 acres. The 992 acres is below the average size for commercial grain farms in Illinois.

The above comparisons are based on farmers having a 100% share in the farmland. Under share rent situations, farmers would receive a portion of the crop and only insure a portion of the acreage. For example, a 50–50 share-rent arrangement would result in a 50% share in the crop. In this case, premiums costs (and resulting payments) to the farmer would be cut in half. If all farmland was 50–50 share rented, the values in table 3 would double. However, all farmland is not share rented on most farms. According to Illinois Farm Business Farm Management summaries, 46% of the farmland was share-rented in central Illinois and 37% was share rented in southern Illinois. Even after these considerations, farm sizes reaching those limits would not represent extremely large farms. Moreover, the proportion of land controlled under cash rent agreements tends to be greater on larger farms in IL, and there will be farms that have no share rented acres. Thus, the acreage limits listed in those tables would impact some farms.

Summary and Observations

A $40,000 limit has the potential to impact many commercially-sized farms. The impacts will be larger in higher risk areas. Central Illinois is one of the lower risk areas of the United State. Hence, the acreage limits to reach the $40,000 limit will be higher in central Illinois than in many other areas of the country.

The exact nature of the $40,000 per farm limit is unknown. The limit could apply to an individual as it does in the case of commodity programs. Or there could be some entity definition. In either case, farms nearing limits could evaluate ways of restructuring the operation so as to avoid limits.
$40,000 limit would set into play a complex set of insurance decisions for those farms reaching the limit. Those farms reaching the limit likely would lower coverage levels and move to different plans of insurance. These changes would reduce the risk protection offered to those farms. Movements to share rent are possible as well.





Pre-register and find full details of the upcoming Strategic Farm Marketing winter meetings at www.sfarmmarketing.com. Meetings run through mid-February. Be sure to check the full schedule online for a program near you.



All Day Ag Outlook

The annual WILLAg All Day Outlook is just a month away. Please plan to join us at the Beef House in Covington, Indiana Tuesday, March 6, 2018. Our line up is stellar this year. Check out the agenda below and buy your tickets today. The $30 price tag includes Beef House coffee and rolls in the morning and an always worth-the-wait lunch. Come met our analysts and bring your questions! We’ll open our doors at 8am central / 9am eastern time.

buy tickets online today

Beef House
16501 Indiana 63
Covington, Indiana 47932

Agriculatural Weather Outlook
* Eric Snodgrass, Meteorologist - Agrible, Inc.

Cash Grain Panel
* Aaron Curtis, MIDCO - Bloomington, Illinois * Todd Hubbs, University of Illinois * Brian Stark, The Andersons - Champaign, Illinois
* Chuck Shelby, Risk Management Commodities - Lafayette, Indiana

Dicamba Unfiltered
* Aaron Hager, Extension Weed Scientist - University of Illinois

Soybean Panel
* Ellen Dearden, AgReview - Morton, Illinois
* Bill Gentry, Risk Management Commodities - Lafayette, Indiana
* Pete Manhart, Bates Commodities - Normal, Illinois
* Bill Mayer, Strategic Farm Marketing - Champaign, Illinois

How Grain Marketing is Changing
Block Trades, Variable Rate Storage, & the Tax Law
* Curt Strubhar, Advance Trading | Alliance Director Grain & Feed Association of Illinois

Corn Panel
* Curt Kimmel, Bates Commodities - Normal, Illinois
* Wayne Nelson, L&M Commodities - New Market, Indiana
* Mike Zuzolo, Global Commodity Analytics & Consulting - Atchison, Kansas
* Dan Zwicker, Zwicker Consulting - Waco, Texas





The Illinois Performance Tested Bull Sale has been a leader in introducing Illinois seedstock breeders and commercial cow-calf producers to the latest evaluation technologies and practices. The sale has offered some of the best genetics based on performance standards utilized by the beef industry. During the past 49 years 4,690 bulls have sold through the sale for over $8.5 million. This year’s sale is set for Thursday, February 22 on the Illinois State Fair Grounds in Springfield, though it is possible to bid remotely.


University of Illinois Extension Beef Specialist Travis Meteer helps coordinate the auction and benchmark bulls.



