By DEBORAH BEHRENDS
SYCAMORE, Ill. — Just when a farmer thought they might have seen it all, the 2012 growing season came along; the drought that hit Illinois and most of the Corn Belt was among the worst of the past century. Record high corn and soybean prices followed.
On top of this volatility, agricultural policy remained uncertain, the financial crisis in Europe continued and political turmoil in the Middle East heightened. Understanding how to deal with volatility and the associated risks is front and center in the minds of most producers.
To help sort it all out, University of Illinois extension and members of the farmdoc team from its Department of Agricultural and Consumer Economics hosted a series of farm economic summit meetings across the state in December. The meetings were fast-paced, while allowing plenty of time for questions from the audience.
Kicking off the meetings was Darrel Good, U of I professor emeritus, discussing crop and livestock price prospects for 2013. “I’m going to hedge our statements by saying there’s a lot that can change over the next several months,” he began.
“The scenario I’m starting with is what we’ve done in the past … rebound to a normal yield.” He said there was much talk of record yields before the drought, and he’s “putting that back on the table for 2013. If we have that size of crop, consumption can rebound, prices would move lower and we’ll build inventories of corn during 2013.”
He recommended not being in a hurry to price large quantities of the 2013 corn crop. As for beans, he said “Historically, yields return to trend level – unless they don’t,” to laughter from his audience.
Good called wheat a complicated commodity because “everybody in the world” grows wheat. “There’s a lot of noise in wheat yields, and it’s hard to forecast, but the forecast may be a little optimistic.”
He looks for wheat prices to drop, since the market is well above average at this point.
As for beef, he said it’s a two-year process to rebuild production, and lower production will occur beyond 2013. Good said price scenarios are optimistic, but he sees imports ticking up just a bit even though he called the trade situation pretty balanced. He’s projecting a stable output for pork.
He said the USDA is projecting stable milk production. “We’ve seen modest liquidation of dairy cows, but there was an expansion in the past year so the numbers are about where we started. If we maintain those numbers, we will see milk production at stable levels with prices about the same,” he explained.
Professor Gary Schnitkey titled his portion of the presentation “2013 Projected Grain Incomes: A Drought Reprieve.”
“A drought one year means very little for yields the following year,” he said. In his presentation, Schnitkey provided his thoughts on potential income scenarios. He also touched on how the drought has affected rivers, causing problems in moving grain, and the farm bill debate.
“The outlook is for continued good incomes for 2013. My opinion, the next financial difficulty will not be caused by farmland price declines. It will likely be caused by a need to adjust cash rents downward,” Schnitkey concluded.
Professor Scott Irwin talked of the impact of biofuel mandates on grain and oilseed markets.
“What I believe is the most important policy impact on grain markets has nothing to do with the farm bill,” he said. “What you really should be paying attention to is the U.S. EPA (Environmental Protection Agency) because of how they choose to implement Renewable Fuel Standards (RFS) in the next three years.”
Irwin went on to bring up four questions: what is the RFS, how is it enforced, what is the E10 blend law and, under a blend law constraint, how will renewable fuel standards be implemented?
“The outlook for continued growth in corn-based ethanol use is clouded by several factors, including the 10 percent blend wall, slow implementation of higher blends, declining gasoline demand and ethanol imports from Brazil,” he said. “It is possible that the new era of higher crop prices could be extended well into the future as a result of the RFS for advanced biofuels that, in all likelihood, can be met only with a rapid expansion in biodiesel production.”
Taxes and insurance
Tax reporting options for crop insurance were addressed by Gary Hoff, associate director of the University of Illinois Tax School. Does it make sense to defer reporting crop insurance payments? “That’s the million-dollar question,” he said.
The answer depends on additional questions: will the Bush tax cuts be extended? Are you a high-income taxpayer? Have you projected your 2013 income? To defer 2012 crop insurance proceeds until 2013, Hoff said you must follow several rules:
•There must be a history of deferring at least 50 percent of the crop until the following year. If multiple crops are involved, the 50 percent test must be satisfied for each crop.
•If you have multiple farms and keep separate records for each farm, the election need not be made on all farms; however, you will need to separate tax forms for each farm.
•An election must be attached to the income tax return and must contain certain items.
•If you receive the crop insurance check for the 2012 crop in 2013, you cannot defer the income until 2014.
•You must use the cash method of accounting.
•There are many types of crop insurance. Only those payments for loss of crop qualify for deferment.
His advice: “Hold off on filing return as late as possible. File April 15 or file an extension if Congress has not made a decision on the tax cuts.”
Professor Bruce Sherrick discussed crop insurance updates for 2013. He opened with an assessment of the extent and types of coverage used by farmers in 2012, examining the relative performance of alternative crop insurance products available from the USDA’s Risk Management Agency (RMA).
Crop insurance alternatives may be evaluated with the help of farmdoc premium calculators, payment evaluators and other tools. Those tools can be found online at www.farmdoc .illinois.edu
The session ended with an overview of proposed changes in the farm bill by assistant professor Nick Paulson.
For more information about the summit, as well as all the PowerPoint presentations, visit www.farmdoc .illinois.edu/presentations/IFES_2012