The Big Mac and the Dollar . . .

Economic Tidbits 12.18.17

“The Big Mac and the Dollar” may read a bit like the title of a children’s fairy tale (i.e. Jack and the Beanstalk), but it isn’t.  Instead, it’s an agricultural economist’s not-so-clever way of introducing a discussion on the value of the dollar.  Nebraska agriculture relies on exports, and the value of the dollar is a key determinant in determining the competitiveness of Nebraska agricultural products in international markets.

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To Sell, or Not to Sell to Coops, That is the Question

Economic Tidbits 12.18.17

Two tax code changes in the tax package passed last December by Congress are receiving much attention in the countryside.  The first change concerns the tax treatment of producers’ sales to coops.  The second concerns the loss of the Section 1031 exchanges for farm machinery and equipment.  Let’s examine these changes in more detail.

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SALT & Taxes . . .

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The Chairman of the House Ways and Means Committee, the tax writing committee of the House of Representatives, announced a draft of the federal tax reform bill will be released November 1.   Leaders in both the House and Senate have expressed hope a tax package could be passed by Thanksgiving.  One taxing concern on the minds of many farmers and ranchers is the fate of the deduction for state and local taxes (SALT).  The concern is especially acute in Nebraska given the large amount of property taxes paid by agriculture, roughly $1.3 billion in 2016.


Captiol at night

Under the unified framework for tax reform, the Trump Administration and Republican Congressional leaders said they want to simplify the federal tax code by repealing all itemized deductions, except deductions for home mortgage interest and charitable contributions.  Itemized deductions are claimed by individuals on Schedule A filed with Form 1040.  Most farmers and ranchers file taxes as individuals-the 2012 USDA Census of Agriculture showed 85 percent of Nebraska farms filed taxes as either an individual or family.  Additionally, only 28 percent of farmers and ranchers itemize deductions.  It is these operations who itemize deductions the loss of the ability to deduct state and local taxes could affect.  The average annual deduction for state and local taxes reported by farm sole proprietors on Schedule A for 2009-2015 (excluding 2013) was $128.4 million.  Presumably, the deduction is for state income taxes, property taxes on farm residences, and taxes on personal vehicles.  For these operations, the loss of the deduction could increase federal income taxes an estimated $18 million per year if not offset by other changes.

Corn harvest in Illinois - SeptemberFarmers and ranchers also deduct state and local taxes paid as a business expense for their operations, be it as sole proprietors, partnerships, or corporations.  It is here where most of the property taxes paid by agriculture on land and machinery are likely reported and losing the ability to expense state and local taxes would result in a significant increase in federal taxes.  Fortunately, according to the lobbyist for American Farm Bureau, the ability to expense state and local taxes as a business expense will continue.  Congressional leaders have indicated the repeal of the state and local taxes deduction would only apply on individual returns, and not affect the expensing of taxes by businesses.  But stay tuned, the reform discussions are now beginning in earnest, and no one can predict what might happen.


Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Latest Crop Production Estimates . . .

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This year’s Nebraska corn production is forecast to be 1 percent less than last year, and soybean production is forecast to be 1 percent more, according to the latest USDA- NASS estimates released on Thursday.  The latest estimates peg Nebraska corn production at 1.683 billion bushels and soybean production at 316.4 million bushels, a record for the state.  U.S. corn production is forecast at 14.3 billion bushels, down 6 percent from last year, while soybean production is forecast at a record 4.43 billion bushels, up 3 percent from last year.  The percentage changes in production for Nebraska crops are shown in Table 1.
Table 1. Percentage Change in Crop Production, 2016 to 2017

 Corn  -1 %
 Soybeans  +1 %
 Sorghum  – 19 %
 Dry Edible Beans  +49 %
 Sugar beets  +1 %
 Sunflowers  – 4 %
 Alfalfa Hay  + 4 %

Corn and soybeans together typically account for 90 percent of Nebraska’s total crop cash receipts.  As such, changes in revenues for these commodities, along with changes in beef sector revenue, will dictate the overall health of the state’s agricultural economy.  Calculations using the latest USDA production and price estimates suggest cash receipts received by corn and soybean producers could be less for this year’s crop.  Combined receipts for the two crops are estimated to decrease $389 million, or 4.48 percent from last year.  Revenue for the 2017 corn crop is estimated to be $325 million less, or 5.69 percent; revenue for the 2017 soybean crop will be $64 million less, or 2.16 percent less. The reduction in revenue would result in an estimated 0.61 percent reduction in net farm income, or $30.7 million, assuming corn and soybean receipts as a percentage of net farm income is the same as the average from 2008 to 2015.  The decline doesn’t necessarily mean total net farm income for the state will be down, as the beef feedlot sector has enjoyed positive returns for awhile this year.  But any positive returns in the beef industry or other commodity sectors must overcome the declines in corn and soybeans revenues to result in an uptick in income for the state.


Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Federal tax reform-a first impression . . .

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The Trump Administration, the House Ways and Means Committee, and the Senate Finance Committee announced last week they have agreed to a unified framework for federal tax reform.  The framework outlines several tax proposals for both business and individual filers.  Many details remain to be filled in, and legislation needs to be written, but the unified framework does provide some guidance for farmers and ranchers on issues they should monitor as the tax discussion evolves.

Most farm and ranch operations in Nebraska file federal taxes as individuals (Form 1040).  The 2012 USDA Census of Agriculture reported that 85 percent of Nebraska farms claimed the legal status of a family or individual for tax purposes.  The average annual federal income tax after credits reported on returns filed by Nebraska farm sole proprietors was $443 million for 2009-2015 according to the Internal Revenue Service (IRS) data (2013 was not included as data was not readily available).  The average annual effective rate of taxation on farm returns over this period was 14 percent, which was two percentage points higher than the effective rate for all Nebraska individual returns over the same period.

For individual filers, the unified framework proposes to double the standard deduction, consolidate tax brackets from seven to three, lower the top rate from 39.6 percent to 35 percent, eliminate itemized deductions except for mortgage interest and charitable deductions, repeal personal exemptions for dependents but increase the child tax credit, and repeal the alternative minimum tax.  So, what are the tax implications for farmers and ranchers?

Like most Nebraskans, most producers claim the standard deduction on their individual returns.  In 2015, according to IRS, 72 percent of Nebraska farm returns claimed the standard deduction.  Thus, doubling the standard deduction has the potential to reduce taxes for these filers subject to other changes in tax brackets and rates, which are not known now.  For producers who itemize, total Schedule A deductions amounted to $196 million in 2015, excluding home mortgage and charitable contributions.  Losing these deductions, and what it means in ultimate taxes paid, will depend on individual filer’s amount of itemized deductions relative to the increase in the standard deduction, and ultimately, the changes in tax brackets and rates.  The proposals addressing the child tax credit and repealing the alternative minimum tax will have little impact on farm and ranch taxes.  Combined, the two provisions amounted to $23 million for farm tax filers in 2015, or 0.7 percent of reported adjusted gross income that year.

At this point, because all the details on tax brackets and rates are not known, the implications of federal tax reform for farmers and ranchers are difficult to grasp.  The changes to business taxes will also have implications for farm and ranch operations.  Future Tidbits will highlight provisions in the unified framework for businesses and other taxes that might impact farmers and ranchers.  Tidbits will also return to the topic of changes for individual filers when more is known on changes to brackets and tax rates.


Jay RempeJay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Egg-Citing News – Food Prices Down for Easter

2017_Spring_Marketbasket_Graphic_vertLower retail prices for several foods, including eggs, ground chuck, sirloin tip roast, chicken breasts and toasted oat cereal resulted in a significant decrease in the American Farm Bureau Federation’s Spring Picnic Marketbasket Survey.

“As expected due to lower farm-gate prices, we have seen continued declines in retail prices for livestock products including eggs, beef, chicken, pork and cheese,” said John Newton, AFBF’s director of market intelligence.
The informal survey showed the total cost of 16 food items that can be used to prepare one or more meals was $50.03, down $3.25 or about 6 percent compared to a year ago. Of the 16 items surveyed, 11 decreased, four increased and one remained the same in average price.

Egg prices are down sharply from a year ago and also are down slightly from the third quarter of 2016.

“Egg prices continue to move back toward long-run average prices following the bird flu of 2014/15,” said Newton. “The Agriculture Department is currently monitoring bird flu detections in the Southeast U.S. If detections continue, retail poultry prices could feel an impact due to lower exports or changes in supply,” he said.

“As farm-gate prices for livestock products have declined and remained lower, prices in the retail meat case have become more competitive,” Newton said.

