The Further Continuing Appropriations and Other Extensions Act, 2024 (P.L. 118-22) was signed into law on November 16, 2023. The bill extended various programs, including the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs, through September 30, 2024. As a result of the extension, ARC and PLC will be in place for the 2024 crop year under the same parameters as those negotiated in the 2018 Farm Bill (i.e., the same base acres, program yields, and Reference Prices, etc). Growers have until tomorrow (March 15, 2024) to make an election between ARC and PLC on a crop-by-crop and farm-by-farm basis and to enroll their farm(s) for the 2024 crop year.
If you are unable to make it to your local Farm Service Agency (FSA) office by the close of business tomorrow, we highly encourage you to call the office to inquire about the possibility of getting on a register to preserve the option of signing up at a later date. Under the 2018 Farm Bill, the election and enrollment are an annual decision; as a result, even if you haven’t participated in recent years, you should be able to sign up for 2024 if you wish (assuming there aren’t other factors impacting your eligibility).
For many growers in the South, March 15th is also the Sales Closing Date for crop insurance on several crops. As we noted in an earlier Southern Ag Today article, we highly encourage you to consider your FSA enrollment in light of the crop insurance options available to you. In many cases, the decisions you make on one will affect the other. For example, you cannot participate in the Supplemental Coverage Option (SCO) on a farm if the base acres for that crop have elected ARC for the crop year (and vice versa, especially for winter wheat producers who have already purchased SCO on the 2024 crop). Similarly, cotton producers cannot purchase a Stacked Income Protection Plan (STAX) policy on any farm (FSA Farm Number) where the seed cotton base has been enrolled in ARC or PLC for that crop year.
Despite bearish prices for many commodities, ARC and PLC are still unlikely to provide any assistance in most cases. As a result, we highly encourage you to consider all of the crop insurance options available to you – including area-wide options like STAX, SCO, and the Enhanced Coverage Option (ECO) – before making your FSA election/enrollment decisions.
With tax season in full swing, knowing how to properly report crop insurance premiums and indemnities is important to ensure accurate tax reporting. Many producers have CPAs or accounting firms that manage their finances and taxes. However, understanding how to report crop insurance proceeds is a great on-farm skill when maintaining accurate financial records.
The Schedule F, “Profit and Loss from Farming,” is an Internal Revenue Service (IRS) form that allows producers to report net profit (or losses) from their agricultural production (IRS, 2022). The Schedule F shows income and expenses pertaining to principal farming activities, such as grain and livestock sold, any income from cooperatives, program payments, and federal crop insurance distributions. Crop insurance proceeds (or indemnities) must be included on a Schedule F as farm income regardless of how much proceeds a producer receives to cover the producer premium. Importantly, crop insurance proceeds can be reported in several ways depending on when you sell your grain.
Reporting crop insurance indemnities – not deferred
Assume a producer received $50,000 in crop insurance indemnities this year and would receive a 1099-MISC form from the crop insurance company confirming that indemnity amount. The producer’s normal business practice is to sell their crop in the same year as production (i.e., crops produced in 2023 are sold in 2023). Therefore, the producer must report the indemnity on the tax return for the year the crop was sold and produced. The $50,000 indemnity would be reported on lines 6a and 6b.
Figure 1. Reporting a $50,000 Crop Insurance Indemnity
Reporting crop insurance indemnities – deferred
Again, assume a producer received $50,000 in crop insurance indemnities this year. However, the producer normally reports income from crops in a following tax year under their normal business practices. Therefore, the producer can defer the crop insurance indemnities to next year. The $50,000 would again be reported on line 6a. But now, the producer checks the box on line 6c to defer the indemnity until next year (Figure 2). To defer, a producer must submit a statement containing 1) producer’s name and address, 2) declaration that the producer is making the deferral, 3) identifying crop and damage information, 4) declaration that crop income is normally included in the following year, and 5) name of the insurance carrier. For more information on how to compile this statement, please consult a tax professional.
Now, let’s assume the producer deferred a $30,000 indemnity in 2022 and must report it on their 2023 taxes (Figure 3). The producer would follow Figure 2 and then report the $30,000 on line 6d.
Figure 2. Deferring a $50,000 Crop Insurance Indemnity
Figure 3. Reporting a Deferred Crop Insurance Indemnity from 2022
Reporting crop insurance premiums
Lastly, the premium paid is reported as expense on the Schedule F. The full amount of premium paid must be reported regardless of how much indemnities cover the premium cost. In this case, premiums reduce Schedule F profit and lessens the tax burden on their farming enterprise. Assume a producer paid a total of $40,000 in premiums for 2023, they would report this amount on Schedule F, Part II, line 20, effectively reducing taxable Schedule F profit by $40,000.
