Taxlink by Andy Biebl

Fri. Jul 29, 2016 1:59 PM

By Andy Biebl
DTN Tax Columnist

This is the time of the year when that first semester of college tuition is due. Where can parents find help in the tax system?

SALARIES TO THE STUDENT

If the student is working on the farm for some part of the year, compensation can be a great tool. The student's salary isn't subject to income tax until it exceeds the standard deduction ($6,300 for 2016). Normally, there will be the 15.3% Social Security tax on the salary, except in the case of a parent/proprietor paying a child who has not attained age 18. The key to withstanding IRS scrutiny is documentation. The IRS won't accept general verbal assertions regarding the labor provided by the child. Rather, you should maintain notes of dates and hours worked, just as you do when that neighbor kid provides extra help. If hours are tracked and a reasonable rate of pay is used, this is an exceptionally tax-efficient method for paying some of the college costs with pre-tax dollars.

GIFTS OF GRAIN

Unsold grain is moved as a gift to a child, who later sells it in a lower tax bracket and without self-employed Social Security tax (because the student isn't conducting a farming business). But "kiddie tax" applies until the 24th birthday of the student, imposing the parents' top tax rate on the child's income from this source. There will be some SE tax savings to dad, but if the parents' return is in the upper tier 2.9% or 3.8% SE tax rates, the savings are minor and perhaps not worth the compliance hassle of the kiddie tax. The kiddie tax does have a small $2,100 annual exemption, so those who start early with grain gifts can build an accumulation.

TAX CREDIT AND DEDUCTIONS

During tuition-paying years, taxpayers have three choices: an American Opportunity tax credit, a Lifetime Learning credit, or a pre-AGI tuition deduction. Generally, the most lucrative is the American Opportunity Tax Credit, allowing a $2,500 direct federal income tax offset from the first $4,000 of tuition and fees. This credit may only be claimed in four tax years for any one student, however, so then generally there's a switch to the Lifetime Learning credit. If the student is a dependent, which is normally the case, the parents claim the credit. However, there are differing income phase-out ranges (e.g., in a joint return, the American Opportunity credit starts phasing out at $160,000 of AGI). For higher-income parents, it may make sense to forego a student's dependency exemption, in order to allow the child to claim the benefits of one of these tax credits, perhaps after enhancing the student's income with a grain gift. This is irritatingly complex, and if significant tuition dollars are part of the family equation for 2016, the benefits of these tax credits should be considered at year-end tax planning. The financial aid consequences must also be considered.

SECTION 529 COLLEGE SAVINGS PLANS

Starting early is often the best, and we will discuss this tool and how Congress improved it in next month's column.

**

Editor's note: Andy Biebl is a CPA and tax principal with the firm of CliftonLarsonAllen LLP in Minneapolis with more than 40 years of 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.

(MZT/AG)

Cattle Supplements and GHG

Thu. Jul 28, 2016 1:16 PM


By Russ Quinn
DTN Staff Reporter

OMAHA (DTN) -- Recent studies conducted on energy supplementation of grazing beef cattle offer the potential to decrease greenhouse gas (GHG) emissions, specifically methane. Common practices of cattle producers can decrease the carbon footprint of beef production, but additional research will be needed to examine different ways to improve the response, according to one scientist studying the issue.

In a Great Plains Grazing webinar on Tuesday afternoon, "Great Plains Grazing," Andy Cole, research animal scientist at USDA-Agricultural Research Service Conservation and Production Research Laboratory in Bushland, Texas, reported on studies being conducted at his facility which examine the effects on the carbon footprint of grazing cattle using different feed supplementation strategies. While the results varied some from study to study, generally the research showed GHG levels could be lowered in grazing livestock.

MORE GHG FROM GRAZING?

Cole said past GHG studies on North American beef cattle production have shown about 87% of the carbon dioxide equivalent is produced while cattle are grazing. Specifically 70% is from cow/calf production, around 17% from stocker operations and just 13% is from the feedlot side, a fact that might surprise.

"This is a lot different than what most people believe," Cole said.

About 60% of GHG from beef production in North America is from enteric methane from the rumen and the lower gut, he said. Roughly 20% comes from manure and another 19% is from energy and secondary emissions.

Cole points out that enteric methane production of U.S. feedlot cattle may already be close to biologically minimized, stating it runs 2% to 4% of the gross energy intake of the animals. If you get much lower than this level, you run into problems with fermentation within the rumen of the animal, he said.

"The greatest opportunity to decrease the carbon footprint appears to be in grazing cattle," he said. "Therefore in the last several years we have conducted a series of studies to examine the effects of supplementation on the emissions from cattle grazing in different forage systems."

Because of seasonal changes in crude protein levels in native rangeland, cattlemen often have to supplement to meet their grazing cattle's nutritional needs. For a mid-sized spring calving beef cow, the amount of crude protein needs to be supplemented during the time from late fall to spring when grass begins to grow.

The effects of GHG emissions from supplements in beef cattle are not fully known, he said.

RESEARCH MIXED

In one USDA-ARS study, cross-bred steers were fed low quality bluestem hay and then were fed cottonseed meal or dried distillers grain. Methane and carbon dioxide emissions were then measured, Cole said.

Protein supplementation increased total enteric methane and metabolic carbon dioxide due to increased feed intake. However, supplementation decreased enteric methane production as a percent of gross energy intake.

The enteric methane of the steers fed DDG were somewhat lower than the steers fed cottonseed meal, he said.

Another two studies looked at cattle grazing on wheat pasture, which were then fed supplements. These steers were fed an energy supplement of steam-flaked corn, wheat midds, mineral and molasses.

