Illinois Grain and Feed Association

Farm Policy News

Jacobs, K. “A Discussion of the Sec 199A Deduction and its Potential Impacts on Producers and Grain Marketing Firms.” farmdoc daily (8):13, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, January 26, 2018.

Permalink: http://farmdocdaily.illinois.edu/2018/01/a-discussion-of-the-sec-199a-deduction.html


The newly passed Tax Cuts and Jobs Act of 2017 introduced substantive changes to individual and entity-level tax rates and deductions, many of them welcomed by individuals and corporations. One section of the Internal Revenue Code (IRC) in particular–IRC § 199A Deduction for Qualified Business Income of Pass-Through Entities (Sec 199A hereafter)–is getting a lot of attention, raising questions and eyebrows for its potential impacts on grain marketing decisions. In essence, language in this section of code gives producers marketing grain a significant incentive to sell to a cooperative rather than a non-cooperative firm.

The purpose of this article is to highlight the primary features of the Sec 199A deduction causing concern and discuss potential implications for producers and grain marketing firms. Note that at one month into the new tax year, there are ongoing efforts directed at modifying the language in the code to correct the unintended effects on producers and grain marketing firms.

What Does Sec 199A Do?

Sec 199A is a deduction that applies to income earned from the business activities of pass-through entities, like S corporations, sole proprietorships, partnerships, and so forth. These are businesses whose income is not taxed at the entity level, but passed-through to its owners. The intent in crafting Sec 199A was two-pronged: 1) to ensure that these pass-through, non-corporate entities had a deduction similar to the reduction in the corporate tax rate, which dropped from a maximum of 35% to a flat rate of 21%, and 2) to retain, for cooperative organizations, a prior deduction that was removed: Domestic Productions Activity Deduction (DPAD), or Sec 199. This is not a typo: Sec 199A replaces Sec 199 of the 2001 Bush tax cuts. Note that the DPAD was a jobs-creation deduction and available to manufacturing firms across many sectors, including agricultural cooperatives marketing farmers’ domestic production of grain.

The Sec 199A deduction for pass-through entities is based on qualified business income (QBI). There are restrictions on what qualifies as a business activity for this deduction (many services, for example, do not), and both the definition of qualified business income and calculation of the actual deduction are complicated. But in simple terms, the deduction is 20% of the qualified business income, subset to a wage limitation. Though complicated, this portion of the code is not contentious.

Sec 199A has a second feature, and this is the part that leaves open a number of questions about unintended consequences. In addition to the deduction related to qualified business income, it provides a 20% deduction on ‘qualified cooperative dividends.’ Typically we think of qualified cooperative dividends as the annual allocation of profits from a cooperative to its members–these are better called qualified cooperative patronage allocations. In this new law, those are indeed included in the payments eligible for 20% deduction and also not hugely controversial. However, another payment by cooperatives to its members is also included in the definition of ‘qualified cooperative dividends’: per unit retains (more correctly called per unit retains paid in money, or PURPIM). Per unit retains, in the simplest terms, are the payments from cooperatives to members for their grain or other agricultural production. Note the deduction applies only to the marketing or pooling functions (grain and other agricultural products) and does not include purchases by members for agronomy, seed, fuel, etc.

Per unit retains were defined as ‘qualified cooperative dividends.’ As a result, a producer selling grain can receive a 20% deduction of gross grain sales (before farm expenses) from taxable income less capital gains if s/he is a member selling to a cooperative. If instead the sale is to a non-cooperative marketing firm or processor (e.g., ADM, Cargill, or any number of independent grain marketing firms), the deduction is 20% of the net income. At the surface, this creates a significant effective basis gap between otherwise equal basis bids for grain or other agricultural commodities. A simple example, abstracting from the complexities of QBI and marginal tax calculations shows the potential.

A farmer has $500k in gross grain sales (140,000 bushels) and $100,000 in net farm income, all from selling grain. If she markets through a cooperative, she anticipates a patronage allocation of $0.025 cents per bushel, or $3,500.

  • Choice A: She markets the crop to an independent grain firm or processor and, through Sec 199A, she deducts up to 20% of her QBI: 20% x $100,000 = $20,000 potential deduction.
  • Choice B: If she markets the crop to her cooperative, she deducts up to 20% of gross sales (20% x $500,000 = $100,000) because they qualify as per unit retains, plus 20% of any qualified patronage allocation (20% x $3,500 = $700). The potential deduction is $100,700.

