Abengoa Sued in Kansas

Fri. Feb 12, 2016 4:20 PM

By Todd Neeley
DTN Staff Reporter

OMAHA (DTN) -- The list of grain companies not paid by Abengoa Bioenergy corn-ethanol plants continues to grow, as another group of sellers filed an involuntary Chapter 7 bankruptcy petition, this time in the U.S. Bankruptcy Court in Kansas.

There's a mad scramble by Abengoa creditors in the United States to recover millions of dollars for unpaid corn deliveries to plants in Nebraska, before Spain-based Abengoa SA sells off its ethanol assets as part of what is expected to be a massive company restructuring in the face of more than $8 billion in debt.

Involuntary Chapter 7 -- or liquidation -- petitions now have been filed in both Kansas and Nebraska as concerns mount that now more than $10 million in grain purchases by Abengoa will not be paid to multiple grain companies before the parent company Abengoa SA sells ethanol plants across the world at some point.

In the latest petition filed Thursday in U.S. Bankruptcy Court in Kansas -- the state where Abengoa formed a limited liability corporation in the United States -- a group of creditors including two additional Nebraska grain cooperatives said Abengoa's York, Nebraska, plant secured some $33 million in financing in April 2015. The concern is the money will be funneled to Abengoa's parent company before companies owed grain are paid.

The new petition was filed by Omaha-based Gavilon Grain LLC -- which filed a similar petition in Nebraska -- along with Farmers Cooperative in Dorchester, Nebraska, and Central Valley Ag Cooperative in York, Nebraska. Those three companies say they are owed about $3.2 million total for grain delivered to the Abengoa plant in York, having not been paid dating back to early August, according to court documents.

"Gavilon suspects that some or all of the proceeds of this loan ($33 million) were also then sent upstream to the debtor's ultimate parent in Spain as part of its central treasury function," according to court documents.

"As such, petitioning creditors are concerned that the assets will be sold in an expedited manner with the proceeds of any such sale retained by the parent in Spain rather than used to satisfy the debtor's U.S. creditors...Debtor has previously told those creditors that cash retention by the parent in Spain has been part of the cause of the debtor's prior inability to pay them."

Also on Thursday, the creditors filing the petition in Kansas also filed a motion to limit Abengoa's power to sell its assets, obtain new secured loans, or to appoint an interim trustee. In bankruptcy cases, interim trustees are appointed to organize how assets are divided among creditors. The same motion was filed as part of the court proceedings in Nebraska.

Farmers Cooperative in Dorchester, Nebraska, filed suit against Abengoa in Nebraska District Court on Dec. 1, 2015, for unpaid corn deliveries, according to documents filed as part of the Kansas petition.


Earlier this week, Gavilon, along with Ravenna, Nebraska-based Farmers Cooperative Association; and Maumee, Ohio-based The Andersons Inc., reached an agreement with Abengoa that the company would not sell ethanol assets or acquire additional debt financing while the involuntary Chapter 7 petition is pending in Nebraska. According to that petition, Abengoa owes about $4.1 million for grain purchased by its ethanol plants.

Abengoa Bioenergy can contest the petition for involuntary Chapter 7. Chapter 7 is filed to liquidate assets to pay off creditors. In addition, CHS Inc. sued Abengoa in December, claiming the company had not paid nearly $5 million for some 2 million bushels of corn delivered to three different Abengoa ethanol plants in Nebraska and Kansas.

During a court hearing Wednesday in Nebraska, an attorney for Abengoa said the company would not sell its assets or seek more secured debt to finance its operations at an idled ethanol plant in Ravenna, Nebraska. Abengoa hopes to restart production at that plant at some point. The Abengoa ethanol plant in York also has been idled for some time.

So far, the parent company has indicated it plans to sell off a large portion of its business to stave off creditors. Abengoa SA has until the end of March to either file bankruptcy in Spain or announce a restructuring plan to the Spanish government.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @ToddNeeleyDTN


Sorghum Herbicide Advances

Fri. Feb 12, 2016 9:15 AM

By Emily Unglesbee
DTN Staff Reporter

ROCKVILLE, Md. (DTN) -- Sorghum growers' decade-long wait for herbicide-tolerant technology is finally nearing an end.

The EPA has approved the active ingredient for DuPont's Zest herbicide, a key component of the ALS-tolerant Inzen grain sorghum system.

The agency announced its registration approval for nicosulfuron use in sorghum, which will eventually be marketed as Zest, said Wayne Schumacher, the commercialization manager for DuPont's Crop Protection division. The EPA is expected to approve the official Zest brand label as early as April, he added.

The Zest herbicide is designed to be used over the top of Inzen grain sorghum hybrids, which have been bred to tolerate it. Two companies have licensed the Inzen trait -- DuPont Pioneer and Advanta Seeds.

