Category: Farm Management

As we begin 2023, high path avian influenza (HPAI) continues to devastate the poultry industry across the U.S.  While many experts anticipated a summer lull in outbreaks and maybe even a disappearance like the 2014/15 HPAI outbreak, that was not the case. Since the first case back in February 2022, there has been at least one case of HPAI in a commercial poultry operation in each month in 2022. The total number of birds affected by HPAI in 2022 totaled 57.82 million, with 206 commercial flocks and 409 backyard flocks impacted. To put that into perspective, the HPAI outbreak of 2014/15 had 232 confirmed cases, with over 50 million birds affected. However, most of the 2014/15 outbreak was concentrated to egg layers and turkeys grown for meat in Iowa and Minnesota. The map below illustrates that in 2022, HPAI affected all but three states across the U.S. Most birds affected by HPAI in 2022 were commercial table egg layers, accounting for 75% of the total bird loss (43 million birds). While the southern region is known for broiler production, four of the top ten egg-producing states are in the southern region (Texas, Georgia, Arkansas, and North Carolina). For 2022, a total of 2.7 million birds were impacted by HPAI in the southern region, the largest case being a commercial table egg layer operation.  

It is anticipated that we will have continued cases of HPAI across the region. The most recent outbreak was in Tennessee on December 28^th in a commercial broiler breeder operation. Therefore, you must continue to enforce strict biosecurity measures to manage and protect your flocks. While the federal government provides financial assistance for depopulation, cleaning, and indemnity payments for the birds directly impacted, there are currently no insurance products or federal support from a loss of revenue due to delayed placements and loss of future flocks while houses are cleared of HPAI. Therefore, you should have a management plan in place in for an HPAI outbreak.  

Resources:

USDA-APHIS. “2022 Confirmations of High Pathogenic Avian Influenza in Commercial and Backyard Flocks”. Available online: https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/animal-disease-information/avian/avian-influenza/hpai-2022/2022-hpai-commercial-backyard-flocks

Shockley, J.M., T. Mark, K. Burdine, and L. Russell.  “Financial Implications from Contracting Avian Influenza in a U.S. Broiler Operation”. Journal of Applied Farm Economics 3, no. 1 (Spring 2020). Available Online: https://docs.lib.purdue.edu/cgi/viewcontent.cgi?article=1034&context=jafe

Author: Jordan Shockley

Associate Extension Professor

jordan.shockley@uky.edu

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Shockley, Jordan. “Summary of High Pathogenic Avian Influenza in 2022.” Southern Ag Today 3(1.3). January 4, 2023. Permalink

In 1917, the United States was in the midst of World War I. The government wanted to increase revenues to fund the war, so Congress passed the War Revenue Act of 1917. It created several provisions, but one was the requirement that businesses start reporting payments made to other businesses. This reporting requirement created 1099s. It stated that if payments of $800 or more were made, it was to be reported to the Internal Revenue Service (IRS) ^[1,2]. In this article, we will review how this affects farm businesses.

Today the requirements are roughly the same, but the threshold is $600. The threshold is the total of all qualified business payments made.  So, two payments of $400 for rent ($800 total) to the same recipient would qualify. Further, $400 for rent and $200 for services ($600 total) to the same recipient would also qualify. It is important to note this is only on payments made from one business to another. Payments made for personal purposes do not have this reporting requirement. For example, contracting someone to paint your personal residence (not required) vs. contracting someone to paint the barn for your farm business (required). Most often in agriculture, payments for rent and services are what create 1099 filing requirements. Payments for physical goods and payments to corporations (C or S) are typically exempt from these reporting requirements (with a few exceptions). If the business had payments during the year exceeding the threshold, it is a good idea to investigate whether a 1099 needs to be filed. Oftentimes, recordkeeping software or your accountant can make you aware of these situations.

It is common that a farm operator may receive and issue 1099s. Receiving a 1099 indicates you were paid amounts during the year that required a 1099 to be issued. Ideally, this will coincide with what has already been recorded through the books and records of the business. For the operator or tax preparer, it is then a question of what the payment was for and how it should be reported for tax purposes. Receiving a 1099 does not necessarily mean that amount is taxable. It depends on the facts and circumstances relating to the payment. 

If a business is required to file 1099s, it is referred to as an informational return. The form itself does not remit any money to the recipient or the IRS; it is a summary of amounts that were paid during the year. Generally, there are going to be four copies of this form. (1) One sent to the recipient, (2) one sent to the IRS, (3) one sent to the state of the recipient*, and (4) one for your own business records. 

