It’s ironic, but some producers in the extremely wet areas may end up with an income tax problem this year. Here’s why.
In good years, producers typically defer income on grain sales. A lot of income was deferred into 2010. Many of the inputs for this year will have been purchased and expensed in 2009. These inputs will either be returned for a credit or held over and used in 2011. Unseeded acres won’t require a lot of inputs. Producers with crop insurance will get an Unseeded Acreage Payment that will land in this calendar year. They may also get an interim AgriStability payment.
Add it all up and you have more cash income than expected and few options for deferring any of it. On the other side of the ledger, your expenses are way down.
Accountants who are making projections for farmer clients are coming up with some large tax liabilities. This can be particularly harsh for farm operations that are not incorporated. This will not be a good year financially for producers that have a large percentage of their land unseeded, but if you’re in that boat (pardon the pun), you might want to run some numbers and do some tax planning.
I’m Kevin Hursh.
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Tags: agricultural products, agricultural services, AgriStability, crop protection, custom application, Dynagra, fertilizers, financial solutions, grain sales, income tax problem, precision agronomics, soil fertility, tax issues, tax liabilities, Unseeded Acreage Payment, unseeded acres, Variable Rate Technology
Two farmers from Manitoba have come up with a proposed companion or top-up program for the farm safety net known as AgriStability. They’re calling their plan AgriStability Plus. It’s based on a cost of production model for farms as compared to the margin-based system used for AgriStability. Under the proposal, farmers would cover the cost of the top-up through premiums, while the program would be underwritten by the federal government. Murray Downing, a grain producer from Reston, Manitoba and Bryan Ferriss, a pork producer from Bowsman, Manitoba say their program would address many of the concerns with the current stabilization program where several years of poor returns erodes any support. Manitoba Pork Council has endorsed a discussion paper on AgriStability Plus that was prepared by Downing and Ferriss, with assistance from a farm management consultant. Personally, I have difficulty believing a cost of production program like this one could ever be actuarially sound. However, the discussion paper is an interesting read, with a number of farm examples. That discussion paper is posted at www.manitobapork.com. I’m Kevin Hursh.
Tags: AgriStability, AgriStability Plus, Manitoba Pork Council
Many grain producers have been able to build up good AgriStability reference margins. With that kind of protection in place, there may be a temptation to cut back on crop insurance coverage and save money on premiums. There are a number of good reasons to resist this temptation. The two programs are designed to work together so that producers are not disadvantaged by participating in both. This includes automatic adjustments to crop insurance premiums if necessary. On the other hand, if you cut back coverage under crop insurance, payments you would have received due to a very poor crop are imputed for AgriStability. In other words, your AgriStability payment may be cut back based on what you could have received under crop insurance. It’s also important to note that crop insurance payments add to your AgriStability margins for subsequent years. As well, you can receive crop insurance for the failure of one type of crop, even though your other crops may not be in a claim position. Cash flow is another consideration. Crop Insurance money flows a lot faster than AgriStability payments. At $5 to $20 an acre, crop insurance premiums add up, but cutting coverage could be even more costly than you think. I’m Kevin Hursh.
Tags: AgriStability, Crop insurance
Many Saskatchewan grain farmers have had some good years and they’ve built up their AgriStability reference margins. With different crops and much higher costs, most Ontario grain farmers say they haven’t built up that same protection. Grain and oilseed farmers in Ontario lobbied hard for a Risk Management Program (RMP) that was implemented within that province back in 2007. However, it is supported by only the Ontario government. The feds haven’t come to the table. RMP support prices are established for each eligible crop based on the cost of production. Producers pay premiums depending upon what percentage of the support price they want to insure. Here on the Prairies, most producers will tell you that a program covering the cost of production would be wonderful. But there’s little expectation that it will ever come to pass. Expectations are different in Ontario. Maybe it’s the influence of having such a large supply managed dairy sector where prices are based on a cost of production formula. Maybe, it’s because producers in neighbouring Quebec have long had lucrative farm programs. And maybe it’s because Ontario farmers feel that they have some political power. Ontario farm votes are up for grabs and can be enough to swing entire ridings. The squeaky wheel gets the grease and Ontario farmers are squeaking loudly. I’m Kevin Hursh.
Tags: AgriStability, Risk Management Program
After several good years financially for most grain producers, the AgriStability program is finally proving its worth. Through each incarnation from AIDA, to CFIP, to CAIS and finally to AgriStability, there have been improvements enabling the program to more accurately measure each farm’s reference margin. The valuation of grain inventory is now better and there’s an improved mechanism for adjusting reference margins for operations that are growing larger. With comparatively strong grain prices in recent years, combined with good crops in many regions, reference margins have improved. Shea Ferster of Meyers Norris Penny in Saskatoon says he has seen situations in the grain industry where producers are virtually bulletproof going into the 2010 growing season because they’ve built up strong reference margins. If they have a poor crop or if grain prices are bad, or even if both of these events come to pass, they’re protected. Of course, not all farmers have had good crops in recent years, and situations vary widely from one farm to the next. But as a general rule, AgriStability is now a huge asset for many grain producers, particularly those who maximized their reference margins in the years when they didn’t have claims. I’m Kevin Hursh.
Tags: AgriStability, AIDA, CAIS, CFIP