At a 22% marginal tax rate based on selling to an independent marketing firm or processor (Choice A), the deduction difference between these two choices is $80,700, which equates to $0.12 per bushel in taxes. Estimates from tax professionals working with producers is that the tax effect may range from $0.05 – $0.20 per bushel.

It is clear to see why producers are eager for clarification on this law and why independent grain firms and processors want it changed. Facing equivalent cash bids in the market, the signal is pretty clear that it is advantageous to market to a cooperative.

What if it stays as written?

The above example is meant for illustration, and there are a number of factors that might mitigate the true differential created by the law, and these are producer-specific. Still, contemplating its preservation, a cascade of questions emerge regarding grain and agricultural product movements, local capacity, optimal organizational structures for farmers, and the fate of independents. Below are my thoughts summarized in the two broader questions I receive, vetted with trusted colleagues and grain marketing experts. The perspective I provide here applies to agricultural producers and grain marketing in the Midwest, but certainly there are related or larger impacts for other types of ag cooperatives throughout the country.

  1. Do cooperatives have the storage and transport capacity to handle agricultural products if all producers sell to a cooperative? What happens if not? What will be the local price impacts?

Generally speaking, it is unlikely that cooperatives have sufficient facilities currently to handle the harvest grain movements and other seasonal gluts that arise in the Midwest. But storage is a local phenomenon and each region will be different. In Iowa, for example, approximately 72% of the 1.4 billion bushels of licensed grain warehouse capacity (state and federally licensed) is held by a cooperative. If one considers on-farm storage, the argument could be made that this law wouldn’t create a significant grain-movement challenge in a number of parts of Iowa. In Kansas, approximately 70% of the grain storage is held by cooperatives or on-farm. Cooperatives in both states use ground piles to manage harvest gluts, and if this law sticks, that challenge may be exacerbated in the short term. But cooperatives and producers would respond to the economic incentives to invest in grain storage in that case. Condominium grain storage is another option for producers to mitigate storage constraints.

Grain storage facilities aside, a number of mitigating origination options are already used. In regions where processors and ethanol plants exist, producers use ‘direct-ship’ contracts to haul grain directly to a processor even though it is sold to the cooperative. Without recent data regarding the proportion of grain moving this way, it is hard to say whether we will see a significant change in those patterns, and even if so, grain movements and prices will find an equilibrium. Independent grain firms and processors likely will seek to establish marketing arrangements with cooperatives as a way to secure footing locally in the grain business.

Local price impacts are another unknown. On the one hand, some independents and corporations received a nearly 40% reduction in taxes (from 35% to 21%) via Sec 199A that cooperatives, which pass through member-based income to patron-members did not. The argument has been made that they can use those tax savings to be price competitive in the eyes of producers making the marketing decision. On the other hand, local capacity constraints at cooperatives may depress local basis, particularly during harvest, which partially mitigates the tax-differential created by Sec 199A. Cooperatives typically do not turn away grain from members, which is why we observe large grain piles on the ground during harvest. Producers individually will need to weigh the potential tax deduction benefit with other costs associated with marketing grain: hauling distance, local basis differential, differentials in wait times at grain dumps, and so on. If net farm income is expected to be low, the per-bushel estimated tax difference created by Sec 199A dissipates.

  1. 2. Will producers form their own cooperatives or independents reorganize as a cooperative?

In local areas without grain/oilseed marketing cooperatives, the potential exists to see producers forming closed cooperative organizations to capitalize on the Sec 199A deduction. More likely, however, is that existing cooperatives acquire or build assets in those areas, or as mentioned above, form marketing arrangements with existing firms. In much of the Midwest, existing cooperatives are of sufficient size and capitalization and have the spatial presence to respond much faster to the need for capacity and changing grain dynamics than a start-up could accomplish. Alongside the temptation to form a cooperative, the new tax code creates incentives for producers to reconsider their own operation’s structure, potentially reorganizing as a C corporation or S corporation or changing from one to the other. Those details aren’t discussed here, but are complicating factors in determining how the farm economy might change if Sec 199A holds as written.