As with the first study, methane and carbon dioxide levels of the steers were measured.

The results of the wheat grazing studies show methane, as a percent of gross energy intake, was decreased by 16% to 21% with corn-based energy supplementation. Methane emissions per kilogram of dry matter intake were decreased 18.5% to 20.5% with the corn-based supplementation.

While these studies are promising and energy supplementation offers potential to decrease methane emissions from grazing cattle, Cole pointed out more research is needed.

"This may include how much fat is [in] that supplement, the starch, the digestible fiber, the use of ionophores and there are some new potential methane inhibitors that may be coming onto the market in next few years," Cole said.

Other factors that could have an effect on research into how much supplementation could control GHG emissions includes certain grazing management techniques as well as forage quality, he said..

Russ Quinn can be reached at russ.quinn@dtn.com

Follow him on Twitter @RussQuinnDTN

(CZ/BAS)

Team Farming - 2

Thu. Jul 28, 2016 1:13 PM


By Elizabeth Williams
DTN Special Correspondent

NASHVILLE (DTN) -- Because no two farms or farmers are alike, collaborative farming can take on different forms. Some are full partnerships but others simply share equipment. When John Gladigau, from Alawoona, South Australia, won a fellowship to study 50-60 collaborative farm operations around the world, he discovered "there is no 'working model' out there and there are no rules because every farm is so different." The key is to find a farmer who shares your similar values. We'll outline four ways farmers have teamed up with other farmers in nontraditional ways to grow their business.

1. Try a trial marriage.

For Rick Fruth of Napoleon, Ohio, it started with a popcorn company offering him more acres than he could handle. "I called my neighbors, Mark and Dennis Schwiebert, whom I respected, and said, 'I'll plant, harvest and manage raising popcorn on some of your acres and you can plant, harvest and manage a crop on some of my acres. And we bought some equipment together and we helped each other out," Fruth explained. After four years testing their compatibility, they formalized their partnership, operating 2,500 acres.

Through the years Fruth also got to know area farmer Rob Rettig and admired his forward thinking and work ethic. They found they had compatible personalities. In 2009, they decided to combine operations to improve their risk mitigation and economies of scale. Although the land is owned separately, the partners operate the farm business as a unit.

"For me, it was a way to grow responsibly, without competing against our neighbors. We grew slowly as each partner brought land into the operation," said Fruth. The combined farming operation, New Vision Farms, now encompasses 7,500 acres in northwest Ohio with over 100 fields and 50 landowners utilizing seven full-time employees and three to four part-time employees.

Even when everyone gets along, it's not an easy process. "What it comes down to is, it's all about trust," said Rettig. "You will be tested."

2. Commit to a partnership of equals.

Gladigau and another farmer in his area, Robin Schaefer, joined forces because they trusted each other, had similar values and goals and they wanted to grow. To form their partnership, they first started with a blank piece of paper. "We said, if we were to design the perfect family farm concerning ourselves, what would it look like? What would the decision-making process be like?" Gladigau explained.

"One of the things we decided was we wanted the latest technology, so we sold all our machinery -- some of it to our new operation, but not much of it," said Gladigau. "Our cost of machinery went from $138 per acre to $97 per acre with our newer, more expensive equipment because we utilized it more efficiently over more acres. We run our two seeders 806 hours per year; our annual sprayer use is 1,500 hours. Our two 40-foot harvesters go 24 hours per day."

Gladigau warned, "Don't get the idea that collaborating guarantees profit. Our biggest risk is drought. But since we had had five droughts in the past seven years before coming together, the probability of having a drought in year one of our farming together was low, right? Unfortunately, we suffered the second worst drought in those eight years during the first year (2008) we farmed together. But according to my records, we were no worse off farming together than if we had remained separate. And the next year, we had a cash surplus."

3. Join forces but keep finances separate.

In Chris Barron's group in Rowley, Iowa, everyone owns their own land and everyone owns their own grain. An overall management "company" is in charge of planning, purchasing and marketing. Two other "companies" own the equipment and trucks which rent to the eight group members.

By joining forces, "we can maximize our equipment," said Barron. "We bought a strip-till bar that cost us only $30 per acre. In fact, one of our farm team members said we were saving him $40 per acre on equipment costs."

Barron reported aggregating input purchasing saves about 5%. "And although we all make our own marketing decisions, we can combine forces and get some good deals. We met with Cargill earlier this year and asked what can we do to be a good customer? After some discussion, we agreed to sell 400,000 bushels corn for October delivery, and we also made basis deals for December and January delivery," Barron said.

Barron's equipment enterprise charges land-holding partners per-acre fees based on the equipment cost (principal, interest, repair, fuel, labor and insurance) plus a 5% to 12% return. The partners earn labor credit of $15 to $30 per hour. But that includes more than just running a tractor. For example, to clean and detail a combine -- a 35-hour job, you can receive $1,200 as credit on your equipment invoice.

Invoices are issued once in the spring and again in the fall. Barron's planting cost, using a JD 8335R tractor with JD 1770NT planter was $20.45 per acre this year.

If you don't like bookkeeping and can't account for every $1 spent on your farm, collaboration may not be for you. Your team members don't want to pay for "estimates." And they don't want to be surprised at the end of the year when you reconcile the books. Barron's group keeps track of every single piece of equipment on each farm for how long and with which operator.

Besides cost savings, another advantage of a larger collaborative operation is back-up for your labor. "We have 'three-deep' back-up for each piece of equipment," said Barron. "What happens when the guy running the sprayer gets sick? We have back-up."

How does Barron handle who gets planted first? "Someone has to be first and last. We look at logistics and soils. We try to be fair."

