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November 2010 Archive for 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.

How Will You Transfer the Farm?!

Nov 28, 2010

I ran across another thought provoking article in Cornhusker Economics.  In the article, they performed an analysis of farmers in Nebraska based upon their ages.

In 1982, 13,436 farmers in Nebraska were under age 35.  In the most recent census in 2007, this number had dropped to 3,353 or a 75 percent decrease.

The number of operators aged 65 or over increased from 8,777 to 13,062 in 2007 or about a 49 percent increase.

Based on these numbers, over the next several years, there will be about 13,000 Nebraska farmers pondering these three options regarding their operations:

  1. Will they sell the land, machinery and livestock to the highest bidder, or
  2. Will they rent the land, machinery and livestock to the highest bidder, or
  3. Will they transfer it to a successor to farm

 

For many operators, option 1 or 2 will most likely be the best option.  For others, option #3 will allow them to see their life's work continue on.  The rest of the article discussed the University setting up the "Nebraska Network for Beginning Farmers".

I would be curious to find out which of the three options our readers are pondering.  If I get enough response, I will post the results in a later post.  If interested, send me a quick e-mail with the following information regarding you and your operation:

  • Your age
  • Your home state
  • The size of your operation in acres or head
  • The type of operation
  • Major crops grown
  • Which option you are leaning toward
  • Whether you have identified who either the higher bidder will be or your successor
  • Are they related to you
  • Other information you think is pertinent

 

Again, if I get enough responses, I will post the data.

Happy Thanksgiving!

Nov 23, 2010

I will be traveling on the business the next two days, so I wanted to make sure to wish Happy Thanksgiving to all of our readers.

This holiday was my favorite as a child growing up since we went to my grandparents for Thanksgiving and some years we would have over 45 relatives there. 

Again, Happy Thanksgiving!

Farmland Turnover Drops by 50%

Nov 21, 2010

One of the recent issues of Cornhusker Economics put out by the University of Nebraska Department of Agricultural Economics showed how the farmland turnover for the current year is about half of the long-term trend.

The market for farmland has historically been a "thin" market in that very little is marketed and changes in ownership at any point in time are few and far between.

From an economics viewpoint, most people would predict that as prices rise, more and more product will be released into the market.  Farmland actually has the opposite happening right now.  As the price rises, farmers and investors are holding onto their farmland.

Since good farmland may remain in the same hands for decades, the window--of-opportunity is very limited to make a buy.

Over many decades, a rule-of-thumb has been anywhere from 3% to 5% annual turnover of ownership.  It is likely that the long-term trend is on the lower end, therefore, a particular piece of farmland will only be on the market once every 33 years.

The economics department reviewed all real estate transfer documents for Nebraska and eliminated any parcels less than 40 acres.  They then calculated a three year average for transactions in the 2006-2008 period.   These numbers were then divided by the total acres for each county to find out the turnover rate for each county in Nebraska.

They found that the average turnover for this period was 1.55% or an about 65 years between a particular piece of farmland coming up for sale.  Some counties were substantially under 1%.

Although this information relates to Nebraska only, I would surmise that most other states are seeing the same trends.

Betterment - Why Does That Cost Me Money?

Nov 18, 2010

We had a reader ask the following questions:

"We had a combine fire this fall, and my question is concerning "betterment" deducted from the claim. The combine was a 2010 model, with only 400 hours on it. The damage exceeded $41,000, and the insurance company deducted $4,100 (10%) for "betterment". I assume that I can deduct the amount I paid over and above the insurance payment. Is this deduction common. Maybe it's more of a legal question. Any help is appreciated."

 

Even though I am not an attorney, I will give my answer on this from my research.  Betterment refers to the insurance company replacing parts on equipment with newer parts than was in the equipment originally.  For example, you may have a combine that is 10 years old that has a fire and when the insurance company replaces the parts on the combine it purchases brand new parts that have a much greater value than the 10 year old parts on the combine.  This is called betterment and the insurance company will adjust the payout to reflect the extra cost or value of the new parts versus the old parts destroyed.

