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  • If you thought the public debate about the cost of crop insurance ended when the 2014 farm bill was passed early this year, think again. Monday, the Minnesota-based group, the Land Stewardship Project, released the first of three white papers to show “How a Safety Net Became a Farm Policy Disaster.”The paper, “Crop Insurance-The Corporate Connection,” looks at the $90 billion projected overall ten-year cost of the program and the amount going to cover administrative costs of crop insurance companies, which is now capped at $1.3 billion a year."Through crop insurance, they've privatized the profits and passed the costs onto the public," said Paul Sobocinski, a crop and livestock farmer in Wabasso in southwestern Minnesota who works on policy issues for LSP. "There is a lot of money in this, and not enough accountability or transparency."The study, which was based mainly on USDA online reports that were accessed this month, shows that the second-biggest portion of federal costs for crop insurance, administrative reimbursements to insurers, accounted for 21% of all costs in recent years. Premium subsidies for farmers accounted for 72%.LSP said Monday that,  “As a result of the significant subsidies crop insurance corporations receive, they consistently generate profits that are considered far above the reasonable rate of return as calculated by economic experts. Between 1989 and 2009, crop insurance companies averaged a 17% return on equity at a time when the “reasonable” rate was under 13%, according to an analysis done for the USDA. In 2009 alone, crop insurers enjoyed an astounding 26% rate of return, more than double what was considered reasonable by the industry standard for that year.”The 2014 Farm Bill expands crop insurance with a new program called the Supplemental Coverage Option and another for cotton farmers, which is part of the reason why the Congressional Budget Office projects almost a doubling of the program’s costs compared to decade of 2003-2012. Those costs drew plenty of criticism in Washington from small-government groups that want to reduce taxes, as well as the Environmental Working Group. Some economists at land grant universities have also questioned the federal spending on crop insurance.When asked why LSP is putting out a report now, Sobocinski told Agriculture.com that his group wanted to bring the study out in a calmer environment after the farm bill was passed and to “give people some time to reflect on it, to think about it and get ready to build some type of reform.”“For those of us who are farmers, if we don’t look at how we fix this ourselves, the taxpayers will do it and farmers will be hurt,” he added.Sobocinski buys crop insurance for the corn, soybeans, wheat and oats he grow in his diversified farm, and recently it’s been at some of the highest coverage levels, he said. But he also has livestock, including hogs raised for Niman Ranch, which helps reduce risks.When asked about solutions, he said one possibility would be to have the USDA sell crop insurance, as it did before 1980. “Something could be done about the excessive profits,” he said. “In terms of the [federal]budget, it needs to be more sustainable.Crop insurers may not always be quite as profitable as some federal statistics make them seem, said Art Barnaby, a Kansas State University economist who is an authority on crop insurance.When insurers have underwriting losses that are paid by USDA’s reinsurance program run by the Risk Management Agency, that shows up, he told Agriculture.com. When those companies bring in more premium dollars than they pay in indemnities, an underwriting gain, part of that goes into the federal treasury and isn’t counted in the same statistics.“The bottom line, the federal government counts the underwriting losses but they don’t count the underwriting gain, so they tend to overstate the cost to the federal government,” Barnaby said.There have been years when companies did quite well, and part of that comes from what Barnaby sees as a flaw in how premium rates are set. They’re tied to futures prices for new crop corn and soybeans during the month of February, but they’re also tied to the volatility of those prices, which Barnaby says doesn’t match up very well with whether or not the insurer winds up paying farmers for revenue losses. In 2009, that unusually profitable year for insurers, the price volatility for corn futures in February was 37%, Barnaby pointed out. In the year of the 2012 drought, volatility was 22%. For 2014, it was 19%.“If they (LSP) want to argue that premium rates aren’t right, I’m there. I agree with them,” Barnaby said.There’s evidence, however,  that even though the federal government spends a lot on reimbursing crop insurance company costs, that still doesn’t cover everything, according to a 2012 article written co-authored by Keith collins, the USDA’s former chief economist who now works for National Crop Insurance Services, a trade group for the crop insurance industry.“In a typical insurance program, policyholders would pay for the cost of delivery as part of their premium,” says the article in Crop Insurance Today. “Under the Federal crop insurance pro­gram, FCIC (the Federal Crop Insurance Corporation) pays this cost directly to AIPs (approved insurance providers) on behalf of producers. This works to the benefit of taxpayers and to the disadvantage of AIPs in that pay­ments have been below actual delivery expenses by an average of over $250 million per year during 2005­-2009.”The cost of the crop insurance program isn’t the only problem that LSP sees. The other two white papers the group plans to release will point out that most of the benefits from crop insurance go to a small minority of farmers, that crop insurance puts beginning farmers at a competitive disadvantage, and that crop insurance is “a major vehicle for using public funds to concentrate agricultural wealth in this country.” The other reports will be posted on the LSP Crop Insurance web page. 