To determine who makes the ultimate decision, Barron's group has a list of "Decision Rights" -- naming who has the right to make the final decision for each major category of the farm operation. "For example, Randy Blin and I are responsible for the final decisions on equipment. Others can influence our decision, but we have the final say," Barron explained.

"When I first came back to farm and told my dad I wanted to partner with some people, he said it doesn't work. So, I did some research -- where it didn't work was when everyone got together to improve efficiency. No one said, 'We got together to help others and have a better life.' The key to our group is that [helping others and having a better life] is our goal. We have a great group who truly cares about each other. But, still, we are a work in progress. It's constantly evolving," Barron said.

4. Buy inputs or merchandize grain as a group.

For those wanting less management collaboration, but still want to benefit from group purchases and sales, farmers in southwest Ohio have a time-tested model. They joined together 40 years ago to form Premium Ag Commodities Inc. (PACI). The group hired a manager to purchase crop inputs in bulk, then added an experienced grain merchandiser and invested in a crop insurance agency. The three dozen current members represent 175,000 acres. Alan Thompson of Springfield, Ohio, said he saves about 5% to 10% on fertilizer since PACI negotiates a bundled price.

For grain sales, Thompson said, "[Alone] we can get 50,000 bushels to corn processors in three days, but if the group can get 250,000 bushels there, we might make at least an extra nickel per bushel."

The group also raises specialty grains for a Japanese customer. Putting their product directly on barges headed for New Orleans doubles their premiums.

Mark Bryant of Washington Court House, Ohio, values the level of expertise the group can hire. "I can't afford to have a specialist in my operation to handle purchasing, crop insurance and grain merchandising," said Bryant. "A 100,000-acre producer couldn't afford this."

Also, the group values the combined expertise of its members. The opportunity to affiliate with progressive operators has elevated everyone's management skills, said Lamar Ratliff of Greenfield, Ohio.

[To read more about PACI, see https://www.dtnpf.com/… .]

No matter how your farm team is organized, all these successful operations emphasize similar elements to success. The key is sharing similar values, being able to resolve conflicts, opening lines of communication and demonstrating respect for each other, they said.

DTN Executive Editor Marcia Taylor contributed to this story.

EDITOR'S NOTE: Next: What can go wrong with collaborative farming and how to avoid mistakes others have made.

(MZT/CZ)

Democrats to Rally Ag Vote

Thu. Jul 28, 2016 12:36 PM

By Jerry Hagstrom
DTN Political Correspondent

PHILADELPHIA (DTN) -- Sen. Jon Tester, D-Mont., and other Democratic officeholders from rural areas said at the Democratic National Convention here that rural America needs Hillary Clinton rather than Donald Trump as president.

At a meeting of the Democratic National Committee Rural Council, Tester said, "If you think for a moment that Donald Trump knows how deep to plant a wheat seed or a corn kernel or what it takes to raise a crop, you are seeing a different man than I am. This man is totally out of touch with ordinary Americans. Hillary Clinton is different."

Tester also noted that there were "Bernie folks" at the event, and said that Clinton challenger Sen. Bernie Sanders, I-Vt., is "a class act."

Tester noted that it was a Democratic president -- Franklin Delano Roosevelt -- who started the modern farm programs.

"I am a Democrat -- because of FDR," he said. "My grandfather would have lost the farm if it wasn't for the Democrats. History is cyclical. If we do not have good leadership in the White House, visionary leadership in the White House" and people in the House and Senate who understand family farming, he said, "we are screwed."

"We need a farm program for people in production agriculture," Tester said. "It is a tough job to design it. If we get competition in the marketplace, it will work."

Tester said his grandfather moved from the Red River Valley along the North Dakota-Minnesota border to Montana 100 years ago. Tester said he could still raise wheat where buffalo once roamed, but he got tired of taking the price offered and converted to organic farming some years ago.

Today his farm does better, Tester said, but land-grant colleges should conduct more research on organics.

"You cannot do trial and error on your own farm. Land grants have to do it," he said.

Tester also said the government needs to invest in rural schools because one reason young, college-educated people don't come back to the farm is that they worry about opportunities for their own children.

He said most of his colleagues think that being a senator is the best job in the world, but he believes "the best job I ever had is being farmer."

Rep. Jim Costa, D-Calif., said, "It bothers all of us to hear the immigrant-bashing that has been taking place."

Costa noted that his own grandparents came from Portugal's Azores Islands and did not speak English. Three of his grandparents were illiterate "their entire lives," Costa said.

Sen. Heidi Heitkamp, D-N.D., told the rural Democrats that "The Democratic Party has and always will fight for rural America," Politico said.

As a result, rural Americans "need to be on the front lines of telling the story of Democrats and why Secretary Clinton is the best choice," she added.

"We cannot lose rural America [by 90%] and win the presidency," Heitkamp added. "Rural America makes a difference in this election. It's not just that big, red square in the middle of this country."

Agriculture Secretary Tom Vilsack then spoke to a crowd of several hundred agricultural lobbyists, some of them Republican, and Obama administration political appointees at the "Kick Up Your Heels with Ag" reception at the Union League Club in downtown Philadelphia. If elected, Clinton would listen to their concerns, Vilsack said.

"Hillary ... she listens. Donald Trump only listens to himself," Vilsack. "When Hillary was in upstate New York, she listened," Vilsack added. "She is a problem solver."

National Farmers Union President Roger Johnson, who was master of ceremonies at the event, praised Vilsack's work over the past seven-plus years, calling Vilsack, the best Agriculture secretary "in my lifetime."

Though passed over for Clinton's running mate, Vilsack showed his continued support and prominence in the campaign Wednesday at the Democratic National Convention as he was seated next to former President Bill Clinton throughout the evening's speeches.