In this case with a 2010 model with only 400 hours, the insurance company may have stretched the definition here, but like driving a car off the lot that loses some value once the odometer no longer reads "new", I suppose there could be some betterment to be charged.

With regards to the extra paid to get the combine back in working condition, that is normally considered a repair expense and 100% deductible.  Also, with Section 179 being $500,000 for 2010, even if you "added" something new to the combine as part of the repair process (for example, you may have added a precision ag monitor that was not there before, this would not be a repair but an addition), you should be able to deduct this as part of your Section 179 deduction.  But if you are only getting the combine back to what it was before the fire, that will 100% deductible as a repair expense.

December 31, 2010 - Date to Make Taxable Gifts

Nov 17, 2010

With the expected large increase in gift and estate tax rates for 2011, December 31, 2010 is the key date to make any large taxable gifts.

Currently, the maximum gift tax rate is 35% and it will rise on January 1, 2011 to 55%.  There is no estate tax for 2010, but in 2011, the maximum rate will also be 55%.  In other words, December 31, 2010, ironically, is the "drop-dead date" for taking advantage of the 35% rate.  Basically, gift taxes are on sale for 2010 only.

If the farmer dies in 2010 after making a taxable gift, then paying the sales price - the 35% gift tax - will have backfired since there are no estate taxes owed for 2010.  That is why any farmer will want to wait until December 31, 2010 to consider making these gifts.

Another potential draw back to the gift in 2010 is that if the farmer dies within 3 years of making the gift, it is basically undone and the gift and gift tax paid is included in the farmer's estate and taxed at whatever rates are in effect at that time.  The farmer would not be any worse or better off from dying within this 3 year period, but the benefit of making the gift in 2010 would be nullified.

For example, let's assume we have a farmer worth $10 million and elects to make a gift on December 31, 2010 of $4 million.  They will pay a gift tax of about $1.4 million.  After paying this tax, they have reduced their estate from $10 million to $4.6 million.  Assuming the farmer lives for at least 3 years, the estate will only pay tax on the $4.6 million at 55% or about $2.5 million of total estate tax.  This tax plus the $1.4 million gift tax equals total taxes of about $3.9 million.  They were able to pass on to theirs heirs $6.1 million.

Now let's assume the farmer does not live three years or does not make the gift.  They will be taxed on the full $10 million at 55% or $5.5 million of total estate tax.  Their heirs only recieve $4.5 million instead of $6.1 million.  By making the gift on December 31, 2010, the family saved $1.6 million of estate taxes or about 30%.

This strategy is primarily focused on the farmer who has a net worth greater than $5 million, the liquidity to pay the gift tax and is probably in their 70's or 80's.

A major caveat is that Congress may make changes to the 2011 estate law before December 31, 2010, however, it makes sense to at least plan for reviewing this strategy with your tax advisor if Congress does not act in time.

What's Your ACRE Payment?

Nov 16, 2010

I got a call from one of my clients yesterday saying that he got a surprise in the bank account.  His ACRE payment had shown up and it was a substantial amount.  We wrote many posts on this about a year ago before the final sign up for the 2009 crop indicating that ACRE might be a good idea with prices going down.

G.A. "Art" Barnaby Jr of Kansas State University posted an update recently projecting the estimated ACRE payout for each crop by state for the 2009 crop year.  The primary payouts were for wheat.

For corn, the only corn belt state that qualified for an ACRE payment was Illinois at about $25 per acre.  None of the other corn belt states received any payment, however, some other states received a fairly large payment:

  • Connecticut, Massachusetts, Rhode Island all received close to $150 per acre
  • Texas - $73 per acre
  • Oklahoma - $49 for dry land and $100 for irrigated

Only two states qualified for a soybean payment - Texas got $15 per acre and South Carolina received about 54 cents per acre.