  • With the exception of just a handful of acres relative to the entire nation, the 2014 corn and soybean crop is essentially in the books.Monday's USDA-NASS Crop Progress report shows 94% of the nation's corn crop and 97% of its soybeans have been harvested, both just slight up upticks from last week but right in line with the previous average pace. Farmers in northern reaches of the Midwest still have a considerable amount of corn to harvest; 69% of Michigan's crop is out of the field while 27% remains to harvest in Wisconsin, Monday's report shows. The only state lagging much from the normal pace for soybean harvest are North Carolina and Kentucky, which have 34% and 13% of the crop remaining in the field, respectively. Farmers in all other 16 primary soybean-growing states have fewer than 10% of their acres left to harvest.See more from Monday's report In those areas where there's still crop in the field, it may be some time before farmers can get them harvested. Agriculture.com Marketing Talk senior contributor Blacksandfarmer, who farms in Michigan, says there's going to be a lot of harvest work left to do if or when snow on the ground now melts."Probably 40% of corn in my area is stranded in the field. Michigan has at least 1 million corn acres left in the field. I finished up with my corn last week," he says. "A couple of my neighbors still have beans out, so I may end up with some more custom harvest work whenever the snow melts."Further north into Canada, there's even more corn still in the field, adds Marketing Talk senior contributor in Ontario, Canuck_2."Lots of estimates of 50% to 60% still out in Ontario. Late planting because of wet spring has left much corn high in moisture then wet fall harvest so the delay which has resulted in a lot of unharvested corn and some soys too," he says. Adds Marketing Talk senior contributor farmer46: "With no corn at under 30%, I have not started yet in northeast Wisconsin."Chat the weather & remaining corn harvestMoving forward, any remaining corn and soybeans in the field see their best chance of seeing the combine late this week and into next week, forecasters say. David Tolleris of WXrisk.com says delays on the northern and southern bookends of the Corn Belt could see those last few acres slow to come out of the field, but those prospects should improve as conditions do moving forward."This weekend, a snowfall of 1 to 3 inches went through the northern Corn Belt. Rain fell across the southern plains and the Delta. This will slow down the last of the corn harvest in the Great Lakes area, and the last of the soybean harvest in the Delta," Tolleris says. "The middle of this coming week, another round of snow --1 to 4 inches -- moves through the central Corn Belt. Then the 6- to 10-day and 11-to 15-day forecast keeps it dry in the central and northern Corn Belt and wet in the Delta."Adds MDA Weather Services senior ag meteorologist Kyle Tapley: "Warmer weather and rainfall over the weekend melted much of the snow cover across the Midwest, but rain is changing to snow across the western Midwest this morning and additional light snow is expected on Wednesday across Iowa and Illinois. The snow across the north and west central Midwest will stall any remaining corn and soybean harvesting. The forecast has trended much warmer across the Midwest in the 6-10 day period, which should lead to melting of any snow cover that remains in place at that time."