Soil & Water Management Webinar for Certified Crop Advisors
earn 4.5 hard to get Soil & Water Management CEU’s



Certified Crop Advisors in the state of Illinois looking for the hard to get Soil and Water Management credits should registered today for a University of Ilinois Extension Webinar. The soil and water management webinar will be held February 20 at locations around the state. Crop Advisors can earn 4.5 CEU’s, or Continuing Education Units, by attending. The cost is $45 and includes lunch and snack. The program runs from 9 to 2 Tuesday, February 20th. Check with your local Illinois Extension office for complete details.

WILLAg Newsletter | February 4, 2018

February 4, 2018

There are three items of importance you should know about this week. First, lead and new crop corn, soybean, and wheat futures all finished January higher. Second, the tax law, if not changed, will impact grain marketing & farm income. Third, the annual All Day Ag Outlook is Tuesday, March 6 at the Beef House.

Honestly, all of those things are positive for farmers. However - isn’t there always a but ;-) - moving higher from such low levels may only serve to partially mitigate a not so great income year in 2017 and do very little about 2018. Oh, and Congress is working pretty hard to figure out a way to fix that “if you market your grain through a cooperative just don’t disclose 20% of the gross sales on your income taxes” loophole (listen to Commodity Week).

The good news is the All Day Ag Outlook is only a month away and the tickets are still just $30. Buy your ticket now.

Thank you for supporting WILLAg programming!
Todd Gleason

P.S. March corn futures posted a monthly reversal up for January! That’s a higher high, a lower low, and higher close than posted in December.





Commodity Week

Panelists
- Matt Bennett, Bennett Consulting Channel Seeds
- Steve Freed, ADM Investor Services
- Elaine Kub, Mastering the Grain Markets
- Dan Zwicker, Zwicker Consulting



Steve Freed of ADMIS told us there were three reasons US soybean exports are slower than expected.
  1. It appears the Brazilian soybean crop will be similar in size to last year’s record breaker. This means from March forward Brazil’s price for exported soybeans will be cheaper than that from the United States.
  2. China has imposed a quality restriction on U.S. soybean shipments. It is possible to ship quality #1 beans from the PNW, because there are already cleaners in place for wheat shipments, but New Orleans has a difficult time sourcing anything better than #2 quality.
  3. Some data from China suggests meat consumption is beginning to decline there. Chinese livestock producers may also be seeking out substitutes for soybean meal in animal rations.
access past Commodity Week programs in the archive



Above Trend Yields or Higher Prices Needed to Break-Even in 2018
read farmdocDaily article

Farmers figuring crop budgets for this year will face an uncomfortable reality. In order to break-even on cash rented land, generally speaking, it will require above trend yields, higher prices, or some combination of the two.



2018 is shaping up very much like the last two years says University of Illinois Agricultural Economist Gary Schnitkey. Each of them began with dire price and income outlooks. Higher than average trend yields financially salvaged what were expected to be very poor seasons on highly productive soils in central Illinois. FBFM (Farm Business Farm Management) records show farmers in this area of the state harvested 228-bushel corn and 69-bushel soybeans on average in 2016 and, while the numbers have not yet been fully summarized, project 2017 yields at 221 and 68.



Since 2012 corn and soybean yields in central Illinois have been at or above trend. The weather and management will need to produce another year of above-trend yields in order for cash grain farmers to break even again this year.



University of Illinois’ Gary Schnitkey calculates break even will require a $3.97 average cash corn price with a trend yield of 202 bushels to the acre. If the average yield is 229, then the average breakeven cash price would be $3.50. The figures for soybean are $9.85 at the 61-bushel trend and $8.84 with a 68-bushel yield.






Pre-register and find full details of the upcoming Strategic Farm Marketing winter meetings at www.sfarmmarketing.com. Meetings run through mid-February. Be sure to check the full schedule online for a program near you.



All Day Ag Outlook

The annual WILLAg All Day Outlook is just a month away. Please plan to join us at the Beef House in Covington, Indiana Tuesday, March 6, 2018. Our line up is stellar this year. Check out the agenda below and buy your tickets today. The $30 price tag includes Beef House coffee and rolls in the morning and an always worth-the-wait lunch. Come meet our analysts and bring your questions!We’ll open our doors at 8am central / 9am eastern time.

buy tickets online today

Beef House
16501 Indiana 63
Covington, Indiana 47932

Agricultural Weather Outlook
* Eric Snodgrass, Meteorologist - Agrible, Inc.