1099s must be sent to the recipient by either January 31^st or February 15^th, depending on the variation of the form. The IRS copy of the 1099-NEC must be sent by January 31^st, and all other 1099s must be sent by either February 28th (paper) or March 31st (electronic) ^[3]. Due dates for states vary, but January 31^st is common. Research individual states to find out their requirements and due dates. Penalties for late filing could be significant depending on the number of returns and the lateness of each.

Below are common (but not all) 1099 variants seen in agriculture:

* Sometimes states will not require a 1099 or it will already be sent to the state from filing the federal form. It is important to review the individual state’s requirements to remain compliant. 

** Form 1099-MISC must be issued to a veterinarian even if the veterinarian is incorporated.

[1] https://www.history.com/this-day-in-history/war-revenue-act-passed-in-u-s

[2] https://www.givemeliberty.org/docs/TaxResearchCD/TaxActs/IncomeTax1917.pdf

[3] https://www.irs.gov/pub/irs-pdf/i1099gi.pdf

[4] https://www.irs.gov/forms-pubs/about-form-1099-misc

[5] https://extension.usu.edu/ruraltax/tax-topics/form-1099-information-returns

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Burkett, Kevin, and Jerry Pierce. “What’s a 1099? Do I Need to File?” Southern Ag Today 2(53.3). December 28, 2022. Permalink

The acres of hemp production in the United States have been on the decline since its most recent peak production of over 200,000 acres in 2019. By 2021 the acreage had shrunk to 54,000 acres, and in 2022 the production is under 37,000 acres. However, there is some light at the end of the tunnel for this crop. Over the last two years, acreage has shifted from floral production to grain and fiber production. This trend is expected to continue into 2023 as processing capacity and markets begin to emerge. There is also some good news for the hemp floral production segment, with existing stocks of hemp crude oil and floral biomass having degraded to a point of minimal economic value. For hemp to maintain current acreages and potentially increase acres in 2023, there will need to be a continued investment in genetic improvement, infrastructure development, and market research. 

Awards through the most recent rounds of Climate Smart Agricultural funding will help to propel research and production of this crop. In addition to research investment, there continue to be significant announcements of additional fiber and grain processing facilities across the United States. In 2023, Farm Bill hearings will continue, providing the next major opportunity to further develop the regulatory framework for the hemp industry. This will be a pivotal point in the development of the hemp industry and will set the course for its continued growth. Lastly, we are watching 2023 for increasing demand and access to international markets which will be key for the industry’s development and long-term growth potential.

There are also some bright spots from a profitability standpoint for the grain and fiber sectors. With additional increases in grain and fiber demands and rising prices, these products are becoming more competitive with traditional commodities. However, producers considering the production of hemp in 2023 need to proceed with caution and carefully evaluate the profit potential for their individual operations. Enterprise budgets that can be used to assist in evaluating the profit potential can be found on the University of Kentucky Industrial Hemp Agronomic Research webpage. Additionally, make sure to involve a lawyer in the evaluation of the hemp production contract to ensure it provides the relevant risk management protections for your operations. A contract checklist can be found at the University of Maryland.

Author: Tyler Mark

Associate Professor

tyler.mark@uky.edu

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Mark, Tyler. “Will Hemp Production Fair Any Better in 2023?” Southern Ag Today 2(52.3). December 21, 2022. Permalink

In the mid-south, the prevented planting provision of crop insurance is of particular importance. Prevented planting claims have grown 500% since 2012 in the Mid-South. The table below illustrates prevented planting indemnities averaged roughly 10% of all crop insurance claims before 2012, growing to an average of 51% of all claims since that time. In contrast, prevented planting claims in the Midwest comprised only 8% of all claims since 2012, highlighting the importance of the provision to Mid-South row crop production. The use of prevented planting in the Mid-South can partially be attributed to a rise in early-season precipitation in the region (over 90% of all prevented planting claims nationally are due to excess moisture-related issues). Row crop acres located in high moisture areas of the delta also contribute. It is critical to understand the important aspects of prevented planting and how to incorporate crop insurance into farm operating plans and financial risk management strategies.

