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  • Higher Feed Costs for Livestock Producers

    Higher Feed Costs for Livestock Producers

    The Russian invasion of Ukraine has led to far-reaching impacts on commodity markets across the globe. In particular, oil and grain prices have surged which contributes to increases in the cost of production throughout livestock supply chains. Feeder cattle futures prices have dropped roughly $10 per CWT since mid-February depending on the contract (though prices were higher in Monday trading).

     Near term corn prices have jumped by around a dollar per bushel in the past few weeks. As shown in the chart above, the May 2022 CME corn futures contract closed last week at $7.50 per bushel. Higher corn prices generally put pressure on feeder cattle prices since feeder cattle and corn are two primary inputs into producing fed cattle. Poultry and hog producers of course also feel the brunt of higher feed prices. Corn futures contracts expiring further in the future have also increased though not by the same magnitude. For example, the December 2022 CME corn futures contract closed last week at $6.30 which is up about $0.40 above mid-February.

     Cattle prices are caught in the broader uncertainty and market volatility. Many input prices were already high compared to recent years. The severity and length of time that higher feed costs will persist are key questions without good answers. Feed costs (among other inputs) will be higher in the near term. Planting season is just around the corner in the U.S. and the amount of corn planted will be important for supply and price forecasts. 

    Maples, Josh. “Higher Feed Costs for Livestock Producers“. Southern Ag Today 2(11.2). March 8, 2022. Permalink

  • U.S. Cotton Planted Acres

    U.S. Cotton Planted Acres

    Production and supply of a crop is a critical component for the market outlook for every marketing year.  For the cotton crop, U.S. planted acreage outcome is a major part of the global cotton production and supply.

    Grower surveys are one common method for predicting cotton planted acreage. One of the earliest publicly available grower planting intentions surveys is measured in December by Cotton Grower magazine and published in early January.  Similarly, the National Cotton Council measures grower intentions in the weeks before and after New Year’s Day and publishes the result in February.  In 2022, these two surveys measured 12.5 million and 12.0 million planted acres of U.S. all cotton (upland and Pima combined), respectively.  USDA will subsequently measure grower planting intentions in March, and then survey planted acreage in June.

    A second approach to predicting cotton plantings is by focusing on the relative price of competing crops.  In the eastern half of the Cotton Belt, cotton competes largely with corn, soybeans, and peanuts.   In the Southern Plains region, the major alternatives are corn, sorghum, and wheat-fallow.  A simple method for predicting cotton plantings is, for example, matching the ratio of new crop corn and cotton future prices to U.S. cotton plantings (Figure 1). So far, the Dec’22 CBOT corn/Dec’22 ICE cotton futures price ratio has been ranging between 5.7 and 5.9 during the first quarter of 2022.  Assuming the price ratio stays at that level, history suggests an outcome of between 12 and 13 million planted acres of U.S. all cotton (see Figure 1). This is similar to the early surveys of growers.

    Note that the dryer-than-normal conditions in the central and western Cotton Belt, along with an insurance price above $1.00 per pound, could add 500,000 to 1,000,000 planted acres in the Southern Plains region, albeit with uncertainty in the abandoned acres at the end of the season due to possible drought impacts.

    Assuming 13 million planted acres in the U.S. with an average/higher abandonment (20%) and 10-year average yield (850 lbs), the U.S. would produce over 18 million bales of cotton in 2022, with over 21 million bales of supply.  Assuming U.S. domestic spinning is 2.6 million bales and U.S. exports are 15 million bales, the result could be another year of U.S. ending stocks around four million bales.  That year-over-year change in ending stocks would be considered price neutral.  This year that suggests that new crop futures prices may be fundamentally supported at historically high levels, with weather market speculation providing additional upside volatility.

    Figure 1. Ratio of December Corn/Cotton Futures and All Cotton Planted Acreage in the United States

    Note: Author calculations based on future prices that are the three-month average in the first quarter every year for each crop. The number above the dot in this figure represents each year from 2001 to 2021.

    Robinson, John. “U.S. Cotton Planted Acres“. Southern Ag Today 2(11.1). March 7, 2022. Permalink

  • Agrotourism and Land Use – Happily Ever After?

    Agrotourism and Land Use – Happily Ever After?

