Moneywise December 2010

November 24, 2010 02:52 AM

USDA Wants 100,000 New Farmers

USDA has a very specific goal when it comes to the future
of agriculture: It wants to increase the number of new farmers by at least 100,000 in the next few years. Toward that effort, USDA has announced grants of $18 million to regionally based networks to support financial and entrepreneurial training and apprenticeships for beginning farmers.

The Beginning Farmer and Rancher Development Program was developed by the National Sustainable Agriculture Coalition (NSAC), authorized in the 2002 farm bill and provided with $75 million in mandatory funding in the 2008 farm bill. This is the second year of awards, with more rounds in 2011 and 2012. 

“Beginning farmers face a range of challenges to successful startup, including access to credit, access to land, access to markets and technical assistance,” says NSAC Policy Director Ferd Hoefner. “As our farming population ages, it is essential that we find creative and innovative ways to support young people wanting to farm.” 

The farm bill funding will need to be renewed when Congress considers the 2012 farm bill. Recent grant recipients include:

Center for Rural Affairs, to establish the Nebraska Network for Beginning Farmers and Ranchers, which will provide a range of educational activities and services and unlock the land base held by senior farmers in Nebraska.

Dakota Rural Action, for the South Dakota Beginning Farmer Training, Mentoring, Networking and Marketing Support Project to train beginning farm families in whole farm planning, business management, value-added marketing and sustainable production methods and to facilitate mentor relationships between beginning and “seasoned” farmers.

Just Food, to initiate the New York City School of Urban Agriculture, creating an agricultural training resource for underserved communities in New York City and providing beginning urban farmers with the knowledge and skills to produce food sustainably.

Land Stewardship Project in Minnesota, in support of Farmers Growing Farmers: Next Generation Education in Four Learning Stages to pilot new farmer training approaches and support 1,200 beginning farmers, including 168 successful farm business startups.

Practical Farmers of Iowa, for Supporting the Surge of Beginning Iowa Farmers to engage beginning farmers in workshops, retreats, quarterly online “farminars” and online networking, and to build upon existing on-farm mentoring and outreach.

Fight Fear and Greed This Winter

It is widely agreed that we are in “a new era” in agricultural commodity markets, with big rallies, such as those seen in 2008 making history. “The weeks ahead will probably be filled with new levels of history, but only increased volatility can be guar-anteed,” cautions Bill Fordham of C&S Grain Market Consulting. “The need to fight fear and greed has never been greater, and a well-designed marketing plan will be needed for superior results.”

New Name in Credit

Deere & Company is introducing a new name—John Deere Financial—for its business unit that offers credit and other financial services. The change is being made to better represent the full breadth of products and services offered by the business. It had previously been known as John Deere Credit.

“When we made the decision to expand our presence in the crop insurance industry, we realized that our name needed to change to encompass our expanding range of financial products and services,” says Jim Israel, president of Deere & Company’s Worldwide Financial Services. John Deere Financial will continue to serve equipment customers worldwide by offering retail, wholesale and lease financing to facilitate the sale of John Deere equipment in agriculture, construction, forestry and turf care.

The company also will provide revolving credit and crop insurance for customers while assessing other products that could help customers whose work is linked to the land.

Know the Rules When Prepaying Fertilizer

Farmers have many strategies for reducing taxes at year-end. One for cash basis farmers (not accrual basis farmers) is prepaying expenses, says Larry Kopsa of Kopsa Otte CPAs.

“Because farmers may be searching to get the current year’s income down, it is important they understand prepayment rules before they start writing year-end checks,” Kopsa says. “These are typically scrutinized by IRS [Internal Revenue Service] auditors, so you don’t want to make a costly mistake.”

Four requirements must be looked at to make sure an expenditure qualifies as a prepayment and, therefore, is deductible. First, is the payment a deposit or a prepayment? Second, is there a business purpose? Third, does the payment “distort” income? And finally, is the payment for an item that is eligible for early deduction?

Kopsa offers an example of a common mistake: A farmer writes a check to the co-op for $60,000 with no indication of what the check is actually for. The IRS most likely will classify this as a deposit and therefore not deductible until the year the deposit is actually used. Another farmer, though, goes to the co-op and writes three separate checks: one for $25,000 for fertilizer, a second for $10,000 for spray and a third for $25,000 for feed. The co-op records these as three purchases. This would be considered prepayment, deductible in the year the checks are written. This farmer has “audit-proofed” his deduction.

The second tool the IRS has for disallowing prepayments is “lack of business purpose.” In other words, the prepayment must not be made merely for tax avoidance. The third test farmers must pass, especially in years like this, is referred to as “the 50% test.” The tax code limits the allowable deduction for prepaid expenses to 50% of the total deductible farm expenses for the taxable year. In calculating your total expenses, you are able to include interest and depreciation.

Change of Leadership

The House and Senate Agriculture Committees will have new leadership in 2011, which could dramatically change dynamics in Washington.

Senate Agriculture, Nutrition and Forestry Committee Chairman Blanche Lincoln (D-Ark.) lost her bid for re-election to Republican John Boozman. While House Agriculture Committee Chairman Collin Peterson (D-Minn.) easily won re-election, his party did not fare as well, losing at least 60 seats and control of the House. Among those who lost was House Transportation Committee chairman James Oberstar (D-Minn.), who oversaw transportation policies important to farmers.

“So many new members will present both opportunities and challenges for agricultural organizations, which will work throughout the next congressional session to build relationships and educate new members who may know very little about farming,” according to a statement by the National Association of Wheat Growers.

Top Liners

“I think the 2012 farm bill creates a wonderful opportunity to be creative.” Tom Vilsack, USDA Secretary

“Effects will have a very long tail.” Rob Murphy, Informa Economics, on the impact of the proposed GIPSA rule on livestock regulation

Top Producer, December 2010

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