Speaking to the Democratic ag leaders, Vilsack also addressed immigration. "Everyone knows we have a broken immigration system," he said. "That is a problem."

Clinton favors the Renewable Fuel Standard, he said. "You can't trust Donald Trump on the RFS," Vilsack said.

Vilsack also told the reception attendees that the reasons for voting against Trump are much bigger than agriculture.

"This election is the most important in my lifetime," Vilsack said, adding that he considers the choice "stark," partly because Trump "believes it is OK to bring torture back."

(CC/AG)

No Yield Loss Necessary

Tue. Jul 26, 2016 11:05 AM


By Marcia Zarley Taylor
DTN Executive Editor

ST. LOUIS (DTN) -- All signs point to the largest-ever corn crop in history this fall and the third year in a row of plunging farm incomes. But with prices potentially tumbling to $3 by harvest, corn growers with high levels of revenue-based crop insurance could buffer some of the price damage. In fact, many corn growers could trigger 2016 crop insurance payouts with no yield loss.

Producers sometimes forget revenue-based crop insurance protects against a growing-season price collapse as well as sub-par yields, pointed out Jason Alexander, vice president of crop insurance for Louisville-based Farm Credit Mid-America. Since the Risk Management Agency set the spring guaranteed price for corn at $3.86 per bushel on March 1, prices have fallen to about $3.40 and could bottom near $3 by harvest, many commodity analysts now say.

"There was 2012 when people had big claims because the price went up. Don't forget you have price protection both ways with revenue insurance. When price comes down like this, this is when it comes into play," Alexander said.

This is a good time of year to be in contact with your agent and assess your coverage, he added. Some isolated parts of Kentucky, Ohio and Tennessee could suffer yield damage. "But even if you expect an average crop year or even a decent crop, and prices are heading lower, ask what will it do to your bottom line," he said. "Will you have a claim or not?"

DTN Analyst Todd Hultman noted Dec corn closed at $3.41 1/4 Monday, not very far from $3 and certainly within striking distance this fall, especially if the weather continues to provide good crop conditions. "Rains in July have been widespread and will likely give us a record crop this fall, possibly near 15 billion bushels," Hultman said. "With that much production likely, corn prices will have difficulty finding support, at least until harvest time. That just makes Dec corn prices near $3 a reasonable guess this fall."

University of Illinois economist Gary Schnitkey echoed that assessment. "Right now the market is expecting trendline corn yields, which would produce the largest crop ever in the U.S. and Dec corn futures are running about $3.40. Anything above trendline yields could send corn to $3 at the time RMA is setting that harvest price."

Should Dec futures prices average $3 harvest price this fall, that would represent 78% of the March 1 projected price, Schnitkey added. In essence, that means growers with 80% or 85% products would trigger revenue indemnities. In fact, their yields could run 10% to 15% over their average yields and still trigger some payment, he said.

"So a pretty key period looking forward is when USDA releases its yield estimates in mid-August," Schnitkey added, as that will indicate price direction.

The last time revenue crop insurance paid largely on price rather than yield loss was 2013, but such volatility is rare, both Schnitkey and Alexander told DTN. In 2013, the crop insurance spring guarantee was $5.65 per bushel, but futures plunged to $4.39 when averaged at harvest. That also represented only 78% of the projected price. RMA calculates the harvest price for corn based on average closings for the Dec corn contract during the month of October.

Growers who took advantage of private insurance riders that set alternative months for planting price guarantees could see even larger crop insurance payouts, Alexander pointed out. For example, instead of averaging the February closing prices for Dec corn, some companies offered "price flex" riders that averaged guarantees as late as spring planting season. That allowed growers who chose to set crop insurance prices in May or June to see guarantees at $4.31 per bushel "or a tad higher" this year, Alexander said.

Revenue crop insurance is not a complete substitute for farm safety nets, since year-over-year reductions in commodity prices can whittle federal price guarantees, Schnitkey said. This year's $3.86 corn price, for example, ran below cost of production for many Midwest producers.

In such low-price environments, growers need to closely monitor how they market insured crops. "After that spring crop insurance projected price is in place, whenever you see Dec futures markets moving above that level, you should think about locking in some of that crop with futures or puts," Schnitkey said. "We had some of those opportunities earlier this spring. We had some four-ish dollar prices on the Dec contract." Now the corn market seems to be hitting reverse.

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

Follow Marcia Taylor on Twitter @MarciaZTaylor

(Cz/SK)

Todd's Take

Tue. Jul 26, 2016 10:27 AM


By Todd Hultman
DTN Analyst

For those who spend a lot of effort trying to understand the grain markets and sometimes feel overwhelmed by the complexity of it all, you may want to sit down for what I am about to show. It is one of those strange things in life that is hard to explain, but can't be denied.

In 2016 alone, we have seen enough events for Billy Joel to add another verse to his 1989 montage, "We Didn't Start The Fire." I admit the lyrics aren't as catchy, but this year's market-threatening topics already include record harvests, rising dollar, zika virus, Janet Yellen, Dilma Rousseff, wildfires, La Nina, hot June, wet July, more wheat, Chinese floods, building walls, and Brexit.

As DTN Senior Analyst Darin Newsom wrote in Friday's Newsom on the Market column "The Haystack," much of this year's grain moves can be explained by shifts in noncommercial positions which don't always seem to make sense fundamentally. One of the biggest surprises this year was the rally in soybeans after noncommercials turned net long in mid-March.