Sorghum payments ranged from about $11 to 47 per acre and were primarily in the Southern states.

Almost every state received a Wheat ACRE payout for the 2009 crop.  The maximum payment of $133 was earned by Nevada, while Arizona, Delaware and Idaho all received more than $100 per acre.  Most of the other states earned from $50 to $100 on average.

However, North Dakota, the largest wheat producing state earned zero for the year (due to their increased yield) and Kansas only earned $7.56 per acre.

If you have one of these crops and are in these states, check your bank account to see if the USDA made a deposit you were not expecting.

How Might a Rise In Interest Rates Affect Farmland Prices?

Nov 15, 2010

With a lot of recent discussion and articles on whether farmland prices are entering a "bubble" phase, I thought some analysis to see how a potential rise in interest rates might effect farmland prices would look like.

Farmland prices (as are most financial assets) is normally a function of the income generated by the farmland and the expected rate of return that an investor requires to make the investment.  Currently, farm income is historically high and interest rates are historically low.  With these two bullish patterns, farmland prices have enjoyed a large run up in price over the last ten years or so.

What if farm income stays high, but interest rates and the expected rate of return that an investor requires increases, how might this affect the price?

Let's assume that we have an investor who owns 160 acres of very good farmland in Iowa that is currently worth $8,000 per acre and the cash rent on this property is $300 per acre.  This implies that the investor is willing to earn an approximate 3.75% rate of return.  Now let's assume that the interest rates rise and the investor requires a 5% rate of return.  This would reduce the value of the property from $8,000 per acre to about $6,000 or a 25% drop in price.  If the required rate of return was 6%, then the price would be $5,000 or about a 37.50% drop in price.

This analysis assumes that cash rents would remain the same and other expectations would also remain constant.  However, normally, when interest rates rise, expectations change and the effect on prices could even be more dramatic than what is shown here.

If you are anticipating making an investment in additional farmland, make sure that you have done this analysis to determine the effect on your farming operation if rates and expected returns do rise.  Now is probably not the time to be making farmland purchases with much leverage.


 

Cane, Beet, Corn - What is Sugar?

Nov 15, 2010

I have seen several articles lately on the battle between high fructose corn syrup and regular sugar from sugar cane or sugar beets.  There is a perception by the public that cane and beet sugar is better for you than sugar from corn. 

Most nutritionists believe that the all of these sugars are equal from a nutritional standpoint, that is, they all think we should consume much less of them than we are now.

Even Heinz Ketchup has gotten in the middle of it.  A few months ago, they started marketing ketchup made with regular sugar instead of high fructose corn syrup that they called Simply Heinz.  They kept the regular ketchup with the same recipe, but marketed Simply Heinz as an alternative to their regular brand.

The feedback has been, to say the least, very interesting.  The Pittsburgh Post-Gazette has an article on how the feedback has ranged from people wanting to have products with regular sugar, but hating the taste of it, to people wanting to keep things the same.  Other companies like Pepsi have come out with soda's with regular sugar as a throwback item.  I, myself, am a Mountain Dew fan and I must admit that I much prefer the taste of current Mountain Dew with high fructose corn syrup than the taste with "real" sugar.

The corn industry is trying to get a ruling that they can legally change the name of high fructose corn syrup to corn sugar.  It will be interesting to see how this all plays out.

Sugar Drops 20% in Two Days

Nov 14, 2010

Prices for sugar hit a 30-year high on Thursday at 33.39 cents per pound, however, by the end of the day, prices had dropped about 9.6% closing at 29.66 cents a pound and dropped another 11.6% on Friday to close the week at 26.21 cents per pound.

The drop in prices was sparked by the announcement that India appears to have a sugar surplus of about 3.5 million metric tons which should offset the impact of the drought-stricken harvest in Brazil, the world's largest producer.

India's announcement was about 3 times higher than what the market expected.  The final total, which determines how much sugar can be exported can be higher.  This decision will most likely be made sometime later this month.

