You can listen to my interview with Russ here: Russ Morman Interview

2011 National Farm Machinery Show Photo Album

Precision Pays coverage of the National Farm Machinery Show is sponsored by:

“Current projections are that the food supply will need to double over the next 30 years to feed the ever-increasing demands of the global population,” said Jim Schultz, founder of Open Prairie Ventures. “If we are going to increase our food supply by 100% in the next thirty years, this demand for growth will be fueled by safe agricultural technologies that increase crop yields on less land.”

Schultz believes that technological improvements in the last thirty years which have improved agricultural productivity are only the beginning. Among the most important areas Open Prairie Ventures has identified for future technology developments in agriculture are Quality Control Processes; New market developments; Reduced labor costs; Improved production processes; Reduced environmental damage; and Reduced energy consumption.

Gary J. Hoff, agricultural economist, University of Illinois, says that legislation passed by Congress and signed by the President on September 27, 2010 will reduce the tax bite for many farmers this year. Here’s a look at one of the provisions of the Small Business Jobs Act of 2010 (SBJA) that may have a major impact on small businesses including farmers, which affects the amount of self-employment tax liability for 2010.

Section 179 Expensing Election. Congress has once again increased the IRC §179 expensing election. Instead of a maximum deduction of $250,000, Congress has increased the deduction to a maximum of $500,000 for tax years beginning in 2010 and 2011 only. The deduction is reduced if qualifying purchases exceed $2 million.

Farm equipment and all of the other assets that qualified for the deduction in the past continue to qualify. SBJA also added three new categories for 2010 and 2011.Two of the new categories do not apply to a farm return; however, one may be applicable.

The expensing election now applies to qualified leasehold improvement property. This is any improvement to an interior portion of a building that is nonresidential real property. Either the lessee or the lessor can make the improvement to the portion of the property included in the lease. The portion must be occupied exclusively by the lessee. The improvement will only qualify if the property has been in service more than three years. Certain improvements do not qualify, such as an enlargement of the building, a structural component benefitting a common area, and an expense attributable to the internal structural framework of the building. In addition, the lease cannot be with a related party.
While the §179 maximum deduction is $500,000, the maximum deduction for the qualified leasehold improvements is limited to $250,000.

50% Bonus Depreciation. The 50% bonus depreciation deduction for qualifying property was set to expire at the end of 2009. However, SBJA extended the deduction for 2010. The qualifying property must be placed into service before January 1, 2011. No change was made to the property qualifying for the 50% bonus.

Visit these links for more information.

University of Illinois ‘the farm gate’ blog: “Income Tax Changes for Farmers: Are You Ready”
http://www.farmgate.illinois.edu/archive/2010/09/income_tax_chan.html

DTN Story: Rev Up Year-End Tax Deductions
http://www.dtnprogressivefarmer.com/dtnag/common/link.do;jsessionid=04AF146BC6F937E0E7A7F190288D8B18.agfreejvm2?symbolicName=/free/news/template1&paneContentId=2003&paneParentId=70104&product=/ag/free/home/quickview&vendorReference=0702DA77

Farm Industry News: 100% equipment tax deduction deadline nears.
http://farmindustrynews.com/farm-recordkeeping/100-equipment-tax-deduction-deadline-nears

Check out DTN online seminars here:
http://about.dtnpf.com/ag/news%5Fevents/

Iowa State University Center for Ag Law and Taxation – Latest Newsletter here:
http://www.calt.iastate.edu/

IRS Publication 225 (2010) – Farmer’s Tax Guide
http://www.irs.gov/publications/p225/index.html

IRS Section 179 Expense Deduction – Farmer’s Tax Guide
http://www.irs.gov/publications/p225/ch07.html#en_US_2010_publink1000218173

Ag Leader dealer locator
http://www.agleader.com/dealer-search/

Carlson Orchard, selling apples since 1938, has installed 1,050 solar panels, thanks to a combination of federal and state grants and private financing.

David Weiher, a friend of the Carlson family, said the idea of installing solar panels at the farm had been discussed many times, but the demands of the harvest and running the farm always took precedence over developing something new. He said it wasn’t until Symantha Gates, founded EC3 Sustainability Consulting in Amherst, N.H., and was looking for a green project to do, that idea became reality.

Ms. Gates said she is not a farmer and is not really good at growing things, but she understands what goes on behind the scenes at Carlson Orchards, including a heavy reliance on energy for its cooling barns to store fruit in. She brought together $1.25 million in financing for the project from private, federal and state sources, including $900,000 in grants.

Among the grants received was a $565,000 grant from the Massachusetts Technology Collaborative, a $30,000 grant from the state Department of Agricultural Resources and $287,638 from the U.S. Department of Agriculture.

Granted, this is a big application, but Carlson says this solar installation should pay for itself in five years.

The Cotton Precision Agriculture Investment Decision Aid (CPAIDA) is a stand alone, computerized decision tool for analyzing investments in precision agriculture technologies. It was developed to meet the need for better educational information about the returns required to pay for investments in precision agriculture technologies used by cotton farmers.