1) If a prevented planting claim is made and a second harvested crop is not planted, the prevented planting claim will not affect the producer’s APH. 2) If a second crop is planted, the second crop must be insured. The producer will receive 60% of their APH for that year for the first crop and the actual yield for the second crop. The producer will only receive 35% of the indemnity but only pay 35% of the premium owed on the first crop. If there is no claim on the second crop, the producer is eligible to receive the remaining 65% of the prevented planting indemnity for the first crop. Note the producer must also pay the remaining premium on the first crop as well. 3) It is worth being aware that while prevented planting claims do not affect rates through APH, they will typically affect rates through a load factor. Load factors are added to premium rates to help cover administrative costs and to ensure sufficient reserves exist to handle non-yield or extreme claims. Prevented planting adjustments are added through such load factors, and the size of the load will depend on the total amount of prevented planting indemnities made across the state. 4) Before making a prevented planting claim, producers should ensure that they have sufficient eligible acres for the number of prevented planting acres they need to make. A producer is not allowed to claim more prevented planting acres than they have planted in the past. However, a producer can “roll” prevented planting acres into other eligible acres they may have of a different crop. Producers should be sure they have sufficient roll acres of the second crop and that the prevented planting indemnity calculated for the second crop would be sufficient to cover the necessary costs associated with the first crop. 5) Be sure that any land with an intended prevented planting claim satisfies the “1 in 4 rule”. For land to be eligible for prevented planting, it must have been planted, insured, and harvested in one of the last four years. Otherwise, the land must have been adjusted for claims other than excess moisture, flood, or drought in one of the last four years. Land that failed the 1 in 4 rule must meet the mentioned requirement for two consecutive years before becoming eligible again for prevented planting.

Keeping the above points in mind, producers can reap risk protection from prevented planting without unwanted surprises and/or adversely affecting their crop insurance rates.

Author: Lawson Connor

Assistant Professor

lconnor@uark.edu

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Connor, Lawson. “Prevented Planting.” Southern Ag Today 2(51.3). December 14, 2022. Permalink

Enterprise budgets are a helpful tool for organizing and understanding what production costs are for the coming year. Producers can use enterprise budgets to examine their farm by crop, variety, irrigation, tillage, or any other production practice. The more specific the enterprise budget, the more a producer can determine where their farm is profitable and where it can be improved. Enterprise budgets are typically developed in the late fall or winter as producers plan their next year’s crop decisions. 

Table 1 is an example of a corn enterprise budget developed at Mississippi State. The budget title should describe what is being examined in as much detail as possible. The income section should be a projection of the prices and yield expected for that enterprise. The costs can be broken down into direct and fixed expenses. Direct expenses are any costs needed in the production of the given crop, such as costs of fertilizers, herbicides, insecticides, seed, labor, etc. Fixed expenses are any costs that would be paid regardless of the production. In the example budget, this would be fixed expenses related to equipment, such as depreciation and interest. Returns above total expenses or break-even prices can then be calculated based on the expenses.

Mississippi State creates yearly enterprise budgets across various crops, like the one presented in Table 1. Costs are obtained from companies across Mississippi, and a multidisciplinary team puts together example enterprise budgets based on the latest trends/recommendations. Since every producer will have different costs and revenues, it is important for each producer to determine their own enterprise budgets that match their farm’s situation. Over 80 example budgets are available to help with this process at: https://www.agecon.msstate.edu/whatwedo/budgets.php. In addition, each state in the Southern Region will have their own version of enterprise budgets, so contact your local Agricultural Economics department for more information (links below).  In times where input costs are especially high, developing an enterprise budget can help in managing those costs and in determining which crop is going to be the most profitable. 

Alabama: https://www.aces.edu/blog/tag/profiles-and-budgets/?c=farm-management&orderby=title

Arkansas: https://www.uaex.uada.edu/farm-ranch/economics-marketing/farm-planning/budgets/crop-budgets.aspx

Florida: https://fred.ifas.ufl.edu/extension/commodityenterprise-budgets/

Georgia: https://agecon.uga.edu/extension/budgets.html

Kentucky: https://agecon.ca.uky.edu/budgets

Louisiana: https://www.lsuagcenter.com/portals/our_offices/departments/ag-economics-agribusiness/extension_outreach/budgets

North Carolina: https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/

Oklahoma: http://www.agecon.okstate.edu/budgets/

South Carolina: https://www.clemson.edu/extension/agribusiness/enterprise-budget/index.html

Texas: https://agecoext.tamu.edu/resources/crop-livestock-budgets/

Tennessee: https://arec.tennessee.edu/extension/budgets/

Table 1. Example Corn Enterprise Budget

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Author: Brian E. Mills

Assistant Professor and Extension Economist

Delta Research and Extension Center

Mississippi State University

Email: b.mills@msstate.edu

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Mills, Brian. “Enterprise Budgeting.” Southern Ag Today 2(50.3). December 7, 2022. Permalink