We got the following question from one of our readers:

" I made profits on commodity trades in 2011. The amount was $20,000. The 1099 from MF Global shows $20,000. However, I have received only $14,000 and probably will not get the entire $20,000. How much do I have to pay tax on?; the $14,000 that I received in 2011 or the 1099 showing that I made the entire $20,000?"

This situation is really two separate tax issues.  The first issue is the reporting of the gain on the 2011 commodity trades.  This $20,000 will be reported in 2011 just like any other year.  The taxpayer had gains of $20,000 in the account and they are taxable as realized (we are assuming these are speculative trades; if a hedge, the amounts may be different).

The second issue is whether there is a "theft" loss due to MF Global's actions.  If it is finally determined that there is a loss and it is considered theft, then it should be fully deductible in 2012, not 2011.  The tax laws indicate that if the amount of the theft loss is not known by the end of the tax year, the loss is not deductible until the amount is known.  In the MF Global case, that will be 2012 at the earliest and could be 2013.

This is a very complex case, but the bottom line is the loss is not deductible in 2011.

It is not too often that we do a post on fruit ag news, but we just recently came across an article in the Good Fruit Grower, which is based in my home city of Yakima, Wash.

In the article, a Washington State agricultural economist predicts apple production in the state for 2021. (Washington is by far the largest producer of apples, and for 2012 total apple sales may be close to $2 billion.) For many decades, the largest produced apple in our state was the Red Delicious. However, this variety is expected to decline from 33 million boxes (42 lb.) to 25 million boxes.

The Gala apple will overtake Red Delicious by about 2018 and be the No. 1 variety in 2021 with a production of about 29 million boxes. The Fuji variety will be No. 3 at about 21 million boxes.

The big mover, however, will be the Honeycrisp, which appears to be the current favorite apple with consumers. This variety is expected to jump from the current annual production of about 4 million boxes to well over 13 million boxes in 2021. This apple is probably my favorite one to eat, and we have had several plantings of this variety near our house in the last couple of years.

Let me give you some numbers on potential revenue from Honeycrisp based on current all-time prices. Assume a corn grower is able to get 250 bu. of corn at $7 per bu. This is a gross of about $1,750 per acre, which is probably an all-time high. Some Honeycrisp growers may get production in excess of 100 bins per acre, a pack-out of 14 boxes per bin and $35 or more per box. This equals gross revenue of $49,000 per acre or more in many cases. Before all the corn farmers start growing Honeycrisp, you need to realize that the costs of growing and packing this crop are extremely higher than corn growing.

Total apple production in Washington State is expected to increase from the current 105 to 110 million boxes to about 115 to 130 millon boxes by 2021. Apple growers, like most farmers, are having better revenue years than in the past, but the future trend of production still appears positive.

Congress late last week passed a new bill (and President Obama has already indicated he will sign it) to extend the 2% payroll tax cut from February 29, 2012 till the end of 2012.  This means that your employee's FICA contribution will remain at 4.2% for the rest of the year instead of the schedule return to the normal 6.2% rate.

For self-employed farmers, your total FICA contribution will be 10.4% instead of the normal 12.4%.  As normal, it appears that election year politics is in play here and we would not expect this to continue into 2013.

I have seen several taxpayers calculate their employee's paychecks for 2011 incorrectly and hope most of our farmers have already updated their payroll system to deduct and pay the proper amount.

With the March 1 farm tax return deadline rapidly approaching, I want to remind our farmers to make sure they actively review their tax return to see if farm income averaging will save them money this year.   Farm income averaging allows you to smooth out your income tax liability for the current year if this year's income spikes from the previous three years.  Without farm income averaging, a farmer may end up paying tax in a much higher tax bracket than they need to.

For example, let's assume a farmer had exactly zero taxable income for 2008, 2009,  and 2010.  In 2011, the farmer has taxable income of $270,000.  At this level of taxable income, his income tax for the year would be approximately $66,500 and he would be in the 33% tax bracket.  With farm income averaging, we could assign between $65,100 and $68,000 of income to 2008, 2009 and 2010.  This would soak up the 15% and 10% tax brackets for those years.  We then pretend the farmer paid the respective tax for each year and add those taxes to  the remaining amount taxed in the current year.  This results in  all of the taxable income being taxed at either 15% or10% for a total tax of about $37,200.  By making this election in 2011, the farmer permanently saves over $28,000 of income tax for the year.

This is a great provisions for farmers, but you must review the return to make sure you or your tax advisor took advantage of it.  If you don't; it can cost you a lot of money.  The rules can be complicated so you need to review it with your tax advisor.

With another year of low corn production but high acres, did this negatively affect the total production for other crops in 2011? The USDA just released the final numbers on U.S. crop production for 2011 and I thought I would take a look. The major findings are as follows:

•  Corn production down 1% to 12.4 billion bushels
• Soybean production down 8% to 3.06 billion bushels
• Wheat production down 9% to 2 billion bushels
• Cotton production down 13% to 15.7 million 480-lb. bales
• Sorghum production down 38% to 214 million bushels
• Dry edible bean production down 38% to 1.972 billion pounds
• Potato production up 5% to 426 million cwt.
• Barley production down 14% to 155 million bushels
• Peanut production down 12% to 3.648 billion pounds
• Sunflower production down 24% to 2.091 billion pounds

Every crop listed here but potatoes was down in production, in some cases substantially. We know that the drought in the Southern U.S. caused part of the drop in several of these crops, but for almost all crops to be down across the board was great for prices in 2011. But if we have a "normal" crop in 2012, how will prices respond?

My guess is that prices will come down some for most crops in 2012 unless we have another weather issue, and since this would be three crops in a row dramatically affected by weather, all bets on pricing would be off.

We shall see.