This spring, Advanta will release one Inzen hybrid under its Alta Seeds brand to 50 to 75 farmers to grow "large-scale commercial plots" in Kansas and Texas under careful stewardship, said Brad Holzworth, director of marketing for Advanta Seeds. By 2017, the company hopes to do a full commercial launch of two additional Inzen hybrids, he added.

Pioneer has two Inzen grain hybrids in field trials in 2016, an ultra-early maturity and a mid-to-early maturity, said Liesel Flansburg, Pioneer's North America brand manager for grain sorghum. "If they yield and perform as we hope, they will go into more extensive in-field trials in 2017, with a potential 2018 commercial launch," she told DTN. The company also has more than 200 experimental hybrids with the Inzen trait in the pipeline, she added.

This technology will be a boon to sorghum growers, noted Justin Weinheimer, the U.S. Sorghum Checkoff's crop improvement director. Sorghum is closely related to the grass weeds that infest it, so growers have never had post-emergence grass control options.

As a result, herbicide-tolerant technology has been the "number one priority of the sorghum industry," Weinheimer said.

The Inzen trait was first developed through traditional breeding by Kansas State researchers and licensed to DuPont in 2007, which in turn licensed it to Advanta Seeds. Since then, both companies have been working to get sorghum hybrids with the Inzen trait up to commercial yield and performance standards.

An herbicide-tolerant sorghum system comes with risks, however. The close genetic relationship between sorghum and grass weeds means the potential for weeds to develop resistance to the Zest herbicide will be very high. The gene that researchers used to make Inzen tolerant to ALS herbicides actually originated from a weed, namely populations of ALS-resistant shattercane, a close relative of grain sorghum.

DuPont has crafted label requirements to delay weed resistance in light of this, Schumacher said. Growers who use Inzen grain sorghum will not be allowed to double crop sorghum after it, a practice that would give any weeds that survived the Zest herbicide another season to grow and spread.

Schumacher said the company worked closely with weed resistance models from the University of Nebraska to create this label restriction. "If we allow this double cropping, the models show that we could accelerate weed resistance very quickly," he said.

Taking double cropping off the table is unlikely to discourage many sorghum growers, Weinheimer said.

"Most commercial grain sorghum growers are actively involved in some type of crop rotation, so we don't see that specific stewardship protocol as a major hurdle," he said. "In fact, I think it will fit very nicely into current sorghum management practices."

Emily Unglesbee can be reached at Emily.Unglesbee@dtn.com

Follow Emily Unglesbee on Twitter @Emily_Unglesbee


DTN Weekly Distillers Grains Update

Fri. Feb 12, 2016 8:33 AM

With the Food Safety Modernization Act's new regulations on antibiotic use, a great deal of confusion exists about its use as an anti-microbial agent in ethanol production.

Richard Coulter, senior vice president for scientific and regulatory affairs for Phibro Animal Health, cleared up some of the misperceptions in a recent webcast.

The Food Safety Modernization Act is a significant initiative developed to ensure a strategic approach to managing risk in the food chain, Coulter said. It requires that producers evaluate potential risks in the food chain and develop strategies to identify, evaluate and rectify particular risks.

Since ethanol plants produce dried distillers grains, which are deemed by the FDA to be animal feed, ethanol plants are included in the list of facilities that must develop such a food safety plan.

"We see a lot of confusion at the moment with ethanol producers looking at adapting the Food Safety Modernization Act," Coulter said, especially in the use of antimicrobial agents used to control bacterial contamination in ethanol production.

Part of the reason behind the confusion is because of another initiative that involves veterinary medicines and veterinary medicines used for food animals.

A new veterinary drug initiative requires that after 2016, no antimicrobials may be used for food animals without the specific authorization of a veterinarian. However, the Veterinary Feed Directive does not apply to the use of antimicrobials used in ethanol production, since ethanol coproducts are not medicated feeds.

Some ethanol producers, since they make DDG that is considered animal feed, believe they would potentially need a veterinarian to write them a prescription or a veterinarian feed directive to allow them to use antimicrobial products in ethanol.

"That is not true," Coulter said. "The two initiatives are entirely separate.

There are three approaches by which am anti-microbial production aid may be used in ethanol production, Coulter said.

First is the definition for DDG by the American Association of Feed Control Officials, which is very broad and does not prohibit, restrict or prevent the use of antimicrobials in the production of ethanol and DDG.

Secondly, plants could have an approved food additive petition, a mechanisms which gives FDA approval to any microbial used in the ethanol production process.

The last way the product may be used legally is the generally-regarded-as-safe (GRAS) designation, which requires a scientific evaluation to ensure it does not constitute a hazard to animals that consume the feed or in any direct usages of the resulting DDG.