China's expected raise in interest rates also appears to be spooking the market for soft agricultural goods such as sugar, cocoa, coffee and cotton which all fell by at least 3 percent on Friday.

Cropland Prices Rise More Than 6%

Nov 14, 2010

The Federal Reserve Bank of Kansas City (representing Kansas, Missouri, Nebraska, Oklahoma, and the Mountain States) just reported that non-irrigated farmland prices for the year-over-year ended September 30, 2010 rose more than 6%.  Irrigated cropland was up an even more robust 9.6%. 

After dipping slightly in the third quarter of 2009, prices have risen each of the last four quarters.  Kansas saw their prices rise more than 12% during the year, while Missouri, Oklahoma and the Mountain States only saw modest gains.

Cash rental rates were up about 5% for cropland and 2% for range land.

Rising farmland values were driven by strong demand from both farmers and investors.  Bankers reported that investors expect an average rate of return of between 5% and 6% on farmland investments.

There has been a two-year decline in the number of farms available for sale and bankers believe that with the possible rise in capital gains rates in 2011 that more farms may become available.

What is Your 20 Year Plan?

Nov 09, 2010

I was skimming the Corn and Soybean Digest website the other day and came across this very good article on planning ahead for the next 20 years on your farm operation.

It is very important for farmers to set goals and plans.  I believe that these goals should be in writing and quantifiable.  Also, on yearly goals, I think they should be expressed by year not by number.  For example, a goal should state that during "2011" not in one year since the 2011 date is specific and the "one year" is not.

One method that might help farmers is to create a series of yearly notebooks.  Each notebook would have the Year on the outside along with the word "Plan" or "Goal", etc.

In the notebook, you would have tabs for the various segments of your farming operation.  For example, you might have a tab for:

  • Inputs
  • Marketing
  • Finance
  • Production
  • Tenant relations
  • Storage
  • Machinery

 

Each farmer will have a unique set of tabs, but these would probably be in most of them.

In each tab, I would suggest typing up an individual sheet for each goal associated with the tax.  You may even want to have an index under each tab with your goals and plans as you add them.

This sheet should state the following:

  • What is the current situation
  • What is the expected situation for this particular year
  • What is the defined difference between current and expected
  • How can the farm achieve the goal to get from current to expected
  • What are the defined steps to achieve the plan including dates, action items, etc.

 

For example, assume you have a farm with 2,000 acres of corn and bean production on a 50/50 mix.  Your current yield is 50 bushels for beans and 200 bushels for corn.  You expect in 10 years for these yields to be 65 bushels and 250 bushels, respectively. 

Under your storage tab, you might have a sheet for 2020 as follows:

  1. In 2010, our current storage needs are 250,000 bushels.  We have on-farm storage of 250,000
  2. in 2020, based upon our projected yields that our storage needs will about 325,000 and we would like to have a 50,000 bushel cushion for bumper harvests or carry-over of the previous year crop if needed.  This results in a total storage need of about 375,000 bushels.
  3. Our need for additional storage over the next 10 years is 125,000 bushels or an increase of 50% in our current storage.
  4. Our action plan is to (1) meet with our storage vendor to review our options for these storage needs, (2) meet with our banker to determine the best financing, (3) initiate construction of 50,000 bushels in 2011, 50,000 bushels in 2014 and the remaining 25,000 bushels in 2018 with a review of our needs each year.

 

This is a very brief summary of how the sheet should look.  You would want to expand section 4 to show who, what, when, etc. on the details.  Also, for your 2011, 2014 and 2018 notebook, you would have specific worksheets under your storage tab for the bins to be constructed for those years or adjusted to the actual year of construction.

I firmly believe that if a farm operation started a planning process similar to this with at least the next 5 years in very detailed notebooks and the 15 years thereafter in broad form, it would not take long for your farm to see the difference.  Plus, another great benefit to these notebooks is the history that you build up over the years.

When a Deposit Costs You Money?