Figure 4. Reporting a $40,000 Crop Insurance Premium
It’s worth noting that we are not tax accountants, and every farm’s situation is unique. Therefore, you should always consult with a tax professional when preparing your farm’s taxes.
Loy, R. and Biram, H.D. (2023). Cultivating Financial Security: A Guide on Farm Finances, Taxes, and Crop Insurance. University of Arkansas System Division of Agriculture, Cooperative Extension Service Fact Sheet No. FSA80.
Tidgen, K.A. (2019). Special Rule for Taxing Crop Insurance and Disaster Payments. Iowa State University Center for Agricultural Law and Taxation. Retrieved September 25, 2023, from https://www.calt.iastate.edu/blogpost/special-rule-taxing-crop-insurance-and-disaster-payments.
Feeder cattle prices are at or above record levels across all categories. Today’s chart shows average monthly prices for four steer weight categories in Oklahoma City. Average prices during February 2024 were up approximately 35 percent above year-ago levels and were roughly 60 percent above February 2022 levels. The current prices have met or exceeded the price records previously set during the Fall of 2014.
Cattle supplies have tightened in recent years as cow-culling increased and producers have held back fewer heifers as replacements. Drought conditions, higher input costs, and tight profit margins have been key factors for the decline in inventory. The estimated number of calves produced in 2023 was 33.6 million head which was similar to the 2014 level and down by more than 3 million head since 2018. The number of calves produced in 2024 will very likely be lower again because we are starting the year with fewer beef cows expected to calve. Higher prices are a response to these tighter supplies and should eventually incentivize expansion as producers’ financial situations improve.
The majority of cattle producers in the U.S. sell their calves in the fall months and the current expectations are for prices to remain strong through 2024. CME feeder cattle futures contracts for the fall months are trading near $2.70 per pound. For reference, the CME feeder cattle contracts have never settled above $2.55. The strong expectations for cattle are leading to attractive risk management opportunities for producers. Whether it is using futures, options, or USDA Livestock Risk Protection (LRP), now is a great time to analyze price risk management tools.
Following two consecutive years of decline (see Figure 1), United States (U.S.) rice production increased to roughly 2.9 million acres in 2023 (USDA-ERS, 2024). In 2022 and 2023, the world was consuming more rice which showed up in the long grain rice Marketing Year Average Prices (MYAP) of $16.70/cwt and $15.7/cwt, respectively (USDA-NASS, 2024). Production increases in 2023 (see Figure 1) followed 2022 high prices that were last seen around harvest of 2013. Fast forward to March 2024, where the current November rough rice futures contract is trading at $14.66/cwt. The November contract price decline has been steady since late December 2023 but has recently begun to increase again ($0.44/cwt since February 27, 2024).
Figure 1. U.S. Rice Production, Exports, and Stocks. Source: USDA-FAS, 2024
There was an extreme multi-year drought in California during the 2022 growing season. During this time, California rice producers could not plant nearly 300,000 acres, due to a lack of water for irrigation (Smith, 2023). Arkansas (a state that almost exclusively grows long-grain varieties) responded by increasing its acreage of medium-grain rice by 55,000 acres in 2023 (USDA-NASS, 2023). However, California rebounded in 2023 and surpassed 500,000 acres of medium-grain rice (Farm Progress, 2024). An abundance of medium-grain rice could hinder any upside price potential if the demand for medium-grain remains at normal levels.
An Eastern Pacific El Nino has also disrupted off-season rice production for Thailand, Burma, and Indonesia. These countries rely on off-season production to improve their stocks and export amounts. Now, they face extreme drought, impacting yields and production, and may not have enough carry-over and ending stocks to bring rice to the global economy (Reuters, 2023). The USDA forecasts that global rice production for 2023/24 will exceed 2022/23 by only 0.1% (583,000 metric tons). Thus, the El Nino conditions are poised to further tighten global rice supplies in these major exporting countries.
Global rice supplies are also strained from India’s July 2023 export ban on non-basmati rice (Glauber and Mamun, 2024). The ban was implemented to help lower domestic rice prices and to ensure rice availability in India. On a global scale, India accounted for nearly 40% of all rice exports in 2022, further showing the global impact of India’s exports (USDA-FAS, 2023). Referring to Figure 2, the ban forced a 93% decline in non-basmati rice exports between August and November of 2023 (Glauber and Mamum, 2024). Importing countries are now forced to turn to alternative suppliers to meet their rice demands. It’s worth noting that India is currently in an election year and it’s doubtful the ban would be lifted before a general election in April or May. If the ban is lifted post-election, watch for Indian rice to flood the market, and put further downward pressure on global rice prices.