That third GRAS designation is the one that has allowed products such as Phibro's Lactrol to be used regularly in the ethanol industry for the last six to seven years.

Since corn coming into an ethanol plant arrives as a non-sterile material, it could bring undesirable bacteria into the ethanol production system. Anti-microbial products such as Lactrol help producers manage contamination in an ethanol fermentation system.

The majority of anti-microbial agents used in ethanol would be covered by GRAS, Coulter said. Such GRAS-approved products leave no unacceptable or dangerous residues that would persist in DDG and cause a hazard to animals or the foods they produce.

When analyzing hazards applying to ethanol plants, ethanol producers can state that the uses of Lactrol or other GRAS-approved anti-microbials are being used as directed as their hazard control strategy.

Coulter suggested that ethanol producers may want to ask their suppliers on what legal basis their anti-microbial production aid is marketed under.

"If they don't give the answer that it is marketed as a crude food additive or general regarded as safe, then the producer probably shouldn't use that product because it potentially is not a legally marketed product," he said.

Cheryl Anderson can be reached at cheryl.anderson@dtn.com.


Risks of FMD Highlighted

Thu. Feb 11, 2016 5:30 PM

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- The U.S. has kept foot-and-mouth disease out of the country since 1929, but the livestock industry, pharmaceutical companies and the federal government would not be ready to handle an outbreak of the disease if it were to hit the national cattle and hog herds.

Given the flow of animals in the U.S., foot-and-mouth disease could spread quickly across the country before the industry and government could respond.

The House Agriculture Subcommittee on Livestock and Foreign Agriculture held a hearing in Washington on Thursday highlighting the risks facing the livestock industry because the U.S. does not have adequate FMD vaccine supplies and could not cull animals quickly enough should foot-and-mouth disease return to the U.S.

Rep. David Rouzer, R-N.C., chairman of the subcommittee that held the hearing, and other lawmakers said they were concerned that an FMD outbreak could cripple the livestock industry across the country. "FMD would be extremely detrimental to our livestock industry if it were to be introduced into the U.S., and those economic effects would be felt far beyond animal agriculture," Rouzer said.

An FMD outbreak would immediately shut off about $20 billion in exports for almost all livestock and dairy products. Iowa State University estimated in 2011 that an uncontrolled outbreak of FMD would cost agriculture nationally roughly $200 billion in losses over 10 years. It would not just affect the livestock industry, but would also train wreck crop markets for feed grains such as corn.

Foot-and-mouth disease is not a human public health or food-safety risk. The disease leads to painful blisters and fever for livestock, as well as swelling glands. Mature animals can recover, but still spread the disease. Smaller calves and pigs are more likely to die from it. At least 96 countries either have chronic or sporadic flare-ups of FMD in cattle, hogs, sheep, goats, deer, elk or other wildlife.

Under traditional USDA protocol, any area affected by an outbreak would face an immediate "stop movement and stamping out" policy that essentially means culling of all cattle and hogs.

"It has become apparent we can't count on stop movement and stamping out if we get into a large outbreak because agriculture has changed so extensively," said Jim Roth, a veterinary professor at Iowa State University. "We have very large herd sizes that are too populated to be stamped out in 24 to 48 hours."

Roth noted the sheer size of some animal operations, with dozens of feedlots holding more than 50,000 head of cattle and swine operations with more than 20,000. The scale of these single operations may make them too large to rapidly euthanize animals to attempt to stop an outbreak. Then there is the extensive movement of livestock in the country. Approximately 400,000 cattle and 1 million hogs can be on the roads in trucks in a given day to different farms or packing operations, Roth noted. Animals such as wild deer and feral swine also can spread the disease, making it even harder to control.

"So unless an FMD infection is detected quickly and stamped out, it could spread very quickly," Roth said.

Groups such as the National Cattlemen's Beef Association and National Pork Producers Council urged Congress to invest more in stockpiling the vaccine for FMD. Howard Hill, a veterinarian and former president of the National Pork Producers Council, reiterated Roth's concerns and noted that a vaccine strategy would be both less costly and more humane to implement. "The United State simply cannot kill its way out of a foot-and-mouth disease outbreak," Hill said.

After last year's avian influenza outbreak and the struggles of trying to cull and dispose of millions of dead poultry, USDA and livestock industry leaders began more heavily examining what it would take to deploy rapid vaccinations rather than destroying a high population of livestock. USDA alone spent more than $1 billion trying to contain avian influenza last year.

Strategies beyond stamping out animal herds in the case of FMD would require large quantities of vaccine that simply aren't available. North America has a vaccine bank shared between the U.S., Canada and Mexico, but it does not have an adequate stockpile of FMD vaccine to manage an outbreak. A 2004 Homeland Security directive cited the need for a national veterinary stockpile, but the stockpile has never been adequately funded. At the moment, there are no FMD vaccines in the USDA stockpile. Adding complications to it, Roth noted the vaccine bank would need 23 different kinds of vaccine to properly deal with FMD because of the different strains of the disease.