Effects on grain cooperatives

Producers will be impacted not only by the farm-level deduction of Sec 199A but, as members of cooperatives, stand to notice positive changes related to their cooperative’s patronage allocations and equity redemption. The tax savings to cooperatives on non-member business and the supply-side of their business are just like those for other corporations, and the new tax rate is 21% instead of a maximum of 35%. However, if the Sec 199A deduction for producers marketing through a cooperative holds, all producers selling grain to a cooperative will choose membership, effectively eliminating any non-member marketing business. That aside, tax savings on cooperative profits related to input supply or other non-marketing functions could be used to accelerate the cooperative’s equity redemption which gets income into the members’ hands more quickly. Alternatively, the tax savings could be used to improve facilities and service offerings to benefit members.

For those wanting more details, the fact sheet “Impact of Tax Reform on Agricultural Cooperatives” (Briggeman and Kenkel, 2018) dives into the expected changes in cooperative patronage allocation and member-level returns from the law using simulation.

Conclusion

The questions that fall out of the reality of the Sec 199A code as written are important ones, as their answers weigh on the potential for significant changes in the structure of the agricultural supply chain for crops, in grain movements, and in farm-level incomes.

In a statement on January 12, 2018, the U.S. Department of Agriculture’s Under Secretary for Marketing and Regulatory Programs Greg Ibach wrote, “The aim of the Tax Cuts and Jobs Act was to spur economic growth across the entire American economy, including the agricultural sector. While the goal was to preserve benefits in Section 199A for cooperatives and their patrons, the unintended consequences of the current language disadvantage the independent operators in the same industry. The federal tax code should not pick winners and losers in the marketplace. We applaud Congress for acknowledging and moving to correct the disparity, and our expectation is that a solution is forthcoming. USDA stands ready to assist in any way necessary.”

The agricultural industry–cooperatives, too–anticipated that the existing DPAD deduction would not stand in the tax reform negotiations, but thought a similar provision would replace it. Few, if any, anticipated that a cooperative deduction would be expanded to the producer-level, or believe it will stand as written. Organizations such as the National Grain and Feed Association (NGFA) and the National Council of Farmer Cooperatives (NCFC) are working jointly on a revision with Congress. Tax professionals, agricultural businesses, and producers are waiting for clarification on whether the law will stay as-is or be changed, and will then await guidance from the IRS on interpretation.

References

Briggeman, B.C., P. Kenkel. “Impact of Tax Reform on Agricultural Cooperatives.” Special Edition ACCC Fact Sheet Series, Collaborative Research KSU / OSU, January 10, 2018. https://www.agmanager.info/agribusiness-management/papers/impact-tax-reform-agricultural-cooperatives-special-edition-accc

U.S. Department of Agriculture, Statement of Under Secretary Greg Ibach on Section 199A Tax Code Fix, Release No. 0010.18, January 12, 2018. https://www.usda.gov/media/press-releases/2018/01/12/statement-under-secretary-greg-ibach-section-199a-tax-code-fix

2018 Standard Mileage Rates

Notice 2018-03

SECTION 1. PURPOSE
This notice provides the optional 2018 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. This notice also provides the amount taxpayers must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that may be used in computing the allowance under a fixed and variable rate (FAVR) plan.

SECTION 2. BACKGROUND
Rev. Proc. 2010-51, 2010-51 I.R.B. 883, provides rules for computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes, and for substantiating, under § 274(d) of the Internal Revenue Code and § 1.274-5 of the Income Tax Regulations, the amount of ordinary and necessary business expenses of local transportation or travel away from home. Taxpayers using the standard mileage rates must comply with Rev. Proc. 2010-51. However, a taxpayer is not required to use the substantiation methods described in Rev. Proc. 2010-51, but instead may substantiate using actual allowable expense amounts if the taxpayer maintains adequate records or other sufficient evidence.

An independent contractor conducts an annual study for the Internal Revenue Service of the fixed and variable costs of operating an automobile to determine the standard mileage rates for business, medical, and moving use reflected in this notice. The standard mileage rate for charitable use is set by § 170(i).

SECTION 3. STANDARD MILEAGE RATES
The standard mileage rate for transportation or travel expenses is 54.5 cents per mile for all miles of business use (business standard mileage rate). See section 4 of Rev. Proc. 2010-51.
The standard mileage rate is 14 cents per mile for use of an automobile in rendering gratuitous services to a charitable organization under § 170. See section 5 of   Rev. Proc. 2010-51.
The standard mileage rate is 18 cents per mile for use of an automobile (1) for medical care described in § 213, or (2) as part of a move for which the expenses are deductible under § 217. See section 5 of Rev. Proc. 2010-51.

