Eggs ‘Scue Me! Eggs and Bacon prices on the rise

Author name: PDillonAdmin24

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Protecting the Old in Iowa:

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Planning aging while you are competent and able to find suitable help is paramount to your success in later years.
 
An Iowa criminal case that finished up its appeals process recently, shows us how elderly individuals can be easily abused, both physically and financially. In this case, Mr. Bean, an non relative care giver was convicted of   involuntary manslaughter, two counts of second-degree theft, neglect of a dependent person, and two counts of dependent adult abuse.
 
Here are the facts: Bean rented farm property from a brother and sister without close family. He got himself appointed as power of attorney holder and named beneficiary under their wills and became a contract purchaser of the pair’s property at below market value. When Bean did get a bank loan to pay off the contract purchase, he used his power of attorney to give the sale proceeds right back to him and his wife. Bean paid his personal bills with the pairs funds.  After the brother’s death,   Bean relocated the sister to a remote farm house and lived with her. The sister, from the time of the move until her death received no medical attention, even though she had been previously prescribed medication for a variety of issues. In the year she lived with her power of attorney holder before her death, her weight went from 134 pounds to 74 and her right arm had been broken, but had never been set. She had   broken ribs and bruising.   
 
How can this happen in Iowa? Easy, when a person executes certain duties under a financial power of attorney for another individual, the courts have a very limited ability to review those actions.  Bean isolated this couple and took advantage of them with no checks on balances on his authority and power. We as a society have no positive duty to act without a relationship to another person. That means that it is not crime to watch someone get wounded or worse if you don’t owe that person a duty (like a power of attorney, guardian, care giver, etc, etc). We in Iowa have a mind your own business attitude. Coupled with the privacy laws and policies, often times people can see a piece but not enough to see the trend.

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Succession Planning

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First, before we can talk about succession planning, we need to establish that the current generation wants someone to succeed them on the farm. From the Iowa State Surveys, 75% of farmers haven’t identified a successor no data on 25% who had identified them, if they had told the successor. Nearly 50% of farmers indicate that semi-retirement (withdrawal of some labor and management) is a close as they plan on getting to retirement. Another 30% plan to never stop providing labor and management to the farm.

If the farm operator never plans to quit really working, it makes it hard to plan to hand it off in life or death. Again, from Iowa State surveys, it appears that over 40% of farm operators are not talking to anyone regarding an exit plan of any type.

If you fall into this category of never planning to retire and not making any plans regarding transition, you are doing your family a disservice.  It is leaving the next generation dazed and confused regarding the future when you do die.

Having the Conversation about succession planning.

Consider whether you are having a family conversation or a business conversation. Discussion about farm succession choices before the turkey is served or the grandson hits the football field are going to be muddled, confused and not yield the result that anybody intended. Consider having the business discussions some other place than the kitchen table. It will help define that in this discussion you are not relating to one another as family but as business operators.

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Not in my back yard

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Everybody likes progress, cheap commodities like food, water and energy and nobody likes change. These are truths that can be bet upon time eternal regardless of what region of the country you are in. This is called the NIBY principle. Not In My Back yard.

Yet,  in order to achieve cheap commodities, quick access to what we want, infrastructure has to be in place. This year, BNSF railroad hauled nearly 1 million car loads of ag commodities across the country, with rail traffic into Minnesota , Montana and the Dakotas increasing by 31% in the last 5 years and outgoing traffic increasing b y 69%.  The oil production boom has something to do with  those numbers certainly.  All that traffic means more demand for existing rail space and the thought of more rail lines.