Figure 2. India Rice Exports. Source: International Food Policy Research Institute, 2024
Overall, the 2024 rice market will be extremely sensitive to ongoing global conflicts, weather, government policies, and shipping issues such as low water levels in the Panama Canal, a potential return to low water levels in the Mississippi River, and conflicts in the Red Sea. There could continue to be opportunities in the export market should Mississippi River levels stabilize during harvest and if India’s export ban continues. With planting around the corner, it’s worth highlighting that on a per-bushel basis, the current soybean-to-rice price ratio for November 2024 delivery is 1.78 ($11.73/$6.60). This ratio has continued to decline since 2021, when the ratio was 2.41. All to say that the relative prices of other commodities, such as soybeans, are in a similar declining price environment as rice.
References
Barchart.com. (2024, February). Rough Rice Nov ’24 (ZRX24). Retrieved February 29, 2024, from https://www.barchart.com/futures/quotes/ZRX24/profile.
Fitchette, T. (2023). How will Rice and Soybeans Compete for Acreage in 2024? Farm Progress. Retrieved February 21, 2024, from https://www.farmprogress.com/rice/how-will-rice-and-soybeans-compete-for-acreage-in-2024-.
Glauber, J. and Abdullah, M. (2024). India’s Export Restrictions on Rice Continue to Disrupt Global Markets, Supplies, and Prices. International Food Policy Research Institute. Retrieved February 25, 2024, from https://www.ifpri.org/blog/indias-export-restrictions-rice-continue-disrupt-global-markets-supplies-and-prices.
Reuters (2023, November). Dry Soil to Curb Asia’s Early 2024 Rice output, Pressure Supply. Retrieved February 29, 2024, from https://www.reuters.com/markets/commodities/dry-soil-curb-asias-early-2024-rice-output-pressure-supply-2023-12-01/.
Smith, A.D. (2023). California Rice is Back. Ag Data News. Retrieved February 28, 2024, from https://asmith.ucdavis.edu/news/california-rice-back.
USDA-FAS. (2024, February). Grain: World Markets and Trade. Retrieved February 12, 2024, from https://apps.fas.usda.gov/psdonline/app/index.html#/app/downloads
USDA-FAS. (2023, September). Rice Export Prices Highest in More Than a Decade as India Restricts Trade. Retrieved January 8, 2024, from https://fas.usda.gov/data/rice-export-prices-highest-more-decade-india-restricts-trade
USDA-NASS (2023, March). Arkansas Prospective Plantings. Retrieved January 14, 2024, from https://www.nass.usda.gov/Statistics_by_State/Arkansas/Publications/Crop_Releases/Prospective_Plantings/2023/arplant23.pdf.
USDA-ERS. (2024, January). Rice Outlook: January 2024. Retrieved January 26, 2024, from https://www.ers.usda.gov/webdocs/outlooks/108291/rcs-24a.pdf?v=5101.6.
On January 1st of this year a program silently went into effect that could impact millions of business owners throughout the United States. The program, Corporate Transparency Act (CTA), is based off of a statute enacted through a defense appropriations bill passed in 2021 and the purpose of the law is to make many small business owners register their business entities and ownership structures with the United States Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). This is not related to the annual filings that business owners across the southeast U.S. do on an annual basis with their respective Secretary of States’ offices. This new program is aimed at preventing tax fraud and money laundering through the use of “shell companies.” Shell companies are often described as businesses with little to no assets and unknown ownership interests which makes them an ideal way to hide the flow of money through the entity. The CTA, or sometimes referred to as Beneficial Ownership Interest reporting, requires that most small, registered business entities (Limited Liability Companies, Subchapter S Corporations, C Corporations, Limited Partnerships, Limited Liability Partnerships, etc.) disclose to FinCEN any owners that control more than 25% of the entity and anyone that exercises substantial control over the entity such as corporate officers or managers. There is no exemption for agricultural business entities.
For existing entities, owners have until the end of 2024 to submit the report through FinCEN’s online portal or they may be subject to monetary penalties (up to $500 per day for failure to report after the first of the year) or criminal penalties (of up to $10,000 in fines and 2 years imprisonment.) Information about the new reporting requirements is slowly being disseminated; however, another wrinkle has appeared. On March 1, 2024, a federal trial court in Alabama ruled in a motion for summary judgment that the CTA was unconstitutional because “it exceeds the Constitution’s limits on the legislative branch.” This ruling currently only applies to the plaintiff (the National Small Business Association) and not to the country as a whole. This is likely to be the beginning of legal proceedings across the country on the issue. Still, in the meantime, small, state-registered business owners across the country need to be aware of their current reporting requirements.