SECTION 4. BASIS REDUCTION AMOUNT
For automobiles a taxpayer uses for business purposes, the portion of the business standard mileage rate treated as depreciation is 22 cents per mile for 2014, 24 cents per mile for 2015, 24 cents per mile for 2016, 25 cents per mile for 2017, and 25 cents per mile for 2018. See section 4.04 of Rev. Proc. 2010-51.

SECTION 5. MAXIMUM STANDARD AUTOMOBILE COST
For purposes of computing the allowance under a FAVR plan, the standard automobile cost may not exceed $27,300 for automobiles (excluding trucks and vans) or $31,000 for trucks and vans. See section 6.02(6) of Rev. Proc. 2010-51.

SECTION 6. EFFECTIVE DATE
This notice is effective for (1) deductible transportation expenses paid or incurred on or after January 1, 2018, and (2) mileage allowances or reimbursements paid to an employee or to a charitable volunteer (a) on or after January 1, 2018, and (b) for transportation expenses the employee or charitable volunteer pays or incurs on or after January 1, 2018.

SECTION 7. EFFECT ON OTHER DOCUMENTS
Notice 2016-79 is superseded.

DRAFTING INFORMATION
The principal author of this notice is Bernard P. Harvey of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information on this notice contact Bernard P. Harvey on (202) 317-7005 (not a toll-free call).

Farm Policy News

Update

December 6, 2017

Latest News Summary

USDA Updates U.S. Ag Export Forecast Amid NAFTA Worries

December 05, 2017

In fiscal year 2017, U.S. agricultural exports totaled $140.5 billion, representing the third-highest level on record.  In its quarterly export forecast in August, USDA indicated that fiscal year 2018 agricultural exports were projected at $139.0 billion.  However, in its latest quarterly forecast, released late last month, USDA increased the fiscal year 2018 export projection by $1.0 billion.  Today’s update examines the latest export forecast in more detail, and looks briefly at recent NAFTA news items pertaining to agriculture, including a report from the Nebraska Farm Bureau.

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Farm Policy News

November 27, 2017

Weekly Outlook: Acreage Prospects for 2018

Hubbs, T. “Weekly Outlook: Acreage Prospects for 2018.” farmdoc daily (7):217, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 27, 2017.

Permalink: http://farmdocdaily.illinois.edu/2017/11/acreage-prospects-2018.html


Corn and soybean prices have weathered the USDA’s November Crop Production report that contained larger forecasts of the size of the 2017 harvest, relative to market expectations, for both crops. Considerable speculation will occur over the next few months about the acreage decisions farmers will make in 2018. Current market conditions appear to support moderate soybean and corn acreage expansion in 2018.

Projecting the acreage allocations for 2018 U.S. crops will begin in earnest after the turn of the new calendar year. Prospects for 2018 crop acreage levels start with expectations about planted acreage for principal crops. Since planted acreage varies substantially from year to year, anticipating total planted acreage is quite difficult. In 2017, acreage planted in principal field crops declined to 318.2 million acres, the lowest level since 2011. The decrease in principal field crop acreage was particularly acute in the northern and southern plains. Texas and Kansas both decreased acreage by over 500,000 acres. North and South Dakota also decreased planted acreage by 143,000 and 279,000 acres respectively. Nebraska was the lone exception with an increase of 202,000 planted acres. While Illinois decreased planted acreage by 163,000 acres, most of the major Corn Belt states increase planted acreage in 2017. As we move into 2018, the prospect of large decreases in crop acreage in the Corn Belt appears low, while acreage changes in the plains may be in the form of crop adjustments instead of acreage losses.

In conjunction with the decrease in total principal crop planted acreage, prevented planting acreage was relatively low in 2017. The Farm Service Agency reports 2.4 million acres of prevented plantings in 2017, down from 3.7 million in 2016 and 6.7 million in 2016. Conservation Reserve Program acreage appears set to remain near 23.4 million acres. The current low price environment across most field crops point to steady or slightly lower total planted acreage in 2018 but holds the potential for more soybean and corn acres.