At the time, it was widely expected Brazil was harvesting a record soybean crop and would soon be taking export business away from the U.S. Spot soybean prices, however, were not bothered by the lack of fundamental explanation and proceeded to climb from roughly $9.00 in mid-March to $12.00 by early June. It turned out to be a significant move that many grain-watchers missed.

So what is the strange thing I promised? It comes from Richard Donchian, born in 1905 in Connecticut to Armenian immigrants. As Wikipedia tells it, Donchian began his Wall Street career in the 1930s, worked as a securities analyst, wrote newsletters, and later started one of the first publicly-held commodity funds.*

Donchian tinkered with various trend-following methods and it is not clear when he came up with the four-week trading rule for which he is known, but it's easy enough for anyone to understand. The rule states that one should go long when the price of any commodity exceeds its high of the past 20 trading days (four weeks) and reverse short when the price falls below its low of the past 20 trading days.

The advantage of following Donchian's rule is that one is always positioned with the trend whether we understand why prices are going a certain direction or not. The disadvantages are numerous and start with the fact that one is always in the market, right or wrong. When prices chop up and down as they sometimes do, this method loses money.

According to Investopedia, "Test results for this (Donchian four-week rule) system were published as early as 1970, and it was found to be the most profitable system then known."** I decided it was time to update those test results and enlisted the help of DTN's ProphetX software to put together over 20 years of back-adjusted price data for December corn. To keep things simple, I only used daily closing prices.

Applying Donchian's four-week rule to December corn price data from 1995 up to July 14 of this year showed a hypothetical trading profit of $5.53 a bushel or $27,650 per contract, not including slippage or commission. While that is somewhat successful, the profit per trade only came to $151.92 or slightly over 3 cents a bushel, which does not leave much room for error.

Because I have always suspected that 20 trading days was too short of a time frame, I decided to re-test Donchian's method with other time periods. Not surprisingly, a 10-day rule generated too many trades and was slightly unprofitable. A 50-day rule did better, producing a hypothetical profit of $45,450 per contract on less than half of the trades required by the 20-day rule.

The star performer of the past 21 years however, was the 30-day rule. Going long Dec corn on a new closing high of the past 30 trading days and reversing short when prices closed at a new 30-day low produced $66,525 of hypothetical profit on 102 trades. This worked out to roughly five trades a year of $652.21 each, a winning track record by any standard.

In fact, the 20-day, 30-day, 40-day, and 50-day versions of Donchian's method all easily outperformed simply buying and holding one contract of December corn throughout the 21 1/2-year period tested.***

With that kind of trading math at work, why doesn't everyone use a 30-day version of Donchian's rule for their trading and/or risk management decisions? I suspect it's because it runs against the grain of human nature. As profitable as the history of this method has been, most understand past success does not guarantee a profitable future and the uncertainty of not knowing can be stressful.

A closer look showed that following Donchian's rules did not always produce rosy results. After the 30-day rule amassed big gains by November, 2010, the hypothetical trading account lost 31% of its equity in the following year and a half. Many would not be stoic enough to endure that much loss for that long of a time and still stay true to the system.

Most likely the toughest difficulty to overcome is the reluctance to give up old habits. Most of us have learned to study up on the news, weather, USDA reports, etc. We also watch out for numerous what-if scenarios that can make our head spin and keep us up at night.

Trend-followers, on the other hand, have to learn to disregard everything except for price and that is not necessarily easy. The traditional approach makes trades based on known factors, but trend-following forces one to also consider factors at work which aren't known. Factors like the ones that propelled this spring's soybean rally.

Every trade is not a winner and Donchian's method is not for everyone, but it deserves a look and should give us pause to consider the pros and cons of how we look at markets. As a market analyst, I have to tip my hat in amazement to a man who devised a trading method decades ago which still outperforms most efforts of traditional analysis, all without the benefit of any supply or demand information. In my book, Donchian rules.

* https://en.wikipedia.org/…

** "Four-Week Rule Boosts Winning Trades," by Michael Carr, August 5, 2014 at:

http://www.investopedia.com/…

*** Of course, one contract of December corn can't be held for 21 1/2 years, so the data assumes that the position is rolled forward on the final day of November each year.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd on Twitter @ToddHultman1

(CZ)

Grazing Leases Important

Tue. Jul 26, 2016 10:15 AM


By Cheryl Anderson
DTN Staff Reporter

OMAHA (DTN) -- A man is as good as his word, unless it comes to future disputes over a handshake agreements. While some livestock producers may only have a handshake agreement for renting grazing land, having a written lease is important in protecting both the tenant and landlord.

Having a written grazing lease can help avoid future conflicts, according to Kate Binzen Fuller, assistant professor/extension specialist for Montana State University. Fuller recently updated and modified a publication on Grazing Leases, along with Jeff Mosley, MSU professor/extension range management specialist.

"Some of these leases can get pretty complicated, so it's nice to have a document you can look back to, to make sure you know who is responsible for what within the lease," Fuller said.

Some disagreements do end up in court and different states have different laws about whether a written lease is required for it to be enforceable. For those reasons, Fuller advised that producers and landlords brush up on the laws in their particular state. In some states, unwritten leases may be legal, but can be difficult to enforce. Fuller recommended both parties have an attorney go over the lease, or write it with them.

IMPORTANT ELEMENTS OF A GRAZING LEASE

There are a number of elements that are vital to include in a grazing lease, Fuller said.

Grazing leases should contain an accurate property description; not just an address, but actual tract information on the specific parcels of land. A lease should also contain the names, address and emergency phone numbers for all those involved in the lease.

Stocking rates and the kind of animals allowed to graze should be included in a grazing lease. Most leases require the tenant to keep records of turn-on and turn-off dates, the number of livestock grazed, and should submit those records to the landlord at the end of the grazing season.

