Friday November 27 Ag News - Part 2

Crop Production Clinics Offer Latest Info on Variety of Farm Topics

    What does it take to produce 80 bu/ac soybean routinely?
    How can you control glyphosate-resistant weeds?
    What can you do to delay corn rootworm resistance on your farm?
    Where is the safety in the farm income safety net?
    What are the truths and the legends of cover crops?
    How can you employ climate-resilient irrigation systems?

These are among the many topics to be covered at the 2016 Nebraska Extension Crop Production Clinics this January.  These one-day workshops will be held at nine sites, each featuring location-specific topics as well as timely research updates and recommendations for any farm. Pesticide applicator recertification for private applicators and for commercial/noncommercial ag plant, demonstration/research, and regulatory will also be available.

The clinics provide “high impact training for agricultural professionals and producers,” said Amit Jhala, program coordinator and Nebraska Extension weed scientist.

“This is a multi-disciplinary program designed to help farmers and ag professionals learn about the latest topics with presenters on cropping systems; soil fertility; insect, disease, and weed management; irrigation; soil water management; and agribusiness management and marketing.”

All programs start at 8:45 a.m. and end at 4 p.m.

A meal and resource materials, including the 2016 Guide for Weed Management in Nebraska and the CPC Proceedings, will be available to those who preregister at agronomy.unl.edu.cpc. Preregistration is $65 or registration is $80 at the door. Preregistration closes 3 p.m. the day before the clinic.

Schedule
Wednesday, Jan. 6 — Gering Civic Center, 1050 M St.
Thursday, Jan. 7 — Sandhills Convention Center 2102 S. Jeffers, North Platte
Friday, Jan. 8 — Holthus Convention Center 3130 Holen Ave, York
Tuesday, Jan. 12 - Beatrice Country Club 1301 Oak St., Beatrice
Wednesday, Jan. 13 — Adams County Fairgrounds 947 S. Baltimore, Hastings
Thursday, Jan. 14 — Younes Conference Center 416 W. Talmadge Rd., Kearney
Tuesday, Jan. 19 — Atkinson Community Center 206 W. 5th St., Atkinson
Wednesday, Jan. 20 — Lifelong Learning Center, NECC 601 E. Benjamin Ave., Norfolk
Thursday, Jan. 21 —Saunders County Extension Office ARDC (Mead) 1071 County Road G, Ithaca

CCA Credits and Contacts
A maximum of six CCA credits will be provided per day in the areas of crop production (2), nutrient management (1), integrated pest management (6), water management (1), or professional development (2).

For more information, go to agronomy.unl.edu/cpc, see the program flyer, or call 402-472-5636. Online preregistration is currently available on the website and program information by site will be added soon.



Caution Urged on Farm Equipment Leases
Tina Barrett
Executive Director, Nebraska Farm Business Inc.

Many factors in the agricultural economy are leading producers to consider a lease arrangement of new capital purchases instead of an outright purchase.  It’s important that we consider both the pros and cons to this decision and that we consider what effect lease vs. purchase decisions have on the tax return.

Pros

Leasing equipment can make a positive change to your balance sheet.
Reducing debt will improve the debt to asset ratio for a farm that has equity in asset (See box for an example of how that might work.) We will also see improvement in the current ratio and working capital of the operation by removing that current debt from the balance sheet. Some lending institutions will include the upcoming lease payment as a current debt so this pro may depend on the individual.

Leasing will keep you from having an asset that depreciates.
Most farm equipment depreciates rapidly. The last few years have certainly been an exception to that generalization but we are seeing the trend of prices for used equipment dropping again. One argument that is often made in the case for a lease is that you don’t see that depreciation because you don’t own the asset. On the other hand, by not owning you will never build equity in the asset. The importance of this depends on the individual operation’s goals.

    A young or beginning farmer may look at leasing equipment as a means to freeing up their leverage ratio to allow their equity to be used to purchase land someday.

    A small farmer may not have enough acres to spread out the ownership cost of a combine and leasing could allow him to use a good machine without such a large outlay (although the minimum hour requirements of many leases take this advantage out).

    An operation that routinely trades equipment every year or two wouldn't have built equity in the asset anyway.

Cons

Taxes
Most financial institutions that furnish equipment with lease agreements put taxes at the top of their list of reasons you should lease equipment, but as a tax preparer, I list taxes as the top con.