In 2017, the combination of corn and soybean acres increased to 179.9 million planted acres, expanding to 56.5 percent of principal crop acres. While corn and soybean acreage in total continued a three-year trend of increased planted acres, the change in soybean acreage stood out in 2017 with expansion to 90.2 million planted acres. Other than soybeans, the only major crops to see any planted acreage increases in 2017 were cotton, rye, peanuts, and canola. In the main corn producing states during 2017, only Kansas, Michigan, and North Dakota increased corn acreage over 2016 planting decisions. Increased planting of soybean acreage was common across all major producing states. North Dakota and Kansas lead the way in soybean acreage growth with 1.15 million and 700 thousand acres respectively. The increased soybean acreage, and in some instances corn acreage, came at the expense of other field crops with wheat acreage losing over 5.5 million acres from 2016 to 2017. The continuation of corn and soybean acreage expansion depends on demand prospects during the 2017-18 marketing year and the evolution of corn and soybean prices between now and planting.

Currently, demand prospects for corn remain mixed. Current demand is very strong for corn use in ethanol as production continues to exceed the pace of a year ago. The growth of livestock numbers and supportive prices in many livestock sectors provides support for increased feed demand. An indication of feed use for this marketing year will be available with the December 1 Grain Stocks report on January 12. Corn exports currently lag behind last year’s pace with export inspections through November 23 trailing last year’s total by 209 million bushels. When combined with the trade policy uncertainty associated with NAFTA, developments in the corn export market could inject volatility into corn prices in 2018. Additionally, the 7.2 million acres of corn to be planted in Brazil saw a large portion of the prospective acreage pushed back to the second crop which is more susceptible to the dry season. A reduction in Brazilian corn production may help corn exports in 2018.

For soybeans, the pace of the domestic crush is off to a strong start in the first two months of the marketing year. Soybean exports appear to be set for a strong marketing year but currently trail last year’s pace. Export inspections through November 23 lag last year’s pace by 120 million bushels. The current soybean crop being planted in South America will be a major factor in determining whether U.S. soybean exports hit record highs this marketing year.

The market will continue to form expectations about acreage devoted to corn and soybean acres. Preliminary surveys of farmer’s planting intentions for 2018 have varied on the direction and magnitude of soybean and wheat acreage. Thus far, all surveys have indicated an expansion of corn acreage. Current market prices imply, at a minimum, a repeat of the soybean acreage planted in 2017. The prospect of corn and soybean acres seeing moderate expansions is possible in 2018. Data availability on acreage prospects in 2018 begins with the USDA’s January 12 Winter Wheat Seedings report and will be followed by the March 30 Prospective Plantings report.

Farm Policy News

Update

November 17, 2017

Latest News Summary

 

Rural America: Perspective from USDA Report, and Federal Reserve Ag Credit Survey

November 16, 2017

On Thursday, the U.S. Department of Agriculture released its annual Rural America at a Glance report, which summarizes the status of conditions and trends in rural areas. In addition, the Federal Reserve Bank of Minneapolis recently provided details of its third quarter Agricultural Credit Conditions Survey, which follows on the heels of recent third quarter agricultural reports from four other federal reserve districts. Together, the USDA report and Minneapolis Fed update, provide some interesting perspective on the state of non-metro America.

 

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IFEEDER: Institute for Feed Education and Research

FOR IMMEDIATE RELEASE

Contact: Victoria Broehm

Director of Communications

(703) 558-3579; vbroehm@afia.org 

 

IFEEDER Focuses 2016-17 Research, Education Priorities on Improving Public, Policymaker Support of Feed Industry Issues

ARLINGTON, Va., Nov. 2, 2017 – The Institute for Feed Education and Research (IFEEDER) released its first-ever annual report to donors today, reinforcing its continued commitment to executing research and education projects and initiatives that support the animal food industry’s legislative and regulatory priorities, protect its license to operate, and preserve consumer choice.

“The past year for IFEEDER has been about one thing—focus,” said Rob Sheffer, the 2016-17 chairman of the IFEEDER Board of Trustees. “In 2016-17, we spent plenty of time refocusing what types of projects to fund in the future as well as how to better communicate with, or ‘pay particular attention to,’ you, our donors. … Even the logo has a ‘focus’ on research and education, while paying tribute to the importance of the historical green and black to signify the message of sustainability and growth.”