The budget right now for the vaccine bank is roughly $1.9 million. In an industry white paper written by Roth, a robust FMD vaccine stockpile would cost roughly $150 million a year over five years to develop. In roughly five years, the U.S. would have the capability to quickly respond to any strain of the virus.

Currently, U.S. law restricts production of a vaccine to foreign companies. Yet, the available antigen held by USDA and the abilities of manufacturers overseas to produce FMD vaccine means it would take at least three weeks to produce just 2.5 million doses of FMD vaccine should an outbreak occur. Right now there also is no "surge capacity" to produce more vaccine, Hill said. At least 10 million doses are estimated as needed for the first few weeks of an outbreak, then capabilities are needed to ramp up to at least 40 million doses.

FMD vaccine is not just a question of the money, but a time element. Right now, conventional pharmaceutical manufacturers around the world do not have the capacity to deal with the demand that would be needed by the U.S. if an outbreak occurred, said Steve Parker, director of veterinary public health for the pharmaceutical company Merial.

"As of today, there is no excess industrial capacity for FMD vaccine manufacturing," Parker said. "If we have an outbreak today, it may be two to three years to get the vaccine to you that you need to address this."

Hill and other livestock industry people testifying also said they were highly concerned about the risks of agro-terrorism bringing the FMD virus into the U.S.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN


Farm Loan Renewals Up

Thu. Feb 11, 2016 4:56 PM

By Marcia Zarley Taylor
DTN Executive Editor

HADDONFIELD, N.J. (DTN) -- Three straight years of falling farm incomes are beginning to extract a toll.

The outlook for ag credit conditions deteriorated sharply in late 2015, based on a fourth-quarter survey by the Kansas City Federal Reserve. Bankers expected a surge of farm loan demand and loan renewals and the steepest drop in repayment rates in the last decade, the survey found.

A similar survey by the Chicago Federal Reserve found 5.0% of the volume of its farm loan portfolio had "major" or "severe" repayment problems, up from 3.9% a year earlier. Lenders in the central Corn Belt anticipate that 2% of their current customers would not qualify for additional operating credit for the 2016 season.

Meanwhile, the St. Louis Federal Reserve, which covers all or parts of seven Midwest and Midsouth states, also found loan demand climbing and repayment rates slipping.

All of those factors indicate "pressure is starting to build on some farm borrowers," said Nathan Kauffman, Omaha branch chief and assistant vice president of the Federal Reserve Bank of Kansas City. To date, however, commercial banks continue to report low delinquency rates and a portion of their borrowers with very strong credit.

Persistently low prices for agricultural commodities set the tone for the Fed's surveys. From January 2015 to December, feeder cattle prices plunged more than 25%, causing significant damage to cattle margins. National average prices for soybeans and wheat dropped 14% and 19% respectively last year. Average corn prices hovered about 40% below their 2013 levels. Meanwhile, production costs have been slow to adjust, pushing many operators into the red.

The Kansas City district covers a swath of states from Oklahoma to Montana, including irrigated corn production in Nebraska and Kansas. That means it's a good proxy for both Grain Belt and livestock credit conditions, Kauffman added.

In addition to concerns over credit quality, Great Plains lenders expected farm and ranchland values to sink below 2014 levels in all but Oklahoma. The Kansas City district averaged a 4% annual decline in nonirrigated land, while irrigated slipped 2% and ranchland held steady. The volume of farmland sales also dropped in 2015, lenders said.

Prices for quality farmland in the St. Louis Federal Reserve district -- which includes Arkansas and parts of Illinois, Indiana, Kentucky, Missouri, Mississippi and Tennessee -- fell 2.5% in calendar 2015. In the Chicago Federal Reserve district -- which includes Iowa, part of Illinois, part of Indiana, Wisconsin and Michigan -- "good" farmland fell 3% in calendar 2015.

"A more limited supply of farmland available for purchase, then, may partly explain why farmland values have retracted only modestly" from recent peaks, the Kansas City Fed said.

Kauffman is watching the outcome of cash rent negotiations this spring as the next warning of farmers' well-being. "Will some producers walk away (from high-priced rents)? Were others waiting in the wings to pick up last-minute deals? In the past, somebody has always been wanted to expand," he said. Given that USDA expects major crop cash receipts to slide another 9% in 2016, big spenders may be hesitant to outbid their rivals this time.

Based on conversations with lenders, Kauffman believes there's a "small but modest group of borrowers who haven't done their due diligence. Their 2016 plans don't cashflow. Some of that reflects that fundamentals don't support their business," he said.

