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Tax information for drought income

Written by stevefairchild on .

I've dropped this in for visitors from September's magazine. Here is a link to the PDF that we've quoted from below and in the magazine.


Remember to visit with a qaulified tax professsional for advice for your particular situation.

 

Roger McEowen, director of the  Center for Agricultural Law and Taxation at Iowa State reminded farmers that crop insurance payments will bring tax implications for the farming operation.
“For a cash-basis taxpayer, proceeds from insurance, such as from hail or fire coverage on growing crops, are includible in gross income in the year that they are actually or constructively received. In essence, destruction or damage to crops and receipt of insurance proceeds are treated as a ‘sale’ of the crop,” he explained.


However, growers may also elect to defer the income into the next taxable year’s returns if the grower typically reports income from the sale of crops in the later year, “Also the deferral provision applies to federal payments received for drought, flood or ‘any other natural disaster,’” reported McEowen. 
More complicated is reporting tax for newer types of crop insurance because of the interpretation of how and why the products pay claims.


McEowen wades through the technicalities:


A significant issue is whether the deferral provision also applies to new types of crop insurance such as Revenue Protection, Revenue Protection with Harvest Price.


Exclusion (RPHPE), Yield Protection and Group Revenue Protection—to be deferrable, payment under an insurance policy must have been made as a result of damage to crops or the inability to plant crops. Other than the statutory language that makes prevented planting payments eligible for the one-year deferral, the IRS position is that agreements with insurance companies providing for payments without regard to actual losses of the insured, do not constitute insurance payments for the destruction of or damage to crops. Thus, payments made under types of crop insurance that are not directly associated with an insured’s actual loss, but are instead tied to low yields and/or low prices, may not qualify for deferral depending upon the type of insurance involved. For example, payments made under policies where yield loss triggers payment will, at least in part, qualify for deferral. Other types of policies may not hinge payment on physical damage or destruction to crop.


If a crop insurance payment is based on both crop loss and price loss from a revenue-based insurance policy, only the portion intended to reimburse the farmer for crop loss is deferrable. The portion payable because of a decline in market price is not deferrable and is income in the year the payment is received.
McEowen sorts it all out with real-world examples on a PDF available from Iowa State. Check out the examples here: http://www.calt.iastate.edu/briefs

These kind of complications in the tax return are worth a note to your accountant. The ability to defer income can be a valuable tool, but getting it right is the best policy with the IRS.

 

Original link:

http://www.calt.iastate.edu/briefs/CALT%20Legal%20Brief%20-%20Crop%20Insurance%20Deferral.pdf
 

Yield predictions from USDA

Written by stevefairchild on .

Government officials have updated official predictions on what many already know to be the worst yield on the farm in recent memory. In Missouri, home of MFA Incorporated and Today's Farmer, the numbers are sobering. As of Aug. 1, USDA-NASS is forecasting the lowest yields in years for corn and soybeans, which account for over 90 percent of the row crop acres planted in the state.
 

 

Missouri corn yield is forecast at 75 bushels per acres, the lowest since the drought year 1983 when the yield was 51. Currently corn in Missouri can typically be expected to yield about 140 bushels per acre. Corn planted acres are estimated at 3.6 million acres, unchanged from the June 1 estimate, and the largest acreage planted since 1960. Acres harvested for grain are forecast at 3.35 million acres, a reduction of 50 thousand acres from the June 1 estimate. The resulting production for the state is 251 million bushels. If realized, this production would be the lowest since 1999 and 99 million bushels below last year’s production.

Farm Futures drought survey, sobering numbers

Written by stevefairchild on .

I used to work with Knorr and Suderman and know that they put a lot of work into getting these numbers. And what they've gotten from survey and research is a perdiction of 117.6 bushels per acre for corn this year. Anecdotally speaking, I think their point about abandonment acreage increasing seems on target. After a jaunt across half the corn belt a week ago, there looked to be plenty of acres that didn’t make ears.

“Knee high by the time it dies,” is a variation of an old saying no one relishes.

Meanwhile, near my home town in Audrain County, Mo., my first sighting of a combine in corn was on Aug. 1. And it was moving fast.

 


Here is the release straight from Farm Futures:


This year’s corn output could fall below 10 billion bushels, more than 30% less than original estimates this spring from the U.S. Department of Agriculture. Based on current crop conditions and a survey of more than 1,800 farmers nationwide, Farm Futures estimates the crop at just 9.86 billion bushels, with an average yield of 117.6 bushels per acre.

“While farmers told us they planted a little more corn than shown in USDA’s June 30 acreage report, abandonment will be much higher than the government predicted due to effects of the drought,” said Bryce Knorr, senior editor for Farm Futures, who conducted the research.

“With fields already being plowed under or cut for silage, it appears harvested acres could fall to just 84 million, almost 5 million less than USDA forecast in June.”? ?Yields could decline further too, Knorr said.

The average yield from the survey came in at just 114 bpa, while crop ratings currently project yields between 116 and 121 bpa. “Our estimate is based on both survey results and current conditions,” Knorr said.

Farm Futures forecasts soybean production at just under 2.7 billion bushels, based on yields of 35.8 bpa nationwide. Survey results are close to estimates for soybeans based on crop ratings. Farmers reported planting more soybeans than USDA found in June, but also expected greater abandonment, leaving harvested acres close to the 75.3 million forecast by the government. USDA cut its forecast of soybean production in July to 3.06 billion bushels.

Farm Futures Market Analyst Arlan Suderman said he wasn’t surprised the survey data confirmed a sub-10 billion bushel corn crop. “The scope of this year’s drought is difficult to comprehend, both in its intensity and coverage,” Suderman said. “The market clearly has more work to do as it attempts to bring demand into balance with the shorter supply.”

“The soybean data may be the most sobering, considering that lower ethanol production is actually increasing demand for soymeal, even as the supply of soybeans shrinks. There’s still time for the soybean crop to recover a portion of its lost production, but it could also see significant additional losses if the current weather pattern holds through August.

”Farm Futures also asked growers how they plan to cope with effects of the drought. Many see high prices as an opportunity to price 2013 and even 2014 crops for a profit. “Crop insurance is also providing a good safety net for farmers, keeping them optimistic about the future,” Knorr said.
 

Rotate for the longterm

Written by stevefairchild on .

                                                                                                                                                          

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