According to the USDA, U.S. agricultural exports are projected to decline by $2.5 billion from $196 billion in Fiscal Year (FY) 2022 (forecasted) to 193.5 billion in FY 2023. At the same time, agricultural imports are projected to expand by $5 billion from $192 billion in FY 2022 (forecasted) to $197 billion in FY 2023. The result is an agricultural trade deficit of $3.5 billion—the second largest deficit since 1990.
The primary macroeconomic factors driving these trade relationships are the persistent strength of the U.S. dollar relative to other major currencies, like the Euro and the Yen, and the sluggish economic performance in many parts of the world. In the short-term, poor economic growth will likely be exacerbated as central banks around the world tighten monetary policy to fight rising inflation rates. Moreover, while global supply chain crises have gradually faded this year, freight and shipping costs remain heightened as a result of hefty energy prices driven by the ongoing Russian invasion of Ukraine.
Alongside these macroeconomic factors, the drop in U.S. agricultural exports is also the result of tight domestic supplies of cotton, beef, and sorghum. The largest trade losses are expected to be with major trading partners, including the European Union (EU), South Korea, and Egypt, each of whom is expected to lose approximately $300 million in trade. The projected increase in agricultural imports is primarily driven by grain and feed imports (up by $0.9 billion), as well as increased imports of horticultural products (up by $2.9 billion) and sugar and tropical products (up by $1.8 billion).
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 31st or February 15th, depending on the variation of the form. The IRS copy of the 1099-NEC must be sent by January 31st, and all other 1099s must be sent by either February 28th (paper) or March 31st (electronic) [3]. Due dates for states vary, but January 31st 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.
USDA released a flurry of livestock related reports last week leading up to Christmas including Cattle on Feed, Hogs, and Pigs, Milk Production, and Cold Storage. Each of them has something of interest for livestock markets in the new year.
Pork bellies hit 54 million pounds in cold storage facilities around the country. That is not a record large amount but, it is more than double the stock supplies in November last year. About 28 percent fewer hams were in storage. Bellies have been the poster child for market volatility in recent years. The combination of abundant stocks and reduced hog production should continue that volatility. Beef storage was up 6 percent compared to a year ago. That’s not much considering the large amount of beef produced this year.
The combination of more cows and more milk per cow produced 1.3 percent more milk than in November last year. In the Southern states that are reported monthly, Georgia and Texas increased milk production by 13 and 6 percent, respectively. Florida and Virginia reported less milk production than a year ago, 11 and 3 percent, respectively.
The Hogs and Pigs and Cattle on Feed reports were released Friday afternoon. The Hogs and Pigs report indicated slightly more breeding hogs (28,800) than a year ago on December 1. Growth in other states offset the 50,000 head decline in Utah due to previously announced production cutbacks attributed to California’s proposition 12. After small increases, the number of sows in states across the South more than offset a 10,000 sow decline in North Carolina. Some growth in sow numbers should translate to small growth in pork production by later in 2023.
The Cattle on Feed report indicated 2.6 percent fewer cattle in feedlots than last December 1st. November placements were down 2 percent compared to last year, for the 3rd month in a row of smaller placements. August 2022 will turn out to be the largest month for placements this year. The number in feedlots will continue to decline in 2023 reflecting the smaller cow herd. The tightening in supplies will bring some higher calf and cattle prices in the new year, of course depending on feed costs and beef demand.
The year-end brought a number of interesting livestock reports with some implications for 2023. All of us livestock economists at Southern Ag Today wish you a happy and prosperous new year!
Author: David Anderson
Professor and Extension Economist Livestock and Food Products Marketing, Dairy, Policy
There has been a lot of recent concern regarding Mexico potentially banning genetically modified (GM) corn. The crux of the issue started in December 2020 when Mexico’s president, Andrés Manuel López Obrador, issued a presidential decree calling for GM corn for human consumption to be phased out by the end of January 2024. Details of this decree and how it would be implemented are scarce. The United States has also engaged in negotiations with Mexico on this issue. The purpose of this article is not to debate the merit, or lack of merit, in Mexico’s decree to ban GM corn, it is to quantify the potential amount of corn trade that could be affected.