On the other hand, there's a large subset of farm borrowers in a good financial position who could benefit from a turnover in land rentals or ownership, he said. He expects them to weather the setback.

Marcia Taylor can be reached at marcia.taylor@dtn.com

Follow Marcia Taylor on Twitter @MarciaZTaylor


McCarthy Asked to Pull WOTUS

Thu. Feb 11, 2016 3:25 PM

By Todd Neeley
DTN Staff Reporter

OMAHA (DTN) -- In an all-encompassing hearing before the House Agriculture Committee, lawmakers pleaded with U.S. Environmental Protection Agency Administrator Gina McCarthy to withdraw the waters of the United States rule.

The rule remains in legal limbo as challenges stopping its implementation play out in federal court.

On many occasions, McCarthy has told Congress there is a need to improve relations between EPA and an agriculture community largely untrusting and fearful of the agency. In each and every instance, the administrator did not comment when asked by several members of the committee to pull the Clean Water Act rule and work together with agriculture interests to draft a new rule.

Committee members also continued to press McCarthy on the agency's use of social media during the public comment period leading up to the finalization of the rule. A Government Accountability Office report accused EPA of violating anti-lobbying laws in its use of social media aggregator Thunderclap to gin up support for the rule.

McCarthy continued to stand by the agency's belief federal laws were not violated.

"I think you have drastically manhandled our farmers on this issue," said Rep. David Scott, D-Ga. "You violated the law that expressly prohibited (the agency) from lobbying. You broke the law. It needs to be admitted. It needs to be recognized." Scott added, "Let's come clean on this so we can correct this."

In addition, Scott said he was particularly concerned with how ditches, wells and ponds could be considered jurisdictional with the new rule.

"There is a reason why farmers develop ponds, ditches and wells," he said. "These are manmade and it is an insurance policy for the drought. That's why we have that. This is a farmer's private property and it's not navigable water...EPA needs to turn back the law."

Unlike other congressional hearings when lawmakers on the right have been confrontational in questioning McCarthy -- followed by lawmakers on the left defending the EPA -- Thursday's hearing by and large lacked confrontation. Rather, McCarthy was asked questions on a variety of ag issues from both sides of the aisle and given time to respond.

"I don't think folks in the agency broke the law," McCarthy said in response to the accusations made about the use of social media. "There is a draft letter at OMB (office of management and budget) to make sure we respond appropriately to GAO."

Rep. Mike Rogers, R-Ala., said he would like to see farmers have more opportunity to be involved in voluntary efforts to address important environmental issues rather than be subject to more federal regulation.

"Many of my farmer constituents are worried and upset with regulations coming out of EPA," he said.

McCarthy acknowledged a need for the agency to improve its relationship with farmers and ranchers -- something the administrator has said since day one.

"There is a lot of work we need to do to establish our relationship with farmers," she said. "We're trying to listen and learn."


Rep. Bob Gibbs, R-Ohio, said producers in his state are concerned they will have to apply for more Clean Water Act permits from EPA as a result of the new rule. In an analysis done by EPA leading up to the final rule, the agency concluded more permits would be required and the agency's control of waters would expand.

"I'm afraid we're going to go backwards on water quality," Gibbs said. "This rule makes us go backwards and we're eroding the partnership (between EPA and states)."

Gibbs said the GAO report "is a big deal because it goes to the integrity of the whole comment process."

McCarthy said EPA legal counsel continues to disagree with GAO's conclusion that anti-lobbying laws were broken, saying, "we will pay attention to what GAO said."

House Ag Chairman Michael Conaway, R-Texas, asked if EPA will respond to the current national injunction in place stopping the implementation of the waters of the United States rule.

"What will you do now that the regulation is stayed?" he said. "Do we need to restrict your funding?"

While the rule remains tied up in court, McCarthy said the agency is working to make sure Clean Water Act guidance is implemented based on the current law.

"We're going to certainly follow the court," she said. "We hope to bring additional clarity when the clean water rule makes it through the courts."

The U.S. District Court for the Sixth District in Cincinnati is expected to rule sometime this year whether it has jurisdiction to hear the case -- even before the merits of the rule can be addressed in court.


In addition, McCarthy was questioned about a seemingly public riff between EPA and USDA on EPA's handling of pesticides and other ag chemical regulations.

A number of times in the past couple of years, USDA has openly expressed opposition on some aspects of EPA rulemaking.

"Are you ignoring USDA?" Conaway asked. "There is a distrust with EPA. Our farmers and ranchers feel under attack."

McCarthy responded, "I work very closely with (Agriculture) Secretary (Tom) Vilsack. We have great respect for USDA and its knowledge of the agriculture community. I think we have a close collaborative relationship. We always try to understand science together."