Cash Grain Panel
* Aaron Curtis, MIDCO - Bloomington, Illinois
* Todd Hubbs, University of Illinois
* Brian Stark, The Andersons - Champaign, Illinois
* Chuck Shelby, Risk Management Commodities - Lafayette, Indiana

Dicamba
* Aaron Hager, Extension Weed Scientist - University of Illinois

Soybean Panel
* Ellen Dearden, AgReview - Morton, Illinois
* Bill Gentry, Risk Management Commodities - Lafayette, Indiana
* Pete Manhart, Bates Commodities - Normal, Illinois
* Bill Mayer, Strategic Farm Marketing - Champaign, Illinois

How Grain Marketing is Changing
Block Trades, Variable Rate Storage, & the Tax Law
* Curt Strubhar, Advance Trading | Alliance Director Grain & Feed Association of Illinois

Corn Panel
* Curt Kimmel, Bates Commodities - Normal, Illinois
* Wayne Nelson, L&M Commodities - New Market, Indiana
* Mike Zuzolo, Global Commodity Analytics & Consulting - Atchison, Kansas
* Dan Zwicker, Zwicker Consulting - Waco, Texas



OK Google & Hey, Alexa!

Last week we told you how to use your Alexa enabled device (Amazon Echo, Dot, etc) to listen to our ag programming. If you have a Google Home device it’s possible to do the same thing. Google is really simple. Just say, “Ok Google play the Closing Market Report podcast.” Be sure to say the word “podcast”. You can tell it “next” or “previous”, too. It’s still a bit finicky, but it works.

If you have an Alexa device from Amazon you can listen, too. It’ll take a bit more setup.
First, enable NPR One. Just say, “Alexa, enable NPR One,” or search for NPR One in the Alexa app’s skill store. Then, follow the prompts to launch into your customized listening experience. After you have enabled NPR One follow these steps.
  1. To listen to the Closing Market Report: “Alexa, ask NPR One to play the Closing Market Report.”
  2. To listen to the Commodity Week: “Alexa, ask NPR One to play Commodity Week.”


Renovating Downtown Milford, Illinois
https://www.townandcountryevent.com


The old lumberyard building in Milford, Illinois has been renovated. It now serves the county as an events venue and is part of one farmer’s hope for rural America. - photo courtesy Colleen Caldwell, owner Town and Country Events

A local farmer has taken it upon herself to renovate some of the buildings in downtown Milford, Illinois. Farm Broadcaster Todd Gleason has this interview with Colleen Caldwell of Town & Country Events. Gleason met her while emceeing a crop insurance meeting in late January.





Soil & Water Management Webinar for Certified Crop Advisors
earn 4.5 hard to get Soil & Water Management CEU’s



Certified Crop Advisors in the state of Illinois looking for the hard to get Soil and Water Management credits should register today for a University of Ilinois Extension Webinar. The soil and water management webinar will be held February 20 at locations around the state. Crop Advisors can earn 4.5 CEU’s, or Continuing Education Units, by attending. The cost is $45 and includes lunch and snack. The program runs from 9 to 2 Tuesday, February 20th. Check with your local Illinois Extension office for complete details.


A Super Bowl Sunday Something to Consider
NPR February 2, 2018
heard on Morning Edition

This Sunday it’s estimated that Americans will consume more than 200 million avocados. After all, what’s a Super Bowl party without guacamole?


Avocados have rapidly become a staple in many U.S. diets, with Americans consuming on average 7 pounds a year. To satisfy that surging popularity, imports from Mexico have skyrocketed. That’s made a lot of farmers rich — but it’s also drawn the attention of organized crime gangs. One town in Mexico has been able to fight off the gangs and keep the peace, and wealth, at home.

see the full transcript of the story on the NPR website



subscribe to this newsletter
unsubscribe to the newsletter

Todd E. Gleason, WILLAg.org
University of Illinois Extension
(217) 333–9797 or tgleason@illinois.edu

Soil & Water Management Webinar for Certified Crop Advisors

earn 4.5 hard to get Soil & Water Management CEU’s

Certified Crop Advisors in the state of Illinois looking for the hard to get Soil and Water Management credits should registered today for a University of Ilinois Extension Webinar. The soil and water management webinar will be held February 20 at locations around the state. Crop Advisors can earn 4.5 CEU’s, or Continuing Education Units, by attending. The cost is $45 and includes lunch and snack. The program runs from 9 to 2 Tuesday, February 20th. Check with your local Illinois Extension office for complete details.