Nov 07, 2010

One of our readers sent us the following question:

"If I prepay inputs for 2011, do I have to deduct them in 2010? Also, if I just need some of the expense this year can I deduct part of it? Thank you!"

A farmer that uses the cash method of accounting (which is substantially all of the farmers) may prepay direct farming costs that will be consumed over the next twelve months.  A livestock farmer or dairy may prepay their feed needs for this 12 month period.  A row-crop farmer may purchase their 12 month needs of seed, sprays, fertilizer, diesel and gas, etc.  There must be an appropriate business reason for this purchase such as locking in a lower price, or making sure you have an adequate supply for the upcoming crop year.

A prepayment of farm expense must involve an actual purchase of the product and not simply a deposit.  The IRS considers a deposit if the following conditions are met:

  • The right to substitute other goods or products for the items specified in the contract (you may in certain circumstances be able to substitute other products or goods, but you can not have the right to do this),
  • The absence of specific quantity terms and conditions,
  • The right to refund any unused credit at the termination of the contract, and
  • The seller's treatment of the expenditure as a deposit (however, we believe that this should not be a condition of a deposit since the farmer has not control over how the seller of the product will classify the transaction on their books).

 

A simple way of looking at the transaction is whether title to the input item has passed from the seller to the farmer.  If the title and the rights associated with the input passes to the farmer, then the item is considered a qualified prepaid farm expense.  If the title does not pass, it is a deposit.

Assuming you do not have a deposit, a farmer can elect to prepay as much of their upcoming needs as they see fit.  For example, if a corn farmer knows their fertilizer needs for the 2011 crop year will be $200,000, the farmer can purchase up to $200,000 of specific fertilizer by December 31, 2010 and deduct it on the 2010 tax return.  The farmer can buy as much as they want to in 2010, but is limited to deducting $200,000 in 2010 for the 2011 crop.

Now for the specific question regarding whether you have to deduct the prepayments.  The general rule for cash basis farmers is that all cash expense are deducted when paid.  However, if the farmer can document that part of these prepayments were in fact, either a (1) deposit or (2) inputs for the 2012 crop, these payments would be considered non-deductible in 2010, but rather in deductible in 2011.

This allows a farmer some flexibility, but it does not let a farmer simply pick and choose how much they want to deduct.

Remember, prepayments of farm inputs for the upcoming year are deductible, a deposit is not.

Watch Out For Morocco's Phosphate Monopoly

Nov 07, 2010

In the November 14, 2010 issue of Bloomberg Business Week, one of their key articles was on Morocco's potential monopoly in phosphate.  As most farmers remember, phosphate prices in the 2007-2008 time period rose, in some cases, by tenfold or more.  For many decades, phosphate sold for about $40 per ton.  However, currently, phosphate trades near $130 per ton and it may go higher.

Most phosphate mines, including those in the US, which produces about 17% of the world's supply, have been in a downward spiral for the last decade, running out of quality rock to mine and environmental issues.  This has forced phosphate companies to look farther afield for additional supplies.  Earlier this year, Mosaic purchased a 35% stake in a Peruvian mine to supply its phosphate operations in North and South America.

However, Morocco appears to be gaining confirmed phosphate resources.  This was officially verified in September, when the International Fertilizer Development Center released its long-awaited update on global phosphate resources.  Morocco's portion went from the old official 5.7 billion metric tons to 50 billion metric tons - 85 percent of the world's total.  Even with about 170 million metric tons of global production, Morocco appears to have enough supply for the next 300 to 400 years.

With this abundant supply and the shortage in other country's supplies, Morocco is taking a hard stance on pricing.  If they are successful in keeping supplies off the market and prices high, we may see phosphate prices near the 2007/8 level or even higher.

We shall see how this turns out over the next several years.

North Dakota Tops Kansas (In Wheat Production)

Nov 05, 2010

According to an article in Agweek.com based upon the North Dakota Wheat Commission data, the 2010 North Dakota wheat crop produced 375 million bushels of wheat, beating Kansas by about 15 million bushels. 