Tax law certainly allows that rental or leasing of farm assets is an “ordinary and necessary business expense.” It also clearly defines what is NOT considered a lease but rather a Conditional Sales Contract in IRS Publication 535.

In the leases I see there are many factors that trip the IRS rules, but the most common is certainly a lease that has a stated or imputed interest value or does not have a true fair-market value buyout schedule in the end. In simpler terms, a true lease will not have an equal payment as the buyout, there won’t be a stated interest rate, and you won’t gain any equity in the asset.

Deferred Tax Gain
Whenever a producer moves from owning an asset to leasing one, we have to deal with the sale of the old asset.  Even if the dealer allows a “trade-in” of the value of the owned tractor on the lease of a new one (which pokes further holes in the IRS view of a true lease), it is not a qualified like-kind exchange because you don’t own the new tractor.  This means that you will need to recognize the gain on the sale of the old tractor when you dispose of it.  If we had a tractor with a FMV of $100,000 and $0 basis assuming we’ve used all the depreciation (likely with the enhanced depreciation that we’ve enjoyed the past few years), you have a $100,000 gain and could easily recognize a $20,000 or higher tax bill as a result.

No Equity Builds
Regardless of IRS’s definition of a true lease, there are management concerns with never building equity.  We looked at a few types of operations that may benefit from having a lease but there is a long term downside to never building equity in the major pieces of equipment.  Operations who can get ahead of the debt load and build equity in equipment will have that net worth and eventually improved cash flow for not having the make those debt payments.

Conclusion
When a producer asks me whether he should lease or purchase an asset, I often step back and evaluate the question based on two purchase options, throwing out the tax benefit of a “lease” until I find a lease agreement that meets IRS guidelines. 

Examining One Farmer's Options
As an example, I had a producer call with just this question.  He had been trading tractors every two years for many years and had recently switched to every year.  The salesman was back with what they could do to trade this time.

    The quote was $85 per hour for two tractors that had a combined 1,200 hours or $102,000.

    The lease option was a two-year commitment.  It was $30,000 per year, per tractor for 1,200 hours or a total of $60,000 per year.

The producer called me with the tax concern of selling his current tractors and the fact that he wouldn’t be building equity with the lease option.  On the other hand he was thinking he would be locking in the equity he’d built in his current machines.  He had already dismissed the option to purchase and we discussed the option of not trading at all.  His current loan payment was about $50,000 making this option the best for cash flow and reducing his expenses.  Obviously, at some point, equipment needs to be replaced, but now is a great time to reconsider “habits” built during times of prosperity.

While understanding the tax implications of any decision is important, I encourage the producers I work with to look at this decision as to which one makes the most management sense (lower payments, better interest rate, etc.) for their operation.



TEST BEFORE FEEDING CORN STALK BALES
Bruce Anderson, UNL Extension Forage Specialist

               Corn stalk bales will provide much needed feed this winter for many producers.  If you’re one of them, be sure to feed them effectively.

               Baled corn stalks are going to provide a lot of feed this winter.  But before you feed those bales, find out what they have to offer nutritionally.  Sample and test your bales as soon as possible so when snow gets deep or other feeds run out you will already know how to best feed your corn stalk bales.

               Begin by testing the bales for protein and energy.  You may be surprised at how variable the protein and energy content can be in corn stalk bales.  I’ve seen protein as low as 3 percent and as high as 7 percent.  Dry pregnant cows need 7 to 8 percent protein in their diet so high protein bales will need only a little protein to adequately care for the cows.  But those 3 percent bales will need quite a bit of supplement to keep cows in good condition.

               Use a protein supplement that is nearly all natural and is mostly rumen degradable.  Maintenance-level forage diets need degradable protein for the rumen microbes, but remember that urea and other non-protein nitrogen sources aren’t used as well.

               Many bales have pretty good TDN levels, nearly 60 percent.  Cows fed these bales should do very well up until calving with just corn stalk bales and adequate protein supplement.  However, stalks rained on before baling can be below 50 percent TDN.  Cows fed these lower quality bales will need some extra energy, too.

               If your bales came from stressed stalks, like from drought or hail, also get a nitrate test to be sure they are safe.

               Good testing of corn stalk bales can help make them a nutritious and safe feed.