Renovating Downtown Milford, Illinois


The old lumber yard building in Milford, Illinois has been renovated. It now serves the county as an events venue and is part of one farmer’s hope for rural America. - photo courtesy Colleen Caldwell, owner Town and Country Events

A local farmer has taken it upon herself to renovate some of the buildings in downtown Milford, Illinois. Farm Broadcaster Todd Gleason has this interview with Colleen Caldwell of Town & Country Events. Gleason met her while emceeing a crop insurance meeting in late January.

Above Trend Yields or Higher Prices Needed to Break-Even in 2018

read farmdocDaily article

Farmers figuring crop budgets for this year will face an uncomfortable reality. In order to break-even on cash rented land, generally speaking, it will require above trend yields, higher prices, or some combination of the two.



2018 is shaping up very much like the last two years says University of Illinois Agricultural Economist Gary Schnitkey. Each of them began with dire price and income outlooks. Higher than average trend yields financially salvaged what were expected to be very poor seasons on highly productive soils in central Illinois. FBFM (Farm Business Farm Management) records show farmers in this area of the state harvested 228 bushel corn and 69 bushel soybeans on average in 2016 and, while the numbers have not yet been fully summarized, project 2017 yields at 221 and 68.



Since 2012 corn and soybean yields in central Illinois have been at or above trend. The weather and management will need to produce another year of above-trend yields in order for cash grain farmers to break even again this year.



U of Illinois’ Gary Schnitkey calculates break even will require a $3.97 average cash corn price with a trend yield of 202 bushels to the acre. If the average yield is 229, then the average break even cash price would be $3.50. The figures for soybean are $9.85 at the 61 bushel trend and $8.84 with a 68 bushel yield.

WILLAg Newsletter | January 28, 2018

January 28, 2018

It was a pretty good week for corn and soybean futures in Chicago. However, given the last six months of trade that’s not a huge accomplishment.

Presented below you’ll see two thoughts on where the markets might be headed. “Bad Weather Rising” lays out Scott Irwin’s longer term contrarian view. He’s of the opinion the markets over the next five years will reflect a higher mid-point. Irwin’s colleague at the University of Illinois, Todd Hubbs, takes the shorter term ‘marketing view’. His price outlook is less attractive. Again, one view is long-term and the other is short-term. Both have implications for farm and marketing decisions.
Further down in this letter you’ll find an article reposted from farmdocDaily. In it Iowa State’s Keri Jacobs details how the new tax law will impact grain marketing. You’ve likely heard a great deal about the 20% tax break farmers will receive if the first sale of their grain goes through a cooperative. Jacobs offers insight into how this works and the potential impact it will have on agricultural infrastructure.

There’s something a bit fun in today’s letter, too. The first corn harvest of 2018 in the United States has already taken place! Well, it’s actually the 2017 corn crop. Last Thursday I slammed my brakes on just outside of Jacksonville, Illinois to stop and watch Jon Brickey harvest five acres with an 1160 Case combine (he thinks 1969 vintage). I took a few photos and a made a little video.

Thank you for supporting WILLAg programming!
Todd Gleason






Bad Weather Rising

An agricultural economist at the University of Illinois is looking for a long-term recovery in the commodity markets. Commodity prices have been low since 2014, but the price of farmland has remained fairly strong. This is an indication thinks University of Illinois’ Scott Irwin that those buying farmland believe his contrarian view that prices will recover say to $4.00 for corn, $10.75 for soybeans, and $4.75 for all wheat. That’s at least one way to reconcile the firmness of land values. These long-run investors, whether they be farmers or outside investors, are looking for higher averages to restore profitability.



Irwin says there are two reasons for commodity prices to increase. One of them is slow. It’s the return of better economic conditions across the planet. The other he says is fast and violent, “I think it will be a series, in a fairly short period of time, of really poor weather that will be the big event that pulls us out.”

The ag economist is looking for the return of a more normal frequency of bad weather in the United States. Noting that the last twenty-plus years have been the best series in terms of corn belt weather since 1895.





Commodity Week
Panelists
- Merrill Crowley, Midwest Market Solutions
- Curt Kimmel, Bates Commodities
- Wayne Nelson, L&M Commodities

access past Commodity Week programs in the archive



Can Corn Prices Get Above the Current Range
Todd Hubbs, Agricultural Economist - University of Illinois
read the farmdocDaily article

March corn futures continue to trade between $3.48 and $3.60. This has been the case since the release of the November USDA supply and demand tables. It continues today despite the bearish information contained in USDA’s end of year reports released January 12. Todd Hubbs says corn prices continue to stay in relatively narrow range, and that pattern may remain for the next several weeks.