Currently available “payback” modules include map- and sensor-based variable rate application of sprayer-applied chemicals, sensor-based liquid nitrogen application, and sensor-based weed control. Additional modules for calculating the cost of gathering spatial information via electrical conductivity, yield monitor, and remote sensing are also provided. A distinctive sensitivity analysis feature allows users to evaluate a variety of “what if” scenarios for these technologies based on their particular farm characteristics.

The decision aid guides users through a systematic analysis of the precision farming investment decision via a set of clickable tabs and expandable menu options. The equipment information tab allows the user to select equipment components and enter purchase price.

Default equipment complements are set for each module, and users can click on cells to change equipment manufacturers or modify prices. The farm data tab lets users personalize the decision aid based on their unique farm situation, information gathering costs, and payback parameters which can include input cost savings, lint yield gain, and reduced equipment operating and ownership costs. The profitability summary tab displays results in the form of enterprise budgets that compare cost and return estimates with and without precision farming.

A final column indicates how individual cost items vary based on the precision farming investment decision and summarizes the expected profitability from adoption of the selected equipment complement.

Finally, a sensitivity analysis tab displays the results graphically. The main figure summarizes the profitability of the proposed equipment complement and provides an estimate of the payback period in years. Here, users can change key cost and return parameters, such as farm size or input savings, and evaluate how changes in these values influence the profitability of the investment decision.

The CPAIDA decision aid is also available at http://economics.ag.utk.edu/cpaida.html. Copies of CPAIDA on a CD ROM may also be obtained by writing James Larson, Department of Agricultural and Resource Economics, 2621 Morgan Circle, 302 Morgan Hall, Knoxville, TN 37996. This decision aid was funded by Cotton Incorporated.

Very few farmers conduct profitability analysis of their fields. As producers expand beyond their operator owned acreage, it becomes increasingly necessary to know input – output economics so that an appropriate value can be paid for land rental. Conducting whole field profit center analysis will improve management decisions and answer management questions.

Analysis of a field’s line by line input – output is the very basis of the process of building greater agronomic – economic understanding and ultimately profitability. Discussed in this guide is a simple, cost effective (time and money), and understandable method that will enable most producers to analyze the profitability of a field. An Excel spreadsheet is used for the field cost accounting analysis.

The Field Profit Center accounting method demonstrated in this guideline is a simplification of the economic analysis accomplished by more complex approaches. It does, however, lead to a far more complex analysis of the agronomic – economic (rather than just the economic covered by most analysis) building blocks that make a field profitable.

Every line of a Profit Center Analysis must be evaluated for both economic and agronomic considerations. This thought is perhaps the most profound of this discussion. Profit center analysis is the umbrella analysis with an extensive array of subordinate agronomic – economic analysis subordinate to it. A 1000 acre corn producer must strive to save $5/acre of production costs (without impacting production) or strive to make an additional $5/acre by increasing production on all farmed acres. When a 1000 acre producer obtains this goal he will earn himself $5000 (a bonus). Top profitability farmers understand this.

To understand the details, read his entire paper.

To that end, some companies are making it simple and easy to lease equipment. Yesterday I spoke with Troy Jaros with Lease Consultants, Des Moines, Ia., to learn why some growers are leasing precision technology. “Basically, some growers value this type of payment option over time because it fits with how they recoup benefits from the equipment over time. And they can make a larger investment in multiple technologies that can multiply their input cost savings.”

Jaros, who handles all leasing for Ag Leader Technology, says the leasing option has truly helped operations move forward more quickly with technology adoption. “For example, one grower was going to add precision technology to two pieces of equipment because that’s what his cash budget allowed. But once the dealer offered the leasing option in annual payments over time, he decided he could afford to equip his sprayer and anhydrous rig, too. It allowed the customer to do his entire project in one year,” he says.

Jaros says they get very positive feedback from Ag Leader customers who cite simplicity and ease of approval as key selling points. “We have a simple two-page lease form, we offer quick approval, we don’t force our own insurance on customers, we give a 6% prepayment discount instead of early prepayment penalty, customers can choose their buyout amount, and we will finance 100% without down payment.”

For growers thinking about leasing, Jaros offers these benefits to consider:
• Leasing improves your cash flow. “New equipment either saves money on current expenses or increases income. Either way a lease allows the equipment to earn its keep as payments are made.”
• It preserves your bank or primary lender credit line. “As bankers have tightened their credit door, some growers opt to save their bank for, say, land purchases and taxes—not equipment.”
• Payment plans may overcome budgetary restrictions. “Particularly in large farming corporations, a manager may have authority to obligate for operating expenses, but they may be unable to approve capital expenditures”.
• Keep equipment up to date. “Upgrade to most current equipment as needs change or technology improves.”
• It simplifies accounting. You don’t have depreciation schedules.
• “We provide 100% financing. No need to put 10% down, and the customer determines when payments start.”

If you want to explore this option for your operation, you can start by contacting your local Ag Leader dealer.