The annual report provides an overview of the institute’s financial revenue and expenses as well as a cumulative list of corporate and individual donors. It also highlighted some of IFEEDER’s recent accomplishments, including:

  • Developed a one-of-a-kind, generic hazard-analysis resource for facilities to use to create an animal food safety plan as required under the Food Safety Modernization Act (FSMA). This tool will help facilities save thousands of dollars and hundreds of hours of employees’ time and significantly reduce the number of new protocols that animal food companies must make to comply with the FSMA requirements.
  • Carried out an independent, in-depth survey on the Food and Drug Administration’s process for approving new feed ingredients. The staggering results showed that on average, feed producers are investing $600,000 per product on product approval costs, and the industry is losing an average $1.75 million annually. The American Feed Industry Association staff will share this data with the FDA in an effort to significantly improve the ingredient review approval process.
  • Carried out a three-year research project with the National Pork Board and other groups to identify knowledge gaps and opportunities for the feed industry to better prepare for a future outbreak of the porcine epidemic diarrhea virus (PEDv).
  • Developed a new tool that will provide the standard for all livestock and poultry organizations, universities and other organizations to use to assess the emissions generated by species over their total lifecycles. The methodology used to develop this tool concluded, based on scientific evidence, that the U.S. livestock and poultry sectors contribute less than 4.2 percent of total U.S. greenhouse gas emissions.
  • Overhauled the IFEEDER website by incorporating a new logo and optimizing the site for search engines and mobile devices.

IFEEDER also provided a look-ahead to upcoming research and education projects and initiatives it will be carrying out during the 2017-18 fiscal cycle, which ends April 30, 2018.

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About IFEEDER

Founded in 2009 by the American Feed Industry Association (AFIA), the Institute for Feed Education and Research is a 501 (c)(3) public charity and is a critical link in the ever-evolving food supply chain. Serving as a champion for the animal food industry, IFEEDER supports critical education and research initiatives that ensure consumers have access to a safe, healthy and sustainable food supply. IFEEDER focuses its work in two primary areas: funding critical animal feed and pet food research to support AFIA’s legislative and regulatory positions, and developing appropriate messaging for policymakers, consumer influencers and stakeholders which highlights the industry’s positive contributions to the availability of safe, wholesome and affordable food, and preservation of our natural resources.

Farm Policy News October 12, 2017

NAFTA Renegotiation Continues- Pres. Trump, Sec. Perdue, Lawmakers Weigh In
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Update

October 12, 2017

Latest News Summary

 

NAFTA Renegotiation Continues- Pres. Trump, Sec. Perdue, Lawmakers Weigh In

October 11, 2017

William Mauldin reported on Wednesday at The Wall Street Journal Online that, “President Donald Trump, speaking alongside Canadian Prime Minister Justin Trudeau, opened the door to separate trade deals with Canada and Mexico to replace the North American Free Trade Agreement and repeated his warnings that the U.S. could withdraw from the pact.”

 

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Farm Policy News

October 6, 2017

Latest News Summary

 

Senate Hearings- Trade, and Conservation Reserve Program Examined

October 05, 2017

On Thursday, the Senate Finance Committee held a hearing to consider three nominees for key trade positions, while the Senate Ag Committee questioned two nominees for Undersecretary posts at the USDA.  Today’s update highlights some key points from the hearings, including issues related to agricultural trade and the Conservation Reserve Program.

 

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FarmDoc Daily October 4

 

 

Data and Outlook for Making 2018 Cash Rental Decisions

October 03, 2017

Gary Schnitkey

Much of the cash rent data for making 2018 cash rental decisions is now available. Data include 1) 2017 county and state cash rents as reported by the National Agricultural Statistical Service (NASS) and 2) actual 2017 and projected 2018 cash rents on professionally managed farmland as reported by the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA). These data are reported in this article. For 2018, cash rents likely will continue to decline as farmers are projected to have negative returns when cash rents are at average levels.

 

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Illinois Corn and Soybean Harvest Considerations

URBANA, Ill. – The USDA’s September predictions for Illinois corn and soybean yield are 189 and 58 bushels per acre, respectively. According to University of Illinois agronomist Emerson Nafziger, these are good yields after the challenges of the 2017 season. As we head into harvest, Nafziger provides considerations for farmers looking to minimize last-minute yield losses.

Soybeans
“While we don’t expect as many yields in the 80-90 bushel range as we had in 2016, pod numbers in many fields are higher than expected after the dry weather in August and September,” Nafziger says. One reason is the cooler temperatures in recent weeks; with water use lower under cooler temperatures, plants avoided the premature leaf drop that sometimes signals an early end to seed filling. Rain might help boost yields a bit, but only in fields planted late or with late-maturing varieties where plants are still green.