  • Untitled Document With recent news that it's a good year to start your year-end tax planning a little earlier than normal, it brings to bear the notion that grain farm incomes aren't going to measure up this year compared to the last few "boom" years for the corn and soybean markets. Though it's far from a total "bust," current market conditions do have many farms' income levels in the red for this year and some expectations are for worse outcomes in 2015. But, save a buck here, pinch a few pennies here and it can all add up! Here are a few ways do just that. What are your best ideas to cut costs on your farm? Crop Insurance Guarantees Fall Hard; Cash Key In 2015   Will Falling Fuel Costs Offset Lower Grain Prices?   Can You Restructure Your Debt to Survive Lower Grain Prices?   Iron Depreciation Most Likely Leader of Lower Input Costs   Keeping Up With The 'Nickels & Dimes' During Tight Farm Times   Cutting Soil Testing to Save $? Don't Do It, Experts Say See more belt-tightening maneuvers for your farm!

  • With what's happened to incomes over the last year on U.S. grain farms, year-end tax planning and preparation this year probably have an altogether different look and feel compared with the last few years.The likelihood that 2015 farm incomes will be lower than this year's -- and certainly lower than in previous years -- is a key acknowledgment in planning year-end tax preparations, whether they amount to deductions or purchases, one expert says. This year, it's a whole different ball game, says one expert."Year-end tax planning became increasingly important with the passage of the 2012 Fiscal Cliff legislation. This legislation contained several provisions that penalized high income earners, such as a new 39.6% income tax rate, a 20% tax on capital gains for taxpayers in the 39.6% range, and a new 3.8% net investment income tax and a 0.9% Medicare tax," says Ohio State University Extension taxation specialist Larry Gearhardt. "Most farmers normally do not have income that exceeds the thresholds that trigger these higher taxes. However, the higher crop prices over the past several years have pushed more farmers into the category where year-end tax planning was critical. Perhaps 2014 will be different because of the plummeting crop prices. But on the flip side, farmers have lost two very important tax planning tools, at least for today."Those two tools are the Section 179 expense and bonus depreciation deductions. The former hasn't been eliminated altogether, but trimmed sharply; the latter, on the other hand, is not around this year."Until the end of 2013, section 179 of the Internal Revenue Code allowed a farmer to deduct up to $500,000 of the cost of capital improvements as an expense in the year of purchase. This amount has been reduced to $25,000 in 2014," Gearhardt says. "In addition to the $500,000 expense deduction, a farmer could take a 50% bonus depreciation in the year of purchase of a capital asset. There is no bonus depreciation for 2014."A combination of the absence of these deductions -- among a total of 55 that are lacking in 2014 -- and the likelihood of lower year-over-year income in 2014 make it important to start planning ahead now before the end of the calendar year. Gearhardt recommends getting a sense of your total expenses and income for the year sooner rather than later, then making any adjustments to any remaining income and expense plans for the rest of the year in the event something like a purchase delay could help you, tax-wise."The most important step in year-end tax planning is to establish a date to determine income and expenses for the year. I suggest that around December 1 of this year, the farmer should determine, as close as possible, what his or her income and expenses are for the year. This leaves ample time for the farmer to take action to reduce income taxes, if possible. As soon as the ball drops on New Year's Eve, the farmer has lost his opportunity to take action to reduce his taxes in 2014," he says. "The most basic year-end tax planning is timing income and expenses, if possible, so that the income and expenses occur in the year that is most beneficial to the farmer. If 2014 is a high-income year, the farmer should delay the receipt of revenue until 2015 and pay for 2015 expenses this year. This becomes especially important under the current circumstances where it appears as if 2015 income will be lower than previous years."Now that the mid-term election has come and gone, there is still a chance that the Section 179 expense deduction could be restored to 2013 levels next year. If that happens, it may be made retroactive to this year, as was the case last year. If you plan on taking that deduction, though, don't wait to take action."Congress has made the section 179 expense deduction and the bonus depreciation retroactive to the prior year if no action is taken. If a farmer bets on section 179 being increased and bonus depreciation returning, he should take action prior to the end of the year. If he waits until 2015 to purchase that new tractor, it is too late to adjust 2014 taxes," Gearhardt says. "Besides betting on the section 179 expense deduction and bonus depreciation, another useful tax planning tool is income averaging. Farmers enjoy the ability to look back at the prior three years and average their income over that period of time in the event that the farmer experiences a high-income year. This may have limited benefit in light of the high crop prices over the last several years."

 

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