A grazing lease should also outline who is responsible for maintenance and improvements, such as maintenance of fences, corrals, water development and other structures, as well as range improvements practices such as weed control, seeding, fertilization, etc.

The lease should define the lease rate and how it will be calculated, as well as the method and conditions of payment, when the rent is due and whether insurance is required. It is generally recommended that the lease carry a stipulation requiring the tenant to carry liability insurance for the livestock on the leased property.

Special clauses may also be included regarding the right to terminate the lease if it is breached, or procedures to modify or terminate the lease in case animals need to be removed because of fire, drought, flood or other emergencies.

Lease agreements may also specify prohibited activities such as hunting, fishing or logging. Some leases may specify that the tenant's vehicles only travel on established roads or trails, except to perform weed control or in case of emergency.

Fuller said she encourages people to work through a budget so they know what their break-even is. Tenants should strive to make sure they're not paying more than they are getting out of the lease, and landlords often want to cover the costs associated with maintenance and property taxes.

Lease agreements should be signed, dated and notarized by all parties and it may be a good idea for the signed lease to be filed with the local county clerk's office, so an unbiased third party will have a record of the transaction and so it will show up in a title search.

"I just heard about someone who purchased land unaware there was an outstanding written lease for several years, so they had had to rent to that person," she said.

NEGOTIATING RATES

One of the trickier aspects of negotiating a grazing lease is finding a fair and equitable rate. Unfortunately, Fuller said that for many states, detail on market rates is lacking.

She finds that, at least in Montana, the best information on current grazing lease rates are from the U.S. Department of Agriculture's National Agricultural Statistics Service's website (https://goo.gl/…) or monthly grazing rates at the NASS Quick State website (https://goo.gl/…). However, those statistics may not be entirely representative, as they are averages over a wide range of variable property and could have been in place for a long time. Also, the statistics may not account for fluctuating cattle prices.

Fuller suggested that producers can talk to their extension agents, local lender or neighbors to get an idea of current rates in their area.

TYPES OF LEASE RATES

Lease rates for grazing can be written in a number of ways and should be suited to fit the needs of all parties to the less.

The MSU publication lists several types of grazing leases:

-Per acre lease rates vary with the productivity of the land and lease conditions. The rental rate remains the same for the duration specified, however, the tenant assumes the risk of changes in annual forage production due to weather.

-Per whole tract leases apply to a block of land for a specific annual fee and are normally used if leasing an entire ranch for a specified number of years. These kinds of lease arrangement are also used when the leased land consists of various land types (rangeland, seeded pasture, crop aftermath, forest, etc.)

-Per animal unit month (AUM) leases provide some flexibility for various types of livestock. To eliminate confusion about the definition of an animal unit month (AUM), it may be simpler to write a grazing lease on a per-acre basis, then stipulate the number and kind of livestock allowed. The typical definition of an AUM (what one 1,000-pound animal requires to graze for one month) has caused a great deal of confusion, as most cows now are significantly bigger than that.

-Per head or per pair lease rates typically are monthly or seasonal rates. But since types of livestock can vary greatly in quantities of forage, using AUMS as a common denominator may be a better plan.

-Share of gain lease rates are usually used for seasonally-grazed, weight-gaining livestock such as stocker cattle, replacement heifers and lambs and consist of a charge per pound of gain or a share of the total weight gain for the grazing period.

-Variable leases involve a fixed base rate for the term of the lease, and a variable rate that allows for fluctuations in livestock prices. This type of lease rate is set by considering the relative contribution of both parties to total production costs, as well as livestock prices.

Fuller added that grazing lease rates and their structure are very regionalized.

"I think out here in the west we see a lot more leases that are on a per-AUM basis," she said. "In the Midwest, you hear of more per-acre and per-head leases."

The MSU Grazing Leases publication, as well as a variety of lease rate information, resources, guides and presentations is available on the MSU Extension website at http://msuextension.org/….

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

(SK)

Kaine's Ag Resume

Mon. Jul 25, 2016 2:59 PM


By Jerry Hagstrom
DTN Political Correspondent
and
By Todd Neeley
DTN Staff Reporter

OMAHA (DTN) -- Though U.S. Agriculture Secretary Tom Vilsack would have been considered a homerun for agriculture as Democratic presidential nominee Hillary Clinton's running mate, Sen. Tim Kaine's, D-Va., resume suggests a mixed bag for farmers and ranchers.

Following the passage of the 2014 farm bill, Kaine said in a news release in February 2014 he supported and voted for the bill for a number of reasons. He indicated the bill would save taxpayers about $23 billion in the next decade, "eliminates wasteful direct payments, strengthens crop insurance and closes loopholes in the SNAP (Supplemental Nutrition Assistance Program) program without reducing nutrition access for the neediest people."

Much of Kaine's support for the farm bill came from the inclusion of what he said was "robust support" for Chesapeake Bay restoration and improved "farmers' access to export markets and consumers' access to fresh, local, organic foods."

In 2015 Kaine voted for two Senate bills that would have given the president trade promotion authority, also known as fast-track authority to allow the president to negotiate trade deals that could not be amended by Congress.

Kaine made news this weekend by altering his position on the Trans Pacific Partnership agreement. Kaine had said he saw much "to like" in the TPP, but has changed his position to follow Clinton's opposition. Kaine said he has concerns about the dispute-resolution mechanism in the agreement.

Kaine has been a proponent of the North American Free Trade Agreement, or NAFTA, which has faced heavy criticism from Republican presidential nominee Donald Trump.

As Virginia governor, Kaine was successful in preserving some 400,000 acres from development in 2005, according to PolitiFact Virginia. Also, in 2009 Kaine pushed for expanded conservation efforts through conservation easements, according to WHSV-TV in Harrisonburg, Virginia.