I doubt anyone is lining up to allow railroads to cut their fields up into smaller parcels. The same holds true for the Rock Island Clean Line energy lines. This project will deliver 3500 megawatts of energy from Northwest Iowa to Illinois and other eastern states over 500 miles. While many landowners will eventually give easements, others will not be swayed. We use eminent domain as a process to allocate between the rights of an individual and the needs of society for improvement and progress. This process is a lengthy one. In February , the proponents of the energy line asked the Iowa Utilities board to approve their concept and plan and then allow them to go back in to use eminent domain for the parcels that would not sell. This was not allowed by the board. If it had been, the leverage the energy line would have been able to bring to bear would be large. It is much easier to take away one parcel from the unwilling when all others have already given in and been paid. It is a far more difficult row to hoe when many parcels are not yet secured. Currently 1248 objections have been filed to the line and less than 15% of the proposed route has been secured via voluntary easements.

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GET TO WORK KIDS

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When I first moved to Sumner as a kid, I was asked to be in a rock group. I said I preferred country music. It turns out the rocks are here EVERY year and you get paid to pick them up, which was a change from my earlier experience in the hills of Clayton County. Tis the season of rock picking, hay making and detasseling is not far behind. While this work isn’t as readily available as it once was, it still plays an important part of our local economy.

Whether a child who is a dependent has to file his or her own return generally depends on two easily determined factors: whether the money is earned or passive and the amount of income. That is, for most kids, did you put it in the bank and watch it grow or did you get your hands dirty or give up your time to get the money.

The rule for children and other dependents is that if the only income is earned and it is less than $5,700, there’s no need to file a federal income tax return.

Even if your child doesn’t have to file a federal income tax return, he or she may want to file a return if federal income tax was withheld from income. This doesn’t usually happen for farm jobs or babysitting, but it might if they fill out the W4 wrong at the fast food restaurant. Your child might also want to file if he or she qualifies for certain credits which would result in a refund.

The rules are different for unearned income like dividends and interest. It is referred to as the “Kiddie Tax”.  For children under the age of 18, or under the age of 23 while a full time student, the first $950 is considered tax-free and the next $950 is taxed at your child’s rate. Unearned income over $1,900 is taxed at the child’s parents’ tax rate  

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Farm Planning Its not a life style, it’s a business

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70% of North American farms will change hands by 2025. This is not just ownership, but who farms the land. This provides plenty of opportunities for American farmers. We need to get over the concept that farming is a lifestyle that deserves special provisions protections and romanticism. It is apparent that it is a business to the non farm sector, and unless the operators of farms act like business men and women, they will be consumed by those who do. Direct payments and counter cyclicals will be under attack and likely crop insurance will be offered up to replace the guarantee payments. The kitchen table  and the board room table are two different places for a reason.

Farming has 3 golden times in the last 100 years (1) during the 1910’s (when the US fed Europe as Europe shot each other into the stone ages), (2) during World War II (when every body wanted to be like Europe and shot everything back into the stone ages)  and the period thereafter and (3) during the mid 1970’s (again when our competitors abroad couldn’t meet the demand).  Drive through the country and look at when houses were built. Lots of 1915 builds still dot the country side, with plenty of post World War II expansions and 1970’s ranch style houses. Coincidence, I think not.
Perhaps another set of good times happened from 2008-2012  Number crunchers indicate that for the period 2002-2012 years indicate that farmers have had the best overall profitability over the those three years

Good times are defined by the lack of good times that follow. If we are in a good time, it is important for agriculture business operators to take advantage and prepare for the bad that follows.
So how does a farmer operator behave like a business operator? Acknowledge the elements you need to be successful, assemble those elements and place them into action.
     
Acknowledge that you must consider   management of revenues, farm input costs and   your interest rate management. These will need to be balanced. Obsessing over one will hurt the other two. Getting a handle on costs of production will help you make sales decisions that are rationally based, not emotionally based on who has the best bragging rights at the Co-op.
Another item to watch is your repayment capacity.  This is calculated by taking your net farm income adding non-farm income plus depreciation and interest expense on long-term debt and capital leases.  From this total, subtract long-term debt and capital lease payments, net cash incurred for equipment purchases required annually and family living expenses.   This math formula this tells you how liquid you are for this year and the upcoming year.  If this ratio is less than 1, you will have liquidity problems.  It should be greater than 1.5 to 1 to be comfortable and above 2 will give the liquidity to expand, etc. Knowing this will take a lot of drama out of going to see the banker.