Listen to Todd Hubbs discussion of his farmdocDaily article with Univesity of Illinois Farm Broadcaster Todd Gleason

The University of Illinois grain markets specialist says the present outlook projects ample corn supplies in 2018. This will likely keep corn prices in the current range until information on spring planting is released. USDA’s Prospective Plantings report is due March 29th. Hubbs says a typical price pattern suggests a price rally in late spring or early summer associated with a weather issue. Summer weather and the impact it has on corn production will eventually determine the 2018 corn price.



Hey, Alexa! Teach your Amazon Echo to play WILLAg.

amazon.com

Do you want your Amazon Echo to play WILLAg and NPR programming at your voice command? It’s easy to set up!

First, enable NPR One. Just say, “Alexa, enable NPR One,” or search for NPR One in the Alexa app’s skill store. Then, follow the prompts to launch into your customized listening experience. After you have enabled NPR One follow these steps, and WILLAg will be at your beck and call!
  • To listen to the Closing Market Report: “Alexa, ask NPR One to play the Closing Market Report.”
  • To listen to the Commodity Week: “Alexa, ask NPR One to play Commodity Week.”
  • To stream WILL’s live broadcast: “Alexa, play AM580.”
  • To listen to The 21st (WILL AM580’s talk show): “Alexa, ask NPR One to play the 21st.”
  • To listen to any of our podcasts like the Bandwagon: “Alexa, ask NPR One to play the Bandwagon.”


http://www.sfarmmarketing.com/wp/
Pre-register and find full details of the upcoming Strategic Farm Marketing winter meetings at www.sfarmmarketing.com. Meetings run through mid-February. Be sure to check the full schedule online for a program near you.



The New Tax Laws & Marketing Grain to Cooperatives

A Discussion of the Sec 199A Deduction and its Potential Impacts on Producers and Grain Marketing Firms reprinted from farmdocDaily.

by Keri L. Jacobs
Department of Economics
Iowa State University

The newly passed Tax Cuts and Jobs Act of 2017 introduced substantive changes to individual and entity-level tax rates and deductions, many of them welcomed by individuals and corporations. One section of the Internal Revenue Code (IRC) in particular–IRC § 199A Deduction for Qualified Business Income of Pass-Through Entities (Sec 199A hereafter)–is getting a lot of attention, raising questions and eyebrows for its potential impacts on grain marketing decisions. In essence, language in this section of code gives producers marketing grain a significant incentive to sell to a cooperative rather than a non-cooperative firm.

The purpose of this article is to highlight the primary features of the Sec 199A deduction causing concern and discuss potential implications for producers and grain marketing firms. Note that at one month into the new tax year, there are ongoing efforts directed at modifying the language in the code to correct the unintended effects on producers and grain marketing firms.

What Does Sec 199A Do?

Sec 199A is a deduction that applies to income earned from the business activities of pass-through entities, like S corporations, sole proprietorships, partnerships, and so forth. These are businesses whose income is not taxed at the entity level, but passed-through to its owners. The intent in crafting Sec 199A was two-pronged: 1) to ensure that these pass-through, non-corporate entities had a deduction similar to the reduction in the corporate tax rate, which dropped from a maximum of 35% to a flat rate of 21%, and 2) to retain, for cooperative organizations, a prior deduction that was removed: Domestic Productions Activity Deduction (DPAD), or Sec 199. This is not a typo: Sec 199A replaces Sec 199 of the 2001 Bush tax cuts. Note that the DPAD was a jobs-creation deduction and available to manufacturing firms across many sectors, including agricultural cooperatives marketing farmers’ domestic production of grain.