“Machinery is normally depreciated over 7 years, but a one-year legislative change for 2009 allows for 5 year depreciation,” says Rob Holcomb, University of Minnesota Extension Educator in Ag Business Management. “For 2010 it reverts back to 7 years.

“For example, if a farmer buys a $100,000 tractor, his first-year depreciation using straight line figuring would be $7,142 using 7 years, versus $10,000 on 5 years. Granted, this won’t make a huge impact, but it does help,” Holcomb says.

There’s also a maximum dollar limit deduction you can claim under Section 179. “That amount is $250,000 for 2009, but drops to $134,000 in 2010,” he adds.

50% Bonus. In addition to the 5-year depreciation, machinery and other qualified property (see Farmer’s Tax Guide link below, Chapter 7) are eligible for a 50% bonus depreciation in 2009. “Next year, this bonus will only be available for property with a recovery period of 10 years or longer, transportation property, and certain aircraft ,” Holcomb says.

Should a farmer invest now? Holcomb says it largely depends on the tax bracket of the individual, how much pre-buying he does before year’s end, and numerous other factors. “And due to narrower margins this year, there’s a general assumption out there that 2009 won’t wind up being as profitable as 2008 or 2007. So it’s best to get with your tax advisor in early December,” he says.

The accelerated depreciation schedule may not be extended again, according to Paul Kindinger, president and CEO, North American Equipment Dealers Association (NAEDA). In fact, the measure almost didn’t pass this year. “If the economic stimulus package works, Congress will likely have less enthusiasm for an accelerated depreciation tool because it costs the U.S. Treasury and is supposed to be a temporary tool,” he adds.

For more information:
2009 Farmer’s Tax Guide (IRS Publication 225)

Section 179 Deduction

Section 179 Calculator

IRS explanation of Section 179 Deduction

“Growers are already dedicated stewards of the land and we are very pleased to see the government rewarding them for doing the right things to keep farm and rural lands healthy. We are also proud that our products assist them in achieving these goals,” says Jeff Novak, Director of Marketing, Agrium Advanced Technologies (AAT).

The first enrollment period is open now and runs to the end of September. To begin the process, growers can complete a check-list available on the NRCS Web site. NRCS will determine the payment rate at the end of the initial sign-up but it is estimated to be between $12 and $22 per acre of cropland. More information on the program can be found at AgriumAT.com/nrcs.

One of the environmental issues addressed through CSP is water quality, including fertilizer used on crop and pasture lands. To improve water quality, CSP offers an enhancement – or payment program – for farmers who use controlled release or slow-release nitrogen.

ESN, a controlled release nitrogen fertilizer manufactured by AAT, has been proven to minimize nitrogen run-off by coating urea, a traditional nitrogen fertilizer, with a material that breaks down over time. “Agrium’s 4R nutrient stewardship – using the right product at the right rate, right time and right place – is a best management practice that leads to long-term economic, environmental and social sustainability which is consistent with the NRCS program and the use of ESN,” says Paul Poister, Government and Community Relations Manager, Agrium U.S., Inc.

CSP, a voluntary program, was created by the 2008 Farm Bill and replaces the old Conservation Security Program familiar to many farmers and landowners. CSP is offering a continuous enrollment, with an annual acreage cap of 12,769,000 acres nationwide, and the deadline for the first round of applications is September 30, 2009.

Farmers in 11 states who plant a majority of their corn acres using hybrid seeds featuring YieldGard® Plus with Roundup Ready® Corn 2, YieldGard VT Triple® and YieldGard VT Triple PRO™ technology from Monsanto Company will have an opportunity to lower their crop insurance premiums in 2009. The Federal Crop Insurance Corporation Board of Directors of the United States Department of Agriculture recently approved the expansion of a Risk Management Biotechnology Endorsement for the 2009 crop year. The program is an expansion of the 2008 pilot originally approved as the Biotech Yield Endorsement(SM) Program, or BYE(SM) Program.

The program lowers premiums for non-irrigated corn producers who plant qualifying hybrids in the approved states and also includes irrigated acres in Kansas and Nebraska. The cost of a total policy premium during the 2008 BYE(SM) pilot program was reduced on average by more than $3 per acre on policies such as Actual Production History, Revenue Assurance, and Crop Production Coverage. Savings with the 2009 pilot are expected to be similar. To be eligible for the premium discount, farmers must plant at least 75 percent of their corn acres on an insured unit basis including replanted
acres to corn hybrids containing YieldGard VT Triple, YieldGard VT Triple PRO, or YieldGard Plus with Roundup Ready Corn 2 technologies.

He says that John Deere Credit’s primary responsibility is to help dealers facilitate the sale of John Deere equipment. When it comes to precision ag equipment they can either include it in an original purchase or if after the fact, many dealers offer Farm Plan, a revolving credit plan that can be used to make purchases when needed like adding a new component to a precision system.

You can listen to my interview with Scotty here: Scotty Shipp Interview (3 min. mp3)