Jul 25, 2014
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The Farm CPA

RSS By: Paul Neiffer, Top Producer

Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.

Base Acre Reallocation Options Under the 2014 Farm Bill

Jul 24, 2014

FarmdocDaily just released today an analysis of the base acre reallocation options under the new farm bill. The report gives a very good analysis of the base acres by the various major crops and the variances between base acres and planted acres for 2012. Here are charts of the major crops by base acres and planted acres of 2012 (taken directly from the report):

CaptureAs you can see, wheat base acres are substantially higher than planted acres. Many of the base acres located in North and South Dakota and other "fringe" areas of the corn belt have now been planted to corn and beans over the last several years. In the percentage terms, the difference for barley is even more dramatic. Barley's planted acres is 3.6 million, whereas base acres are 8.6 million. The difference is 5 million acres or about 58% based on base acres or about 139% based on planted acres.

There is a good table showing how the average acre planting history for 2009-2012 will be used to determine the reallocation of base acres. 

The Effect of Premium Subsidies on Crop Insurance Demand

Jul 24, 2014

The Economic Research Service of the USDA periodically releases reports on various items related to agriculture. This month, they released a report on the "The Effects of Premium Subsidies on Demand for Crop Insurance". The actual report is about 30 pages long and has a very detailed regression analysis for about 10 pages of the report. However, there are several interesting facts contained in the report that I will summarize here:

  • In 1992, producers enrolled 82 million acres and total premiums (including subsidies) were $1.2 billion (in 2012 numbers to account for inflation). By 2012, crop insurance policies covered more than 282 million acres and premiums exceeded $11 billion. The actual subsidies grew from $322 million in 1992 to nearly $7 billion in 2012.
  • The following table shows the trends of actual acres enrolled in crop insurance sinceCapture 1990.

As you can see, acres have almost tripled over the 22 year period from 1990 and the percentage of corn, bean and wheat acres covered is all at the 84% level. Also, the share of these three major crops has dropped from 78% to 68% during that period.

The report also goes into the effect of the Agricultural Risk Protection Act changes made in 2000. This chart outlines the changes in premium subsidies:Capture

As the coverage level increases, you can see that a major increase in the subsidy occurs. For example, at the 75% and 80% coverage level, the premium subsidy increases by 31%, while at th 50% and 55% coverage levels, the premium subsidy only goes up by 8%.

With the introduction of the Supplemental Coverage Option (SCO) for 2015 crops being subsidized at the 65% level, it will be interesting to see how this will affect coverage levels compared to the last few years. Remember, this is only available if you elect PLC.

USDA Offers Assistance to Farmers and Ranchers Affected by Fires

Jul 23, 2014

Just north of where I live is burning a very large forest and range fire. The latest numbers I saw showed close to 300,000 acres or about 400 square miles have been burnt and only about 20% of the fire is contained. The local USDA FSA office for Okanogan/Ferry Counties (which are two of the counties most affected by the fire) just released a notice letting farmers know that USDA has assistance available due to these wildfires.

The Livestock Indemnity Program (LIP) will reimburse farmers for 75% of the fair market value of the livestock as of the day before death. If the farmer/rancher incurred forage losses due to fire, then assistance is available under either the Livestock Forage Program (LFP) for federally managed lands or the Emergency Assistance for Livestock, Honeybees and Farm Raised Fish Program (ELAP) for non-federal lands. This assistance is usually based on 60% of the value of the forage, however, there are certain limitations and adjustments to this (see the fact sheet links below).

Ranchers and farmers need to report these losses with-in 30 days of discovering the loss. With the wildfires still burning out of control, there may be a delay in this discovery. Also, these payments are subject to the overall $125,000 payment which may limit the relief for many of the farmers/ranchers in this area. With the high price of cattle right now, a loss of about 100 head of cattle could easily tap out the limit for the year.

Here is a fact sheet from the USDA on LIP.

Here is a fact sheet from the USDA on LFP.