On one instance in particular, on April 6, 2015, USDA filed public comments critical of EPA's "Benefits of Neonicotinoid Seed Treatments to Soybean Production" published in the Federal Register in October 2014.

"America's farmers face numerous challenges as they work to produce the food, feed, and fiber for a strong and healthy America," USDA wrote. "On Oct. 22, 2014, EPA added an additional and unnecessary burden by publishing a portion of an incomplete risk assessment...which again puts growers in the positon of defending their pest management decisions. USDA staff had specifically requested EPA to complete the full risk assessment that would more robustly describe the benefits of neonicotinoid seed treatment for all crops.

"Instead, EPA released the report regarding soybean seed treatment without additional consideration of other crops or to USDA cautions about releasing a premature assessment of the costs and benefits of such seed treatments."

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @ToddNeeleyDTN


CME Shortens Livestock Trading Hours

Wed. Feb 10, 2016 3:48 PM

By Katie Micik
DTN Markets Editor

OMAHA (DTN) -- CME Group will shorten trading hours for livestock contracts effective Monday, Feb. 29.

The move follows escalating criticism that extreme volatility has rendered cattle futures effectively broken for cash market hedgers. Cattlemen have pointed to many factors in that volatility, most prominently the rise of automated trading and the shrinking number of cattle traded on a cash-negotiated basis.

Pending approval by the Commodity Futures Trading Commission, live cattle, feeder cattle and live hog futures and options will trade electronically from 8:30 a.m. to 1:05 p.m. Central Time Monday through Friday. Open outcry hours will be from 8:30 a.m. to 1:02 p.m. CT. The daily settlement period and procedures will remain unchanged.

"I think it's pretty cosmetic," DTN Livestock Analyst John Harrington said of shortening the trading day. "I think they're fishing around for ways to get volatility under control. I suppose it's worth a try, but color me skeptical for the moment."

CME shortened electronic trading hours in October 2014, reducing them from 23 hours per day to the current schedule, which varies by day. On Mondays, Globex trades from 9:05 a.m. to 4:00 p.m. CT. From Tuesday to Thursday, it trades from 8:00 a.m. to 4:00 pm., and on Fridays, the market is open from 8:00 a.m. to 1:55 p.m.

The shorter day will align trade with the period of greatest liquidity, CME said. During 2015, roughly 87% of daily livestock futures and options trades occurred during the proposed hours.

"Nothing is more important to us than the integrity of our markets, which help farmers and ranchers to discover prices and transfer risk," said Tim Andriesen, CME group managing director of agricultural products. "We believe these actions will further enhance our cattle markets for all participants."

CME also announced several other changes, including a review of the Worthing, South Dakota, delivery point for live cattle and the formation of a cattle market joint working group with the National Cattlemen's Beef Association to discuss other possible changes.

On Jan. 13, NCBA sent a letter to CME Group outlining its concerns with automated trading, spoofing and lack of transparency.

"The effectiveness of cattle futures contracts as a viable risk management tool is being called into question due to the concerns over high-frequency trading," the letter stated. "In fact, we continue to hear our members question their use of the cattle contracts because the volatility has made them a tool which is more of a liability than a benefit. This is counter to the very existence of these contracts."

As of Feb. 1, CME added livestock contracts to its messaging efficiency program, which regulates the speed and quantity of trade signals a market participant can send. It was one of the five requests NCBA set out in its letter.

NCBA is not the only cattle group to complain about the cattle market. R-CALF USDA sent a request to the Senate's Judiciary Committee asking for an investigation into the sharp drop in cattle prices in late 2015.

DTN's Harrington thinks there's a bigger issue underlying the cattle market's woes.

"I think the problem is a little more fundamental. It's the disconnect between the futures and the viability of cash markets. We trade so few cash cattle on negotiated basis anymore. I think that's a major problem, but I'm not quite sure how you solve that."

For futures markets to have a degree of stability, they have to be in close coordination with the underlying cash market, he said. There are macroeconomic issues -- the stock market and the oil price collapse -- for example, that can affect volatility in cattle.

"I think commercials are really having a difficult time using futures now because of the volatility, because of the unpredictability of its behavior and effect on basis," he said. "Basis is essential to hedgers and risk managers. If they can't depend on the relationship, then it's just a wild guessing game."

Katie Micik can be reached at katie.micik@dtn.com

Follow Katie Micik on Twitter @KatieMDTN


Ask the Tax Man by Andy Biebl

Wed. Feb 10, 2016 7:29 AM

By Andy Biebl
DTN Tax Columnist


I have a current landlord that inherited acreage in September 2014, but now is considering selling, possibly by public auction. Recent land auctions have sold at more than $10,000/acre. Are capital gain taxes calculated differently with inheritance? I was hoping to approach the landlord with the benefit of a private contract sale -- savings on their taxes, no auctioneer commission, etc. I would like to purchase private treaty, since I've farmed this property for more than 40 years.