Mexico’s position revolves around the protection of native heirloom varieties and banning GM corn for human consumption. The Mexican President’s position on GM corn used for animal feed and industrial use has softened recently however, the phrase “destined for human consumption” is opaque and subject to interpretation. Any potential ban is destined to have a two-pronged result. First, Mexico would pay more to secure the displaced U.S. corn (whether the replacement is U.S. non-GM or procured from another country), and second, U.S. corn would have to find an alternative market.
From 2009-2022, Mexico consumed an average of 12.5 million metric tons (MMT) of corn more than it produced (Figure 1). During this time interval, 94% of the corn imported to make up the deficit came from the U.S. (Figure 2). For the 2022-2023 marketing year, Mexico is projected to import 17.2 MMT of corn. Trade data can be examined by Harmonized System (HS) code. HS code is a standardized numerical method of classifying traded products. Table 1shows the value of U.S. corn exports to Mexico by HS code. Over 90% of corn exports to Mexico are Number 2 Yellow Corn. Available data did not provide an indication of intended use (food, feed, industrial etc.) for U.S. origin corn.
Annually, the U.S. exports approximately 15% of total corn production. The top five export markets for U.S. corn over the past five years have been Mexico, Japan, China, Columbia, and South Korea. U.S. corn exports to Mexico represented 25% of all corn exports from 2009-2022. If access to Mexico’s market is restricted, then corn exporters would have to rely on alternative export markets or absorb the production domestically. Holding other factors constant, restriction of U.S. corn exports to Mexico would adversely affect domestic corn prices in the U.S. Producers, Corn Growers Associations, and other stakeholders are rightfully concerned over attempts to restrict market access for U.S. corn exported to Mexico. The impact of any potential loss of access to Mexico’s corn market will be contingent on the details of the proposed restrictions.
Figure 1. Mexico Corn Production, Imports, and Consumption, 2009-2022
Data Source: USDA-PSD
Figure 2. Corn Exports to Mexico, 2009-2022
Data Source: USDA-PSD and USDA-GATS
Table 1. Value of U.S. Corn Exports to Mexico by HS code, 2021 and 2022 (Jan-Oct)
HS Code
Description
2021
% of Total
2022
% of Total
1005902030
Yellow Dent Corn (maize), U. S. No. 2, Except Seed
4,350,527,446
91.3%
3,840,293,299
92.4%
1005902035
Yellow Dent Corn (maize), U. S. No. 3, Except Seed
25,919,395
0.5%
58,556,496
1.4%
1005902020
Yellow Dent Corn (maize), U. S. No. 1, Except Seed
37,924,090
0.8%
26,834,623
0.6%
1005904049
Popcorn, Unpopped, Except Seed, Others
32,252,031
0.7%
31,747,599
0.8%
1005904065
Corn (maize), Except Seed, Yellow Dent Corn, Popcorn, Or White Corn, Others
U.S. Department of Agriculture – Foreign Agricultural Service (USDA-FAS). Global Agricultural Trade System. Available on-line at: https://apps.fas.usda.gov/GATS/default.aspx
Americans don’t seem concerned about holiday spending. An October Gallup poll reported that we intend to spend 6-8% more on holiday gifts in 2022. The average of $932 was just $10 off the 2019 high of $942. Just over half plan to spend about the same amount as last year, while 17% plan to spend more and 26% plan to spend less.
This is somewhat surprising given that consumer confidence inched up at the end of 2022 but still rivaled 1980 levels. Inflation slowed and unemployment dropped in the third quarter of 2022, but inflation remains well above average. The Federal Reserve has increased its interest rates six times this year with another hike expected before the end of 2022. Companies, including retailers usually adding holiday employees, announced layoffs throughout the fall, and the National Retail Federation expected seasonal hiring to decrease by 10-33% relative to 2021.
A Deloitte study produced results similar to the Gallup poll, noting that after inflation, that money is expected to buy nine gifts rather than last year’s 16. Holiday spending plans are rosier than expectations for household financial expectations for 2023 in the Deloitte data. Holiday spending tends to trend with November unemployment and consumer sentiment (see chart). Holiday spending is a reflection of 2022 experiences as much as 2023 expectations. But, really, no one wants to give up holiday memories, many of which include gifting.
In other news, don’t forget to turn in your Ag Census form. Might be a fun way to spend time waiting for the kids to go to sleep on Christmas Eve or between bowl games. Filling it out while contemplating year-end business spending may economize on your holiday time.
Author: Rebekka Dudensing
Professor and Extension Specialist, Associate Vice President for Economic Development and Community Impact