With high temperatures predicted for the rest of the week, seeds and pods of maturing soybeans will dry within hours, rather than days. “We need to be alert and ready to harvest as soon as plants can be cut and seed moisture drops to 13 percent,” Nafziger says. “If moisture drops to 10 percent or less during harvest, it might be worth stopping until pods and seeds take on some moisture in the evening or overnight.”

Breeding and the use of improved combine headers have reduced pod shatter at harvest, but soybean seeds with less than 10 percent moisture can crack, lowering grain and seed quality.

“Harvest is getting underway at about the same time for both corn and soybean this year, but there might need to be frequent switching between the two crops as harvest progresses in order to maximize quality and minimize losses,” Nafziger says.

Corn
Nafziger notes that the corn crop in many fields is looking better than expected. As of Sept. 17, five percent of the state’s corn crop had been harvested, mostly in the southern half of the state. So far, reported yields have been highly variable, reflecting differences in planting (or replanting) time, soil water-holding capacity, and precipitation during critical times throughout the season.

When lack of water lowers photosynthetic rates, sugars are pulled out of the stalk into the ear to fill the grain, leaving stalks more susceptible to stalk-rotting fungi and lodging. Nafziger recommends that farmers should check fields for stalk strength, especially where leaves dried earlier than expected. However, good growing conditions in July likely increased the deposition of stalk-strengthening lignin, making stalks less likely to break. “As long as winds stay relatively calm, lodging is not expected to be much of a threat, especially in those parts of the state that received more rainfall in July and August,” he says.

Most of central and northern Illinois are approximately 150 growing degree days (GDD) behind normal since May 1. According to Nafziger, below-normal temperatures in recent weeks have slowed grain-filling rates and delayed maturity of the corn crop. But the cooler temperatures probably have been positive for yields by extending the water supply into mid-September. “With GDD accumulation rates above normal now, a lot of fields will reach physiological maturity quickly, and grain will start to dry down. High temperatures mean rapid grain moisture loss.  We’ve seen corn grain lose moisture as much as one percentage point of moisture per day under high temperatures, especially if it’s breezy,” he says.

Dry conditions over the past month have limited the spread of ear rots. “Most kernels have the bright yellow color of healthy grain, and if the grain can be harvested without an extended period of wet weather, we expect grain quality to be good. Harvesting at high moisture, drying at high temperatures, or storing grain without proper care can all compromise quality, however,” Nafziger says. “While we like to finish harvest early, the threat of loss in yield or quality from delaying harvest to October is low. But waiting too long isn’t good, either; delaying harvest until grain moisture drops below 16 or 17 percent can increase loss due to shelling of kernels onto the ground as ears go into the combine.”

Nafziger notes that test weight is an issue that comes up every year during corn harvest. He says test weights lower than the standard of 56 pounds per bushel have many people thinking that something went wrong during grain fill. Likewise, above-normal test weights are often taken as a sign that kernels filled extraordinarily well, and that yield was maximized. “Neither of these is very accurate – high yields often have test weights less than 56 pounds, and grain from lower-yielding fields can have high test weights,” he says.

Test weight is bulk density – it measures the weight of grain in 1.24 cubic feet, which is the volume of a bushel. Kernel density is the weight of a kernel divided by its volume, not including air the way bulk density does. Kernel density is a more useful measure of kernel soundness and quality than is test weight – it’s often used by the food corn processing industry – but it is harder to measure than test weight.

“A typical kernel density might be 90 pounds per ‘bushel’ (1.24 cubic feet) of actual kernel volume,” Nafziger explains. “So, a 56-pound bushel of corn grain is about 62 percent kernel weight and 38 percent air. Kernels with higher density tend to produce higher test weights, but only if they fit together without a lot of air space. For example, popcorn has small, high-density kernels that fit together well, and its test weight is typically 65 pounds per bushel.”

Hybrid genetics, growing conditions, and grain moisture at the time it is weighed can all affect test weight. If kernels appear to be well-filled without a shrunken base, which can signal that grain fill ended prematurely, it’s likely that yield was not compromised even if test weight is less than 56 pounds per bushel.

“For reasons that go back to an earlier time, though, corn test weight needs to be at least 54 pounds per bushel in order to be sold as U.S. No. 2 corn, which is the most common market class. Corn with a test weight of 52 or 53 might not be docked in price if it can be blended with higher test weight grain to reach the minimum. That’s much easier to do in a year when test weights are generally good. We expect 2017 to be such a year,” Nafziger says.

For more on the 2017 harvest, read Nafziger’s recent post on The Bulletin.

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