    One of the biggest trends in land use law is an increasing number of court cases and legislative battles over agritourism. The first issue surrounds the question of what activities qualify as agritourism. Second, courts, state legislatures, and local planning boards struggle to harmonize agritourism with other land uses.

     One generally thinks of agritourism as pick-your-own, hayrides, corn mazes, small farm stands, and maybe even apple cannons and punkin’ chunkers. Depending on where you live, the courts or state legislature may have determined that weddings, paintball, shooting ranges, rodeos, concerts, festivals, movies, and even skydiving constitute agritourism. Agritourism activities should also be connected to production activities on that farm.

     Most communities support agritourism as a way to help agricultural operations supplement their incomes. However, as agritourism activities increasingly involve large numbers of people and cars, increased noise, parking and traffic issues and attendees wandering onto neighboring properties, conflicts between agritourism operators and their neighbors have increased. Some of the complaining neighbors are producers that find that the cars, people and noise interfere with their production activities.

     Weddings are a prime example of a contentious agritourism activity today. Courts have struggled to determine when a wedding is sufficiently connected to the farm’s production activities to be considered “agrtourism”. Courts increasingly consult several different factors in a complex analysis to make legal decisions. Is the farm setting integral to the wedding ceremony? Are farm products such as flowers or food items used in the wedding or reception? Perhaps the wedding is agritourism, but the reception should be held elsewhere?

    Take these questions and concerns and expand them to the myriad of activities that may be considered agritourism and the difficulties are obvious. Land use impacts of production agriculture and intensive agritourism activities are very different and neighbors react accordingly. As always, agritourism operators should think about impacts to neighbors when developing new activities. Neighbors should be consulted prior to commencing the new activity. In addition, design activities to minimize impacts on nearby landowners. Agritourism operations that result in angry neighbors not only cause negative publicity for that operation, but for agritourism as a whole.

    Richardson, Jesse J.. “Agritourism and Land Use- Happily Ever After?”. Southern Ag Today 2(10.5). March 4, 2022. Permalink

  • What is a Marketing Year Average Price?

    What is a Marketing Year Average Price?

    Producers are calling asking about the FSA signup decision they have to make by March 15th.   Even though commodity programs have used marketing year average prices to trigger payments for decades, there still seems to be some uncertainty among producers. 

    A quick look at nearby futures would indicate that neither agriculture risk coverage (ARC) nor price loss coverage (PLC) will likely trigger a payment for the 2022 crop.  While it makes some sense to look at nearby (old crop) and harvest time (new crop) futures to help decide what to plant, futures prices may or may not be a very good guide for program signup decisions. 

    Why?  Because marketing year average prices start being calculated at harvest of this year’s crop ending prior to the next year’s harvest (Figure 1).  At the end of the marketing year, USDA will multiply each monthly price for the commodity by the percent of the crop marketed that month to arrive at a marketing year average price that weights the monthly prices with higher marketings greater than those months (like right now) with very little marketings occurring. 

    While most would agree that the current futures outlook would indicate no ARC or PLC payments, trying to guess at weather, geopolitical and trade conditions around the world 18 months in advance can be daunting.

    Figure 1.  Marketing Years and Expected Date Final Price will be Reported by Commodity.

    CommodityMarketing YearPublishing Dates for the Final 2022/2023
    WheatJun. 1- May 31August 28, 2023
    BarleyJun. 1- May 31August 28, 2023
    OatsJun. 1- May 31August 28, 2023
    PeanutsAug. 1- Jul. 31August 28, 2023
    CornSep. 1- Aug. 31September 30, 2023
    Grain SorghumSep. 1- Aug. 31September 30, 2023
    SoybeansSep. 1- Aug. 31September 30, 2023
    Dry PeasJul. 1- Jun. 30September 30, 2023
    LentilsJul. 1- Jun. 30September 30, 2023
    CanolaJul. 1- Jun. 30September 30, 2023
    Large ChickpeasSep. 1- Aug. 31November 30, 2023
    Small ChickpeasSep. 1- Aug. 31November 30, 2023
    Sunflower SeedSep. 1- Aug. 31November 30, 2023
    FlaxseedJul. 1- Jun. 30November 30, 2023
    Mustard SeedSep. 1- Aug. 31November 30, 2023
    RapeseedJul. 1- Jun. 30November 30, 2023
    SafflowerSep. 1- Aug. 31November 30, 2023
    CrambeSep. 1- Aug. 31November 30, 2023
    Sesame SeedSep. 1- Aug. 31November 30, 2023
    Seed CottonAug. 1- Jul. 31October 30, 2023
    Rice (Long Grain)Aug. 1- Jul. 31October 30, 2023
    Rice (Med/Short Grain)Aug. 1- Jul. 31October 30, 2023
    Rice (Temperate Japonica)Oct. 1- Sep. 30January 2024

    Should I Buy STAX?