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Its not personal, its business: File the Lien !

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Time and time again I here business clients who are concerned about protecting their rights to collect against a customer by being concerned that “it might offend them.”  Liens are a perfect example of this.

Under recent Iowa Law, contractors who work on residential structures need to file a notice of commencement of work with the Secretary of State. This notice puts the lender, the home owner and anybody else working on the project that work has begun. This is important as failure to file this notice will prevent a contractor from placing a lien against the finished product.  While very few people would be offended by a bank telling them they  need a lien (which is what a mortgage is) against your property  to make sure you pay as promised, contractors are concerned that those same property owners will have their dander up about a potential lien filing by a contractor. 

It isn’t limited to just contractors. If a farm operator custom feeds for a third party owner, that feeder has a right to file a lien to ensure payment. The lien must be filed with in so many days of the livestock arriving at the property or the lien is not enforceable. Again, the producer sometimes shy’s away from protecting its rights to be paid by the owner of the animals for fear of offending. Feed suppliers can also file a lien to make sure that the feed provided to the livestock is paid back to the party delivering the feed on credit. Failure to protect yourself as a contract feeder or a feed supplier for fear of offending the customer may result in the t  rather offensive outcome of being “out of the money” when the customer files for bankruptcy or other wise doesn’t  have enough money to pay all the creditors.

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Is using Popeye’s buddy Whimpy as a tax planner a bad idea?

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Tax Planning.

Pay Now and Play Later and The Wimpy Doctrine.

In most years, a  tax estimate prepared prior to the end of the year is a valuable tool to allow operators to make decisions on end of year purchases to manage what income tax bracket the operator falls into .

This year, with the looming expiration of decades long tax rates and a return of higher rates, the estimate may take on extra significance, as deciding to trigger income in 2012 may net savings in a lower tax rate than taking the income in 2013. As the law stands today, tax brackets are going to be compressed (meaning more people pay higher rates) and the higher rates are higher than current rates. Additionally, capital gains rates move upward, dividend rates expire, and married tax payers will once again, be penalized in the form of a lower standard deduction than if the tax payers where single and the child tax credit is slashed in half. And finally, section 179, which allowed accelerated expensing of machinery and sheds over the last  years, looks to be limited in the future.

Pay Now and Play Later:

Many farm operators spend money at the end of the year on prepaid expenses as a way to adjust income. Interest cannot be prepaid past what is due and rent prepayments are limited to 12 months.  In order to pass the smell test regarding expenses from the IRS, farm operators would do well to remember the following guide posts:

1.       Terms. Price, quantity and grade without refund or sale back options must be included in the purchase. No throwing money “on the books” to be applied to whatever expenses come up in the future.

2.       Valid, non tax reason, for purchase. Farm operators should document the incentive to prepay (like better price or  concerns regarding specific quantities not being available at a later date (think seed numbers)).

3.       No giant swing in income.  Purchasing a limestone quarry and then attempting to expense it all off as fertilizer expense is distorting. Purchasing a pile of lime to apply with in the next 12 months is likely not.

4.       Only Half. Prepaid expenses should only be about 50%  of non prepaid expense. Operators can look at the last three years in total to show the 50% test is met.

5.       Proof and Payment. Keeping the written offer regarding prepay discounts are a great idea. Additionally, payment by credit card is fine, but offering a check to the supplier and asking them to hold it upon receipt or postdating a check is not acceptable. Likewise, offering a check on an overdrawn account (unless backed by a line of credit) is not a legitimate prepay. Borrowed funds are also okay, as long as the seller is not providing direct financing.  Be ware of wholly owned subsidiaries of the input supplier offering financing as it may knock  the operator out of the benefit they are seeking to maximize.

 

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Fetch Me My Pen

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Do you have that in Writing

In each of these cases reviewed below, having it in writing was central to the case. Sometimes a writing is good enough and some times it isn’t worth the paper it is printed on. Stopping to think about whether or not a “handshake” will hold up in a dispute is worth the time and effort it takes.