These high production amounts (last year was about 2 millions bushels higher) is due to record yields of about 45 bushels over these two years.  These yields are about 32 percent higher than the previous decade's average yield of about 33 bushels.

Even though acreage has been down by about 9 million bushels (most of this probably in corn and beans), the record yields have still resulted in record production.

With current corn, bean and wheat prices fighting with each other to see who will provide the best return to farmers, it will be interesting to see how much extra wheat is planted next spring (if any).

How to Handle Allocation of Purchase Price

Nov 05, 2010

One of our readers wrote in the following question:

"Our son is in the process of taking over our hog operation. They would like to buy all the buildings, equipment, and house on a contract. Do we need an appraisal for this transaction? Some of the buildings and equipment are 16 years old and fully depreciated. Can we take original cost and value them based on a 20 life? How do we value old equipment to be broken out for tax purposes? Any suggestions on how to handle this transaction?"

 

Since this is a transaction between related parties (father and son), you must make sure to document this transaction properly.  On any material items of equipment with a value greater than $10,000 or so, I would like to see you get an independent equipment appraisal from your local implement dealership.  It does not have to be fancy, but as long as it is on their letterhead and a reputable dealership, this should be sufficient.  On the equipment with minor value, document how you arrive at the value and if reasonable, the IRS should agree to the allocation.

If  the value of the buildings are over $100,000 or so, I would suggest at least getting a local real estate agent to review and give you an estimated value for each building.  In today's environment, that can be tough to do with all of the mortgage mess, but it is worth a try.  Another option is to review your real estate tax assessed value and see if that is prepared on a fair market value basis.  If so, you should be able to use that value and the IRS would not be able normally to make much of an adjustment to those values.  If the real estate agent value and the real estate tax value have dramatic differences, you will need to review this with the agent to determine why and document it in writing.

Even though each party in this transaction will agree to the values arrived at in writing, the IRS is not bound by this valuation.  Since these are related parties, the IRS can come in and revalued the transaction to whatever they feel is appropriate.  Therefore, the more documentation that a farmer has showing how they arrived at the values and the methodology, the more likely the IRS is to agree with valuations.

Let's see an example of how this could dramatically hurt the farmer.

Let's assume the farmer values their property at the following values:

  • Equipment - $25,000
  • Buildings - $250,000
  • House - $125,000
  •  

Let's also assume that the father is selling this on an installment contract with $25,000 down and the remainder paid over a 20 year period with 5% interest.  Let's also assume the equipment and the buildings have been fully deprecated.  Under the installment rules, the equipment gain is all taxed in the year of sale and the building gain will have a small gain to report.  If the farmer is in the 25% tax bracket, then the total tax owed will be about $7,000 or so.

Now, let's have the IRS come in and audit the transaction and reallocate $50,000 of value from the buildings to the equipment.  This now means the farmer is taxed on $75,000 of equipment gain at 25% or about $20,000 in tax.  This results in a tax increase of $13,000 to the farmer, however, they did not receive another dime of cash in the first year.

This is why it is important to properly document any purchase and sale between related parties.

How's Your Sugar High?

Nov 04, 2010

The Wall Street Journal reported today that the sugar prices are nearing a 30 year high.  The benchmark March sugar contract settled at 30.15 per pound yesterday.  That was the highest close since January 14, 1981. 

There was a rally earlier in the year that got close to the same price, however, that rally was based more on speculators and not fundamentals.  This rally appears to be based almost solely on fundamentals.  Brazil, the world's largest sugar producer, is enduring weather problems that will affect the sugar crop.

Global stocks have been decreasing steadily for two years and some experts think the actual stocks will be below the 20 million metric tons which is less than half the level from two years ago.

India is the crucial country in this whole equation.  It is the world's largest sugar consumer and they anticipate a bumper crop this year that will allow about 2 million metric tons available for export.  Traders expect India to announce export quotas of up to 2.5 million tons this month.  Anything materially less than this will send prices spiraling higher.