On the climate front as governor, Kaine convened a climate commission in 2008 to study the issues. As senator he has frequently called out climate skeptics.

Two environmental groups were quick to endorse Clinton's choice Friday.

"The Democratic ticket now features two environmental champions, both of whom understand that Americans want our government to secure a clean energy future for our kids and grandchildren," said Kevin Curtis, executive director of the National Resource Defense Council Action Fund. "Sen. Kaine's impressive environmental record is a perfect match for a presidential candidate who puts so much emphasis on creating green jobs and expanding America's reliance on clean, renewable energy."

Environment America Executive Director Margie Alt and Environment Virginia State Director Sarah Bucci released a joint statement saying Kaine "has a long history of standing up for the protection of our environment and the safety of our climate, and he'll make an excellent vice president."

On immigration, in October 2015 Kaine voted against proceeding to a vote on a bill that would have withheld funding to so-called sanctuary cities that protect illegal immigrants from deportation.

In January 2013, Kaine joined a number of lawmakers in asking the United States trade representative Ambassador Michael Froman and Vilsack to open chicken markets in the Trans Pacific Partnership.

"The TPP represents a significant opportunity to expand U.S. chicken exports and bring increased economic benefits to chicken growers and companies across the country," Kaine and other lawmakers wrote in a letter to Vilsack and Froman.

In May 2016, Kaine voted to repeal the catfish inspection program calling it a "waste of taxpayer dollars" and an "unnecessary, duplicative program."

There still are questions about Kaine's positions on biofuels and the Renewable Fuel Standard. According to an Associated Press story Saturday Kaine has ties to oil and gas interests.

As governor of Virginia Kaine supported expanded oil drilling off the state's coast, and according to AP has received political contributions from oil companies in previous election cycles.

According to a report by Taxpayers for Common Sense, however, from 2009 to 2012 Kaine received $28,750 in contributions from biofuels industry groups. That placed him in the top 15 among federal recipients who were not on Congressional committees overseeing biofuels subsidies or mandates.

MIDWESTERN ROOTS

When Kaine made his debut as Clinton's running mate at a rally in Miami Saturday, he was quick to point out his Midwestern roots.

"Vice president was never a job I thought about growing up in Kansas," Kaine said to a television audience.

"Like a lot of people in Kansas City, my parents weren't that into politics -- church, the Kansas City Royals, that's the kind of thing that we spent time talking about. They had too much else going on. My dad ran a union-organized ironworking shop in the stockyards of Kansas City. And my mom, in addition to all the challenges of my two brothers and me, she was my dad's best saleswoman.

"That ironworking business was tough. It's the kind of job where you can't cut corners. If you're not careful, you can make one mistake and ruin an awful lot of work in an instant.

"I learned that working in my dad's shop. My two brothers and I, we all pitched in. Sometimes we were scheduled to pitch in and sometimes Dad would just shake us in the morning and say, 'I got an order to get out and I really need you guys today.'

"I remember once, the last day of summer vacation, I was so looking forward to sleeping in and then I felt that hand on my shoulder at about 6 a.m. -- 'I've really got to have your help to get an order out today.'

"But that's what families do. We would go there early, especially in the summer, to try to get the work done before the day got hot."

Kaine also noted, "My parents, Al and Kathy, and they're alive and healthy, and they're happy today — 81 years old, alive, healthy and happy. They taught me early lessons that have guided my life: the importance of hard work, of faith and kindness, of following your dreams.

"My mom once told me -- and I'll say this, she wasn't much of a lecturer, she just kind of liked to live and then we were supposed to follow the example -- but she once told me this: 'Tim, you have to decide whether you want to be right or you want to do right. If you want to be right, go ahead and be a pessimist. But if you want to do right, be an optimist.'

"And folks, I've been an optimist ever since."

Kaine said he went to a Jesuit boys' school, Rockhurst High School in Kansas City, before graduating from the University of Missouri-Columbia in three years.

He then attended Harvard Law School where he met his wife, Anne Holton, who was the daughter of a Republican governor of Virginia. They returned to Richmond, where Kaine served on the city council and as mayor before being elected governor and then senator.

In her introduction, Clinton said both she and Kaine grew up in the Midwest.

"We were raised by fathers who ran small businesses and who taught us about the dignity of work and the discipline of a job well done," Clinton said. "And in both of our families, faith wasn't just something you talked about at church on Sundays. It was a call to serve others in every way that we can.

"And as you get to know Sen. Kaine, you will see that Tim's lifelong commitment to social justice is a shining example of his faith in action. During law school, when his fellow classmates were taking internships at prestigious law firms, he took time off to work with missionaries in Honduras."

The Kansas City Star reported the Kaine family lived in Overland Park, Kansas, a suburb of Kansas City, Missouri.

Kaine's parents and two younger brothers -- one a lawyer, the other a pediatric cardiologist -- still live in the Kansas City area, according to the Star. Kaine was born in St. Paul, Minnesota, but the family moved to the Kansas City when his father got a job as an electrical engineer at Bendix. His father later started his own business and his mother was a home economics teacher. Kaine went to the University of Missouri to study journalism, but switched his major to economics.

Jerry Hagstrom can be reached at jhagstrom@njdc.com

Follow Jerry Hagstrom on Twitter @hagstromreport

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

Follow Todd on Twitter @toddneeleyDTN

(TN/CZ/SK)

Cash Market Moves

Mon. Jul 25, 2016 12:04 PM

By Mary Kennedy
DTN Cash Grains Analyst

"Bin-buster" will likely be the one word to describe the 2016 harvest. Starting with the winter wheat crop, yields so far have been reported to be anywhere from 50 bushels per acre to as high as 85 bpa or higher in some areas. USDA recently revised its winter wheat yield estimate to 50.5 bpa, which would be a new all-time high vs. the final yield in 2015.