When property passes from a decedent, its tax basis is adjusted to the fair market value (FMV) of the property as of the date of death. This is known as the "step-up in basis" rule, although technically property does step-down in basis if the decedent's tax basis happens to exceed the FMV at date of death. This adjustment of the tax basis to FMV occurs regardless of whether the decedent's estate was required to file an estate tax return or incur any federal or state estate tax. Further, if there is a small gain when the heirs sell the property, the long-term capital gain rates apply even though the property may have been held less than 12 months.

In the situation you describe, assuming the decedent held 100% of the property, the heir or heirs can sell with modest capital gain tax if the sale price is close to the appraised value of the property at date of death. To illustrate, let's assume the appraised FMV as of the September 2014 date of death was $9,500 per acre, and the estate or heirs sell the property in February 2016 for $10,500 per acre. In this example, there is only $1,000 per acre of long-term capital gain. If this is only a 40- or 80-acre parcel, there is probably little need to stretch out the gain to minimize the capital gain and net investment income tax costs.

On the other hand, if this is 500 acres and in my illustration there is a $500,000 gain, an installment sale could be very helpful in avoiding both the higher 20% capital gain rate and the 3.8% net investment income (NII) tax. In rough numbers (using the unmarried filing status), the upper-tier 20% capital gain rate only applies to tax returns with over $400,000 of total income, while the 3.8% NII tax does not apply until tax return income exceeds $200,000. Depending on the magnitude of other income in the seller's 1040, it is possible that an installment sale, spreading the gain over a number of years, could allow the federal tax cost to be limited to the 15% capital gain rate. This avoids the extra 5% capital gain rate and the 3.8% NII tax.

If this is a small parcel and the seller is not motivated to use an installment contract for tax reasons, a private sale to you under installment terms may have a different advantage to the seller. In a cash sale, whether through an auction or to you, the seller faces a difficult stock and bond market in terms of putting the new liquidity to work. But a seller-financed installment sale at a 4% rate or so may be attractive to them. They lock in a favorable investment rate of return, and are well-secured with their collateral interest in the farm property.

Another possibility is that the landlord did not get a full step-up in basis from the September 2014 death because the real estate was not owned by that decedent. For example, assume this farm parcel came from the landlord's parents, and that dad had died in 2000 and it was mom's recent death that occurred in 2014. If dad did not fully transfer title to mom, but rather gave her only a life estate (income interest) with remainder to the child/landlord, the property was not officially in mom's estate; she held only an income interest. In that case, the step-up in basis goes back to dad's estate in 2000, not mom's estate in 2014. Or perhaps 50% of the property was held by dad's estate and mom's more recent estate held only 50% of the land outright; half of the land had its basis adjusted in 2000 and the other half in 2014.

You certainly have some opportunity to work with this landlord to structure an installment sale that is beneficial to the seller in terms of both tax savings and investment yield, but it will take some artful tax planning on the seller's side to optimize the seller's results. If you are willing to structure your purchase terms to fit the seller's needs, you should own the farm!


I have read that we now have the $500,000 Section 179 deduction as permanent in the tax law, and also that it will be adjusted annually for inflation. Do we know the number for 2016 yet?


The IRS recently announced the indexed amounts for 2016 on several of the new permanent provisions, including the 179 amount. The law holds that indexing only occurs in $10,000 increments. The inflation rate is low enough that for 2016 we remain at a $500,000 cap on the Section 179 deduction. But the asset addition limit, which requires a dollar-for-dollar reduction of the Section 179 limit if eligible purchases for the year exceed $2 million, has been indexed to $2,010,000 for 2016. As an example, assume a farm producer purchases $2,100,000 of farm equipment in 2016. That is $90,000 over the asset addition limit of $2,010,000, so the Section 179 limit for this taxpayer is reduced by $90,000 to $410,000 for 2016.

EDITOR'S NOTE: Andy Biebl is a CPA and tax principal with the firm of CliftonLarsonAllen LLP in Minneapolis with more than 40 years' experience in ag taxation, including 30 years as a trainer for the American Institute of CPAs and other technical seminars. He writes a monthly column for our sister magazine, The Progressive Farmer. To pose questions for future tax columns, e-mail AskAndy@dtn.com.