The Sec 199A deduction for pass-through entities is based on qualified business income (QBI). There are restrictions on what qualifies as a business activity for this deduction (many services, for example, do not), and both the definition of qualified business income and calculation of the actual deduction are complicated. But in simple terms, the deduction is 20% of the qualified business income, subset to a wage limitation. Though complicated, this portion of the code is not contentious.
Sec 199A has a second feature, and this is the part that leaves open a number of questions about unintended consequences. In addition to the deduction related to qualified business income, it provides a 20% deduction on ‘qualified cooperative dividends.’ Typically we think of qualified cooperative dividends as the annual allocation of profits from a cooperative to its members–these are better called qualified cooperative patronage allocations. In this new law, those are indeed included in the payments eligible for 20% deduction and also not hugely controversial. However, another payment by cooperatives to its members is also included in the definition of ‘qualified cooperative dividends’: per unit retains (more correctly called per unit retains paid in money, or PURPIM). Per unit retains, in the simplest terms, are the payments from cooperatives to members for their grain or other agricultural production. Note the deduction applies only to the marketing or pooling functions (grain and other agricultural products) and does not include purchases by members for agronomy, seed, fuel, etc.

Per unit retains were defined as ‘qualified cooperative dividends.’ As a result, a producer selling grain can receive a 20% deduction of gross grain sales (before farm expenses) from taxable income less capital gains if s/he is a member selling to a cooperative. If instead the sale is to a non-cooperative marketing firm or processor (e.g., ADM, Cargill, or any number of independent grain marketing firms), the deduction is 20% of the net income. At the surface, this creates a significant effective basis gap between otherwise equal basis bids for grain or other agricultural commodities. A simple example, abstracting from the complexities of QBI and marginal tax calculations shows the potential.

A farmer has $500k in gross grain sales (140,000 bushels) and $100,000 in net farm income, all from selling grain. If she markets through a cooperative, she anticipates a patronage allocation of $0.025 cents per bushel, or $3,500.
  • Choice A: She markets the crop to an independent grain firm or processor and, through Sec 199A, she deducts up to 20% of her QBI: 20% x $100,000 = $20,000 potential deduction.
  • Choice B: If she markets the crop to her cooperative, she deducts up to 20% of gross sales (20% x $500,000 = $100,000) because they qualify as per unit retains, plus 20% of any qualified patronage allocation (20% x $3,500 = $700). The potential deduction is $100,700.
At a 22% marginal tax rate based on selling to an independent marketing firm or processor (Choice A), the deduction difference between these two choices is $80,700, which equates to $0.12 per bushel in taxes. Estimates from tax professionals working with producers is that the tax effect may range from $0.05 - $0.20 per bushel.

It is clear to see why producers are eager for clarification on this law and why independent grain firms and processors want it changed. Facing equivalent cash bids in the market, the signal is pretty clear that it is advantageous to market to a cooperative.

What if it stays as written?

The above example is meant for illustration, and there are a number of factors that might mitigate the true differential created by the law, and these are producer-specific. Still, contemplating its preservation, a cascade of questions emerge regarding grain and agricultural product movements, local capacity, optimal organizational structures for farmers, and the fate of independents. Below are my thoughts summarized in the two broader questions I receive, vetted with trusted colleagues and grain marketing experts. The perspective I provide here applies to agricultural producers and grain marketing in the Midwest, but certainly there are related or larger impacts for other types of ag cooperatives throughout the country.
  • Do cooperatives have the storage and transport capacity to handle agricultural products if all producers sell to a cooperative? What happens if not? What will be the local price impacts?
Generally speaking, it is unlikely that cooperatives have sufficient facilities currently to handle the harvest grain movements and other seasonal gluts that arise in the Midwest. But storage is a local phenomenon and each region will be different. In Iowa, for example, approximately 72% of the 1.4 billion bushels of licensed grain warehouse capacity (state and federally licensed) is held by a cooperative. If one considers on-farm storage, the argument could be made that this law wouldn’t create a significant grain-movement challenge in a number of parts of Iowa. In Kansas, approximately 70% of the grain storage is held by cooperatives or on-farm. Cooperatives in both states use ground piles to manage harvest gluts, and if this law sticks, that challenge may be exacerbated in the short term. But cooperatives and producers would respond to the economic incentives to invest in grain storage in that case. Condominium grain storage is another option for producers to mitigate storage constraints.

Grain storage facilities aside, a number of mitigating origination options are already used. In regions where processors and ethanol plants exist, producers use ‘direct-ship’ contracts to haul grain directly to a processor even though it is sold to the cooperative. Without recent data regarding the proportion of grain moving this way, it is hard to say whether we will see a significant change in those patterns, and even if so, grain movements and prices will find an equilibrium. Independent grain firms and processors likely will seek to establish marketing arrangements with cooperatives as a way to secure footing locally in the grain business.