Collect the data or don’t collect the reward

Using grid soil sampling and yield monitoring is the industry standard for modern farming. Consider all the ways you can establish your yield. Monitors, weigh wagons, grain warehouse receipts, scale tickets. A farmer filed suit against a Cooperative for impaired crop due to lack of proper spraying. The farmer had no yield records to support his claim. This farmer apparently had no records to support his yield claim and yet demanded compensation. It is a true stretch in those cases to get anywhere. The farmer learned that the hard way. The lesson is to invest in your operation and ensure you have accurate data, especially if you think you are going to have a loss based on some one else’s misconduct.

Sometimes, a handshake agreement just leads to being slapped. An older farmer agreed to help a young farmer with access to land and equipment. The older farmer allowed the young farmer to trade the older equipment off on newer equipment. Nothing was documented or written down. The relationship went south and the young farmer left with all of the shiny new equipment. The older farmer sued for theft of the equipment. The court found that ownership wasn’t clearly proven and the young farmer retained ownership of the equipment. 
 

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A Look Ahead to 2030

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According to the US National Intelligence Office, by 2030 (that’s not that far away) the world is projected to be urban, dangerous, and not dominated by American interests.  United States, European, and Japanese global incomes (currently at 56% of the world’s income) will fall to less than ½ while China, India, Russia and Brazil will grab increased income opportunities.  Where income is generated is where the power is generated as well.

Further, the report goes on to indicate that of the projected 8.3 billion people, sixty percent will live in urban areas.  By comparison, in 1950, only 30% of the world lived in urban areas. Urban areas, especially those bounded by geographical restraints like water and international boundaries, have entrenched criminal networks, insider power struggles, and sanitation and health issues. Who wants to live there? Instead the areas away from the urban areas will grow, as cheaper housing and land will bring residents and manufacturing. This will put further pressure on the areas that are still available to grow crops to produce.  In addition, all those folks are going to consume water.  Demand is expected to increase by 40%.

Ag is highly dependent upon access to water and fertilizer, which is an energy intensive resource.  How does the American Ag sector ensure access to energy to create fertilizer and not limit access to water by diverting water for urban use or regulating ourselves out of access to the water?

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Eggs ‘Scue Me! Eggs and Bacon prices on the rise

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California Proposition 2 enacted Jan 1 abolishes confinement crates for veal and hogs and laying cages for hens.  Their compatriots on the left coast in Washington and Oregon (along with Michigan and Ohio) are considering similar laws. New Jersey’s governor vetoed a similar law in November. This impacts Iowa, just not California. Iowa is the number one producer of eggs, selling about 40 million eggs per day out of state.  Iowa brought a law suit against California asserting that the  California laws violate the federal constitution by favoring instate producers who have to meet the requirement over out of state producers who do not. Iowa lost at the trial court level but has filed an appeal. Starbucks, Burger King and Whole Foods have pledged to not buy eggs from caged laying hens. Combined, the response from the industry is telling. Egg producers have to put fewer hens per cage or reconfigure existing house. Projections are that egg prices will rise 10%-40% as result of this and avian flu issues in Canadian and Mexican flocks.  The hog industry will have similar long term impacts, with several producer groups already moving away from gestation crates.

The implication is clear, social legation and not science based legislation is gaining a foothold in the statehouses of the Union. The hallowed reverence for the farmer is fading, as less than 2% of the population is connected directly to an active Ag operation. The stereotypes of bib overalls,   hand milking cows and putting along on a narrow front tractor with a six foot disk are fading. The question is what is the new stereotype of the farmer? When urban dwellers think of farmers they will either see technology using stewards of animal and natural resources who are vested in their product or they will see miles of confinement pig barns, piles of manure and endless rows of grain crops with no human connection.  When one of these bills come up, who with the legislator think about when casting the vote?  Some commentators believe the only reason New Jersey vetoed the legislation is because of the governors concern of his own presidential run, which of course, runs through Iowa.

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