    Outlaw, Joe. “What is a Marketing Year Average Price?” Southern Ag Today 2(10.4). March 3, 2022. Permalink

  • Tax Tips for Forest Landowners

    Tax Tips for Forest Landowners

    From planting trees to conducting timber sales, there are many things for landowners to consider when owning a timber property. Many forest landowners think about taxes only after they had a timber sale. However, there could be tax implications for each timber activity. It is important to conduct tax planning carefully. 

    Here are a few tax tips for forest landowners to consider.

    1.         Know the classification of your timber holding

    Your timber holding classification is the first step in figuring out the federal income tax consequences of your timber activities. The classification determines which tax rules are applicable. Timber holding generally could be classified as one of the following three types: 1) property for personal use or as a hobby (not-for-profit); 2) property held as an investment; or 3) property held in a trade or business. Generally, you will get the best tax advantages if you materially participate in a timber business.  

    2.         Understand timber sale income and capital gains tax

    When you have a timber sale, you are taxed on the net income, rather than the gross proceeds. You are allowed to subtract selling expenses, timber depletion allowance, and yield tax from the revenue to get the net taxable gain. In most cases, the income from a standing timber sale is taxed at favorable long-term capital gains tax rate (0%, 15%, or 20% depending on the taxable income) if the timber has been owned for more than one year. If your timber is inherited, the gain is considered long-term in nature regardless of how long you have owned the timber. 

    3.         Take advantage of the reforestation tax incentives

    Eligible forest landowners may deduct up to $10,000 (married filing jointly) in qualifying reforestation expenditures per year per qualified timber property and amortize the rest over 8 tax years. You make the deduction against taxable income from all sources. 

    4.         Recover operating expenses and carrying charges

    If you materially participate in the timber business, you can fully deduct ordinary and necessary expenses associated with carrying on the business. For 2018 through 2025, forest landowners who hold timber as an investment are not allowed to deduct eligible operating expenses as itemized deductions. You may consider capitalizing (adding to basis) certain forest management expenses and carrying charges with proper tax elections. Timberland property taxes can still be fully deducted if you itemize. 

    5.         Keep track of timber basis

    Timber basis is generally the amount of capital investment in the timber. If the forestland was purchased, the original timber basis is the amount of the total acquisition costs allocated to the timber. If the property was inherited, the timber basis generally is its fair market value on the decedent’s date of death. If the property was received as a gift, the basis is generally the donor’s basis plus the gift tax. 

    6.         Claim timber casualty loss deduction when a natural disaster hits

    Timber loss caused by a casualty event (e.g., hurricane, storm, fire) may be tax-deductible. A forest landowner may deduct the lesser of the basis or the decrease in the fair market value of the affected timber block caused by the casualty.

    7.         Consider excluding cost-sharing payments

    Some conservation-oriented cost-sharing payments from qualified government programs qualify for partial or full income exclusion.  

    8.         Take advantage of the Qualified Business Income (QBI) deduction if applicable

    If your timber business has received ordinary income from selling cut timber products, pine straw, live trees, or other products, you may consider taking the QBI deduction. It is available for tax years 2018 through 2025. 

    9.         Smooth out timber income over years

    You may consider using an installment sale approach (lump-sum contract) or a pay-as-cut contract to smooth out your timber income over several years if such an arrangement can minimize total taxes. 

    For more details on these tax tips as well as others, please see the publication: https://www.timbertax.org/publications/fs/taxtips/TaxTip2021.pdf.

    Disclaimer

    The material herein is for general informational and educational purposes only and is not intended as financial, tax, or legal advice. Please consult with your tax advisor for advice concerning your particular tax situation. 

    Li, Yanshu. “Tax Tips for Forest Landowners“. Southern Ag Today 2(10.3). March 2, 2022. Permalink