Expect to retire in the next 5-10 years? Learn more about how to "Exit Agriculture Without Paying a Monster Tax" at a DTN-CliftonLarsonAllen webinar Feb. 18. For details go to https://goo.gl/…


Zillow for Agriculture

Fri. Feb 05, 2016 12:05 PM

By Marcia Zarley Taylor
DTN Executive Editor

HADDONFIELD, N.J. (DTN) -- Online real estate listings such as Zillow.com and Realtor.com revolutionized the housing market this century. Today pick any residential address in the U.S. with those free online services and you'll get rough estimates of the home's current value, its number of bedrooms, square footage, property taxes, the quality of its schools and the neighborhood's crime statistics. Now technology promises to bring the same transparency to the $2.4 trillion farm real estate market.

"Prior to services like Zillow, you had to depend on a broker to get information on inventory or comparable home prices," said Tamar Tashjian, general manager of AcreValue, a free online service first launched by Granular in April 2015. "This technology empowered home buyers."


Today's farmland markets are much like home real estate a decade ago, said Tashjian, former product manager at the residential real estate site Trulia.com. Farm real estate buyers and owners must depend on word-of-mouth tips and broker networking to find out what's really going on. Lack of information is compounded by the fact that only about 1% to 2% of farmland transfers hands each year.

What's even more challenging is how few land sales are reported in public forums. At least 50% of farmland transfers are private transactions, versus 8% in residential real estate, Tashjian estimated. That means plenty of deals between landlords and long-time tenants, heirs and family aren't widely disseminated.

West of the Mississippi, even professional ag appraisers complain they have difficulty ascertaining real sales prices because property records remain a closely guarded secret. Texas law even forbids disclosure of real estate sales information. Counties in many states don't yet publish records online, requiring someone to physically visit their offices.


With AcreValue.com, anyone can access rough estimates of Grain Belt farmland values, drilled down to actual field boundaries instead of generic counties or statewide averages. While not a substitute for appraisals, it offers an impartial estimate of what farms should be worth based on their expected productivity and income generation. It doesn't predict what an emotionally charged farmer-next-door would pay at auction.

"Even if the formulas aren't the beat-all-to-end-all solution, they're helping people be better informed about what land is worth," said Dave Nebel, a professional appraiser who heads Hertz Appraisal Services in Nevada, Iowa. When Hertz compared AcreValue's estimates to its own appraisals on the same properties, it found values differing by 5% to more than 20%.

AcreValue, the most robust tool at the moment, publishes soil and cropping information on 46 states, but currently estimates land values only for Iowa, Illinois, Indiana and Minnesota. More states and cash rent estimates are likely to come in the future.

The service marries information from USDA's National Cooperative Soil Survey (which measures the productive capacity of underlying soils), state productivity indexes; the National Agricultural Statistics Services' Cropland Data Layer (satellite imagery of crops planted on actual fields); the Farm Service Agency's common land unit boundaries; as well as public real estate survey data, which indicates land value trends.

Land quality is only one factor in valuation. AcreValue supplements that with proprietary adjustments for location, interest rates, the county's tax environment and expected grain basis. At the moment it can't measure improvements, such as tile drainage or irrigation. It may need a feature for current owners to correct for that data, much like Zillow permits homeowners to correct valuations if they believe estimates are flawed.

Still, basing valuations on economic factors is a start. "There's so much disparity between what one piece of farmland or another sells for," said Steve Bruere, president of Peoples Co., a land management and realty firm in Clive, Iowa. "When the lights turned on for me was when institutional investors began demanding soil data and three years of yield history before they'd look at buying a farm. Brokers didn't have that. We were all underwriting farms based on their Corn Suitability Rating, and it was a flawed system."

Peoples Co. launched WhatsMyFarmWorth.com with partner AgSolver in late January, primarily as a service to reach potential clients, Bruere said. The site is still working out kinks (for example, it lacks a search feature so it's hard to locate a precise field from the U.S. map). At the moment, it estimates farmland values and rents in 14 states based on a farm's actual field boundaries, soil type and historical productivity. The service roughly calculates farm profitability based on five-year averages for those soil types to determine economic-based land values or cash rents.

Given variability in soils, climate and other local factors, it will take time for data science to replace the judgment of human appraisers, however.

Bruce Sherrick, directs the TIAA-CREF Center for Farmland Research at the University of Illinois. He believes it's too early to assess the accuracy of AcreValue's forecasts. However, he said the service delivers "a nice index of relative land values" as well as a compilation of useful information, such as Farm Service Agency field boundaries, cropping history and soil types.

Longer term, AcreValue and a slew of similar services will decrease the cost of data collection, improve farm appraisals and make valuation reports more uniform, Sherrick said.

The technology for robotic appraisals is in its very early stages, but it could be transformative. "Fifteen years ago Google maps didn't exist. Now we carry the world in our pockets," Sherrick said.

For more information go to www.AcreValue.com or see Sherrick's article on estimating Corn Belt land values at http://goo.gl/…

Marcia Taylor can be reached at marcia.taylor@dtn.com

Follow her on Twitter @MarciaZTaylor


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