Here is a fact sheet from the USDA on ELAP.

ACA Subsidies: One Court Strikes Down, Another Upholds

Jul 22, 2014

The U.S. Court of Appeals for the D.C. Circuit ruled Tuesday morning that the insurance subsidies granted through the federally run health exchange, which covered 36 states for the first open enrollment period, are not allowed by the law. Subsidies provided by state ran exchanges would still be allowed.

The highly anticipated opinion in the case of Jacqueline Halbig v. Sylvia Mathews Burwell reversed a lower court ruling finding that federally run exchanges did have the authority to disburse subsidies.

This ruling vacates the Internal Revenue Service (IRS) regulation allowing the federal exchanges to give subsidies. The large majority of individuals, about 86 percent, in the federal exchange system received subsidies, and in those cases the subsidies covered about 76 percent of the premium on average.

No more than two hours later, a second federal appellate court, the U.S. Court of Appeals for the 4th Circuit, reached the opposite conclusion, ruling that while the relevant provision of the federal health care law might appear to cut against the federal government, the I.R.S. is nonetheless entitled to the benefit of the doubt from the federal courts.

“We cannot discern whether Congress intended one way or another to make the tax credits available on HHS-facilitated Exchanges. The relevant statutory sections appear to conflict with one another, yielding different possible interpretations,” the 4th Circuit declared in King v. Burwell. “Confronted with the Act’s ambiguity, the IRS crafted a rule ensuring the credits’ broad availability and furthering the goals of the law. In the face of this permissible construction, we must defer to the IRS Rule.”

Due to the circuit split on a fundamental question of the legality of the ACA, I would guess it is likely the U.S. Supreme Court will review the rulings. Until then, stay tuned.

Top 100 Ag Banks

Jul 21, 2014

The American Bankers Association (ABA) posts a quarterly report of the 100 largest Ag Banks (Non-Farm Credit). In the first quarter report for this year, the #1 bank for Ag loans was Wells Fargo with $7.229 billion of farmland ($2.231 billion and $4.998 billion of other ag loans). #2 was Rabobank with $3.957 billion followed by Bank of the West ($3.342 billion), Bank of America ($2.471 billion) and First National Bank of Omaha ($2.050 billion) to round out the top 5 banks.

There are currently 11 banks with more than $1 billion in Ag loans with Bremer Bank based in Minnesota at $1.005 billion being #11. John Deere Financial is # 8 on the list with $1.497 billion of machinery loans and about 77% of its assets are composed of farm loans which is the highest percentage in the Top 50, tied with First Financial Bank of El Dorado, Arkansas. In recent years, having a large concentration in Ag Loans has been a good thing. Over the next five years, maybe not so good. You can understand a bank like John Deere Financial having a large concentration of Ag loans, but a smaller bank like First Financial may face greater regulatory scrutiny.

Banks in the Top 100 banks with exposure greater than 60% that have not yet been mentioned are:

#15 United Bank of Iowa, Ida Grove, Iowa - 76%

#21 American State Bank, Sioux Center, Iowa - 63%

#38 Investors Community Bank, Manitowoc, Wisconsin - 63%

#50 Carroll County State Bank, Carroll, Iowa - 61%

#64 Peoples Bank, Rock Valley, Iowa - 68%

#74 American Bank and Trust, Wessington Springs, South Dakota - 61%

#89 First State Bank of North Dakota, Arthur, North Dakota - 74%

#96 Premier Bank, Rock Valley, Iowa - 70%

#97 Security Savings Bank, Canton, SD - 73%

#99 The Farmers Bank of Prophetstown, Prophetstown, Illinois - 74%

Three of these banks are located in Northwest Iowa and two in the same town of Rock Valley, Iowa (which I drove through a week ago Saturday along with Sioux Center). This is the part of Iowa that has seen farm land prices in excess of $20,000. If you want to see a list of the top 100 Ag banks by loan concentration, see the list here.

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