We already see how cotton prices have dramatically increased with new record highs set this week.  Will sugar follow the trend and set a new "sugar high".

Watch Your P's & Q's on Section 179

Nov 03, 2010

Joe Kristan of Roth & Company, a CPA firm in Des Moines, Iowa writes a very good blog on income taxes and in one of his more recent posts, he recaps a case (Thomann TC Memo 2010-241) where a farmer attempted to take Section 179 on equipment that was leased to their farm corporation.

During 2004, 2005 and 2006, the farmers bought equipment in their own names and took Section 179 on the purchase cost.  The land and equipment was rented to both a corporation owned by the farmers and an unrelated third party corporation, however, the leases were not in writing.

When you have a non-corporate taxpayer renting equipment, the tax laws restrict whether you can take Section 179.   Such leased equipment is normally ineligible for Section 179 unless two requirements are met:

  1. First, the term of the lease, taking into account options to renew, must be less than 50% of the class life of the equipment, and
  2. During the initial twelve month period after the transfer of the equipment to the lessee, business expenses related to the equipment must exceed 15% of rental income provided by the equipment.

 

In this case, the IRS argued that the informal leases between the farmer and the corporations meant that they could never meet the first requirement.  The Tax Court agreed.  The Tax Court did not even address the second point which was probably not met either.

This ruling ended up costing the farmers about $100,000 of which over $16,000 was for penalties.

What this means to our farmers is that they need to  be very careful to document in writing their farm lease between them and their farming corporation or LLC.  If the farmer wants to take Section 179 expense on farm equipment, I would highly recommend that all equipment be purchased by the corporation and expensed inside the corporation, not on the farmers form 4835.  If the farmer does want to purchase the equipment directly and take Section 179, they must meet the two steps shown above, which for most farmers is extremely difficult to meet, especially step 2.

Remember, Section 179 for this year and next is available on up to $500,000 of equipment cost, so this provision can be a major benefit to the farmer, but watch your P's and Q's to make sure it does not come back and bite you.

Is China Running Out of Farmland

Nov 02, 2010

Colvin and Company provides a very good blog related to farm land investments called Farmland Forecast.  In one of their more recent blogs, they did a great analysis of whether China is running out of good arable farmland.

At the beginning of 2000, China had about 128 million hectares of good arable land.  As of 2010, this number is down to about 122 million hectares.  China projects that they need a minimum of 120 million hectares to be self-sufficient in grain production until at least 2020.  Between 1997 and 2007, China lost on average about 775 thousand hectares of land each year to development, erosion and desertification (building the giant Three Gorges Dam I am sure took many thousand acres of hectares.  A city of about 3 million people alone disappeared).

China is doing all it can to preserve this farmland, however, Bank of America estimates that China is already below their minimum goal of 120 million hectares and could decrease to about 117 million hectares by 2015.

They also predict that by 2015, China will import 17.4 million tons of corn or about 638 million bushels which would equal about 5% of our current crop.

If this trend continues, crop prices should remain higher than in the past.

My Idea of a Vacation

Nov 01, 2010

I flew to Kansas City on Thursday of last week.  On Friday, I spent about five hours in the John Deere 9660 combining soybeans.  The field had several terraces and many ditches, so the combining was not simply going back and forth across the field.  I filled up two semi loads with beans and had a great time.  This is my idea of a great vacation.

On Saturday (since the other beans were not ripe yet), I spent the whole day traveling.  I went to Wichita Falls, then up to Salina and on the way back to Kansas City, I spent a couple of hours touring the Flint Hills in the Manhattan south region.  If you have never toured this area of the Country, I highly recommend it.  This is some of the most interesting hill region in the US.

I also saw a lot of milo being harvested and the weather was outstanding (70 degrees and sunny).  The only negative for the region is that Kansas, Kansas State and Missouri all lost their football games on that day.

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