Local price impacts are another unknown. On the one hand, some independents and corporations received a nearly 40% reduction in taxes (from 35% to 21%) via Sec 199A that cooperatives, which pass through member-based income to patron-members did not. The argument has been made that they can use those tax savings to be price competitive in the eyes of producers making the marketing decision. On the other hand, local capacity constraints at cooperatives may depress local basis, particularly during harvest, which partially mitigates the tax-differential created by Sec 199A.

Cooperatives typically do not turn away grain from members, which is why we observe large grain piles on the ground during harvest. Producers individually will need to weigh the potential tax deduction benefit with other costs associated with marketing grain: hauling distance, local basis differential, differentials in wait times at grain dumps, and so on. If net farm income is expected to be low, the per-bushel estimated tax difference created by Sec 199A dissipates.
  • Will producers form their own cooperatives or independents reorganize as a cooperative?
In local areas without grain/oilseed marketing cooperatives, the potential exists to see producers forming closed cooperative organizations to capitalize on the Sec 199A deduction. More likely, however, is that existing cooperatives acquire or build assets in those areas, or as mentioned above, form marketing arrangements with existing firms. In much of the Midwest, existing cooperatives are of sufficient size and capitalization and have the spatial presence to respond much faster to the need for capacity and changing grain dynamics than a start-up could accomplish. Alongside the temptation to form a cooperative, the new tax code creates incentives for producers to reconsider their own operation’s structure, potentially reorganizing as a C corporation or S corporation or changing from one to the other. Those details aren’t discussed here, but are complicating factors in determining how the farm economy might change if Sec 199A holds as written.

Effects on grain cooperatives

Producers will be impacted not only by the farm-level deduction of Sec 199A but, as members of cooperatives, stand to notice positive changes related to their cooperative’s patronage allocations and equity redemption. The tax savings to cooperatives on non-member business and the supply-side of their business are just like those for other corporations, and the new tax rate is 21% instead of a maximum of 35%. However, if the Sec 199A deduction for producers marketing through a cooperative holds, all producers selling grain to a cooperative will choose membership, effectively eliminating any non-member marketing business. That aside, tax savings on cooperative profits related to input supply or other non-marketing functions could be used to accelerate the cooperative’s equity redemption which gets income into the members’ hands more quickly. Alternatively, the tax savings could be used to improve facilities and service offerings to benefit members.

For those wanting more details, the fact sheet “Impact of Tax Reform on Agricultural Cooperatives” (Briggeman and Kenkel, 2018) dives into the expected changes in cooperative patronage allocation and member-level returns from the law using simulation.

Conclusion

The questions that fall out of the reality of the Sec 199A code as written are important ones, as their answers weigh on the potential for significant changes in the structure of the agricultural supply chain for crops, in grain movements, and in farm-level incomes.

In a statement on January 12, 2018, the U.S. Department of Agriculture’s Under Secretary for Marketing and Regulatory Programs Greg Ibach wrote, “The aim of the Tax Cuts and Jobs Act was to spur economic growth across the entire American economy, including the agricultural sector. While the goal was to preserve benefits in Section 199A for cooperatives and their patrons, the unintended consequences of the current language disadvantage the independent operators in the same industry. The federal tax code should not pick winners and losers in the marketplace. We applaud Congress for acknowledging and moving to correct the disparity, and our expectation is that a solution is forthcoming. USDA stands ready to assist in any way necessary.”

The agricultural industry–cooperatives, too–anticipated that the existing DPAD deduction would not stand in the tax reform negotiations, but thought a similar provision would replace it. Few, if any, anticipated that a cooperative deduction would be expanded to the producer-level, or believe it will stand as written. Organizations such as the National Grain and Feed Association (NGFA) and the National Council of Farmer Cooperatives (NCFC) are working jointly on a revision with Congress. Tax professionals, agricultural businesses, and producers are waiting for clarification on whether the law will stay as-is or be changed, and will then await guidance from the IRS on interpretation.




1969 Case 1160 Shucking Corn in January



Jacksonville, IL - Jon Brickey of Murrayville, Illinois decided to take advantage of the 50-degree weather January 25, 2018, to shuck corn with his vintage 1969 (circa) Case 1160 combine. University of Illinois Extension Farm Broadcaster Todd Gleason happened to be passing by and stopped to visit.



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Todd E. Gleason, WILLAg.org
University of Illinois Extension
(217) 333–9797 or tgleason@illinois.edu