Free Farm Financial and Ag Law Clinics in December

One-on-one, confidential Farm Finance Clinics are held across the state each month. An experienced ag law attorney and ag financial counselor will be available to address farm and ranch issues related to financial planning, estate and transition planning, farm loan programs, debtor/creditor law, water rights, and other relevant matters. They offer an opportunity to seek an experienced outside opinion on issues affecting your farm or ranch.

December Clinic Sites and Dates
    Grand Island — Thursday, Dec. 3
    Norfolk — Thursday, Dec. 10
    North Platte — Friday, Dec. 10
    Valentine — Tuesday, Dec. 11
    Fairbury —Thursday, Dec. 15
    Lexington — Thursday, Dec. 17
    Norfolk — Thursday, Dec. 18

To sign up for a clinic or to get more information, call Michelle at the Nebraska Farm Hotline at 1-800-464-0258.  The Nebraska Department of Agriculture and Legal Aid of Nebraska sponsor these clinics.




Checkoff’s Work with Domino’s Keeps Moving Cheese

The dairy checkoff’s work with partners such as Domino’s continues to revitalize the pizza category to benefit dairy farmers.

The checkoff’s cheese work in pizza and foodservice has helped move 4 billion incremental pounds of milk from January of 2014 to July of 2015, according to Dairy Management Inc., which manages the national dairy checkoff.

Much of this success results from the checkoff’s work locally and nationally with partners such as Domino’s, said Neil Hoff, a Texas dairy farmer and chairman of the United Dairy Industry Association, the federation of state and regional dairy checkoff organizations.

“Pizza consumption was on a steady decline for five-plus years and had been a driver for increased consumption the prior 25 years,” Hoff said. “With that business scenario, we entered the marketplace with Domino’s in 2009 to turn the category around. They said, ‘What can we do together?’ This created a catalytic effect in the pizza industry to put more cheese on the pies.”

The first success came that year with the launch of the American Legends specialty pizza line, which uses up to 40 percent more cheese than the traditional pizza at Domino’s.

It continued with Domino’s Smart Slice, a kid-approved school pizza that the checkoff helped create. Smart Slice uses pizza cheese made with 100-percet real mozzarella and meets the USDA’s school meal guidelines.

Local dairy checkoff organizations have worked with Domino’s to serve Smart Slice in more than 6,500 schools, which helps protect dairy’s freedom to operate in a critical environment.

The latest example of how dairy farmers and importers are working with Domino’s is through a 10-day marketing and media promotion starting on “Black Friday” for all pizzas ordered through www.dominos.com.

Domino’s has run a “Cyber Monday” promotion aimed at online shoppers the past few years. This year, it will begin three days earlier (Nov. 27 to Dec. 6) thanks to local checkoff organizations that have helped Domino’s increase its marketing and media work. The promotion will include national Domino’s advertising and digital marketing, plus online conversations from the checkoff.

“Local promotion farmer leaders support this effort because the investment goes directly to markets where people live and we expect it to deliver positive results,” Hoff said. “This is another strong example of local and national dairy promotion dollars working together to increase demand for dairy.”

The partnership between dairy farmers and Domino’s franchisee owners works because they have much in common, Hoff said. Both are local, small business owners that create jobs and have other positive impacts on their communities.

“Our partnership with America’s dairy farm families continues to uncover new ways to deliver more delicious cheese to our customers across the country,” said Domino’s Chief Marketing Officer Joe Jordan. “Our relationship with dairy farmers is a major strength for us, not just on Black Friday but every day.”



Rain Hampers Argentine Soy Planting

Rain hampered soybean-planting efforts in Argentina over the past week.  However, field work still moved forward by 12 percentage points to reach 43% complete as of Thursday, according to the Buenos Aires Cereals Exchange.  Progress in planting the estimated 48.9 million acres is 1.6 points behind last year.

According to exchange analysts, there has been renewed interest in planting soybean in the northern provinces, which if confirmed could prompt an increase in projected area.  Planting moved forward quickest in central parts of the grain belt and early planted beans in the center and south are in "very good condition."

Second-crop soy planting is just starting in center-north Cordoba and Santa Fe.

Corn planting slowed as first-crop planting draws to a close in the south. Around 39% of the projected 6.7 million acres of corn is in the ground.  Planting is 20% down on last year as farmers opted to soybeans as a defensive play ahead of the presidential elections.