Tim Luken, manager at Oahe Grain in Onida, South Dakota, told me it didn't take long for his winter wheat bins at the elevator to fill up. Currently, he said, "Anything that is coming through the door at this time is cash and with bins being full in the country, cash is the only game in town at this time."

"Winter wheat yields in western South Dakota have been as good as expected," said Jerry Cope, who does the grain marketing for Dakota Mill & Grain, Inc. in Rapid City, South Dakota. "I am guessing our average is in the high 50s bpa. Harvest has outrun either total farm capacity or allotted capacity at farm bins. Grain delivered to the elevator has been contracted bushels, first, and excess over storage, second. In turn we have, or will be, shipping more. For now wheat is following soybean weather and corn's export demand and will either benefit on the cash side or suffer if freight values go higher."

Moving on to the 2016 corn crop, the most recent USDA estimate is that yields will be at 168 bpa vs. 2015 final at 168.4. However, many in the trade feel USDA will raise that estimate again for 2016, given the excellent shape reported for corn all summer. As of July 17, the corn crop was rated at 76% good to excellent vs. 69% the same time in 2015.

Here's the problem: 2015 corn is still left in the bins. In the June 30 USDA Grain Stocks report, 2.47 billion bushels of corn remained stored on farms. This means corn has to start moving in order to make room for all the 2016 crops, not just corn and winter wheat.

As far as the corn reported stored on farms in the June 30 report, some of that has moved from farm storage, but likely not enough to make a huge dent in the pile thanks to prices diving since June. On June 15, the DTN Cash Index was at $3.92; one week later on June 22, the cash index was 3.57; on July 1, the cash index was $3.23 and as of Friday, July 22, the cash average was at $3.06. As the price dropped, farmers ran away from the market. To make matters a little worse, freight costs are on the rise.

At the end of June, secondary shuttle (shuttles no longer needed) freight costs were at $50/$150 per car (over tariff costs) for July, August was at $0/100 per car, September was at $0/$200 per car and October-December was at $450/$650 per car. On July 19, freight was quoted at $700/$900 for the rest of July split, August was at $400, September was at $300/$750, October was at $1,000/$2000 per car and full October, November, December was at $550/$750 per car.

To put it in perspective, the shuttle tariff rate per car (plus fuel mileage) cost for corn delivered from Minneapolis to Portland, Oregon, is about $1.24 per car. If you want to buy shuttle cars in the secondary freight market for new crop, the added cost on top of the tariff cost is about 50 cents per bushel and that cost, in the end, may end up cutting into the price paid to a farmer; not a good thing given how much the cash corn price has dropped in the past two months.

New-crop shuttle freight costs are obviously on the rise given the expectations for a very large corn new crop along with soybeans and wheat new crop that will have to ship. Nearby costs have been moving higher due to demand and also because shuttles are not moving quickly enough to destination and back again to be reloaded. A shuttle loader in eastern North Dakota told me he has three shuttles to move in the next few weeks, but "shuttles have slowed down causing delays." The BNSF considers "normal" trips per month for shuttles delivered to the PNW at 2.5 TPM (turns per month). In their weekly rail service update, the BNSF reported that for the week ending July 16, shuttle TPM were at 3.0.

Dakota Mill and Grain, which is serviced by the Rapid City, Pierre & Eastern Railroad (RCPE), doesn't have a secondary freight market but is affected by other railroads that do, as well as rising barge freight. "We watch BN freight and notice bids are strong through the end of the year," Cope told DTN. "You are right, nearby freight values have jumped. From what we hear, there is fall demand and indications of a strong corn export program that will keep shuttle resale values well supported. We don't follow barge freight as close, but it is reasonable that stronger rail demand creates barge demand. The railroads are leaving the door open for rate increases after November and if they follow their usual pattern, would not be surprised to see an attempt for $200-plus per car (5 -- 6 cents per bushel)."

Barge freight on the Mississippi River and its tributaries reached all-time highs in the past month. USDA in its June 23 Grain Transportation report said, "Current grain barge rates have increased to the highest levels since November 2015, based on increased demand from higher shipments. As of June 21, St. Louis to New Orleans grain barge rates were 300 percent of tariff ($11.97 per ton), a 40% increase compared to last week, and 18% above the five-year average. Rates at other major barge origins had 25% to 51% weekly increases and were 10% to 27% above the three-year average. The largest weekly increase for export-barged grain was at origins on the Ohio River. Corn shipments have been up as the last four weeks of corn inspections at the Mississippi Gulf were 120% of last year and 151% of the three-year average. Continued concerns over tight corn supplies in South America, especially Brazil, may be driving the current increase in corn exports and may be causing the higher barge rates."

Since that report, costs have come down some, but remain well above average for this time of year. For example, barge freight on the Illinois River for the week ending July 19 was 9% higher than last week, 12% higher than last year at this time and 27% higher than the three-year average.

A northeast Illinois grain merchant told me that he has quite a bit of corn to move to be shipped to the Gulf via the Illinois River. He agreed that high freight costs are not a good thing for the farmer with the lower prices we are currently seeing. He added that he has heard talk of bulk ocean vessel freight moving higher as well.

That means that the piece of pie going to the farmer will just keep getting smaller.

Mary Kennedy can be reached at mary.kennedy@dtn.com

Follow Mary Kennedy on Twitter @MaryCKenn

(CZ/SK)

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