Retail price changes from a year ago:

  • eggs, down 41percent to $1.32 per dozen
  • toasted oat cereal, down 15 percent to $2.83 for a 9-ounce box
  • sirloin tip roast, down 13 percent to $4.95 per pound
  • ground chuck, down 10 percent to $3.92 per pound
  • chicken breast, down 6 percent to $3.17 per pound
  • apples, down 6 percent to $1.55 per pound
  • flour, down 5 percent to $2.36 for a 5-pound bag
  • shredded cheddar cheese, down 4 percent to $4.10 per pound
  • deli ham, down 3 percent to $5.42 per pound
  • bacon, down 3 percent to $4.65 per pound
  • potatoes, down 1 percent to $2.68 for a 5-pound bag
  • bagged salad, up 6 percent to $2.34 per pound
  • white bread, up 2 percent to $1.72 per 20-ounce loaf
  • orange juice, up 1 percent to $3.22 per half-gallon
  • whole milk, up 1 percent to $3.27 per gallon
  • vegetable oil, no change, $2.55 for a 32-ounce bottle


Price checks of alternative milk and egg choices not included in the overall marketbasket survey average revealed the following: 1/2 gallon whole regular milk, $2.10; 1/2 gallon organic milk, $4.20; and one dozen “cage-free” eggs, $3.48.

The year-to-year direction of the marketbasket survey tracks closely with the federal government’s Consumer Price Index ( report for food at home. As retail grocery prices have increased gradually over time, the share of the average food dollar that America’s farm and ranch families receive has dropped.

“Through the mid-1970s, farmers received about one-third of consumer retail food expenditures for food eaten at home and away from home, on average. Since then, that figure has decreased steadily and is now about 16 percent, according to the Agriculture Department’s revised Food Dollar Series,” Newton said.

AFBF, the nation’s largest general farm organization, began conducting informal quarterly marketbasket surveys of retail food price trends in 1989. The series includes a spring picnic survey, summer cookout survey, fall harvest survey and Thanksgiving dinner cost survey.

According to USDA, Americans spend just under 10 percent of their disposable annual income on food, the lowest average of any country in the world. A total of 117 shoppers in 31 states participated in the latest survey, conducted in March.

Importance of Family in Agriculture


We are often told to choose our words carefully. Sometimes we don’t pay any attention to the words that aren’t inappropriate or hurtful but in reality they are just as important. When attending Nebraska Agriculture Youth Institute a speaker gave us a chart of words to use when talking about agriculture to the consumers who are unaware of who we are as an industry. There was one group of words that really stuck out at me, the usage of operation compared to family farm or ranch. I’ve always considered our ranch as our family’s, but professionally speaking I have always referred to it as an operation. When thinking about Keystone Cattle Company and O-C Livestock I realized that it isn’t an operation but really my family’s home.


The reasoning behind my agriculture influence. Both sides of my grandparents have given me the opportunity to grow up in the most amazing industry and I have learned so much about their lives through doing the same activities that they have enjoyed in their lifetimes. My Grandpa and Grandma O’Connor have blessed me to grow up in God’s Country. It seems as if I can’t go anywhere without hearing crazy stories about Grandpa. Some of my favorite time with family is spent talking about the older generations. One of my most memorable brandings was this year when my grandpa crawled onto my brothers rope horse and heeled two legs on his first loop. I have been beyond blessed to be apart of the Keystone Cattle Company. However my blessings don’t stop there. My love for 4-H might just come from the Merritt’s. I love to hear the story of my grandparents meeting on the steps of the White House as they represented Nebraska as the 4-H Four Square Winners. Still to this day my family will go through my grandfather’s old papers on his registered Maines and his long line of show quarter horses. I love hearing people talk about how successful my Grandpa was in this tough industry, and even to this day my family and I wish we had his good eye to help us pick out our stock for the year. I love learning more about my family and am blessed to learn about the lives of my loved ones.


Perhaps the biggest influence of agriculture in my lifetime. If anyone knows my Mom you know that pigs won’t be far behind. Growing up, raised by Nebraska 4-H’s Queen and King,she fell in love with the organization and has passed that down to my brothers and I. Her father, having a variety of operations, presented her with a chance to work on their feedlot growing up, show some awesome show horses, and be involved with showing livestock competitively. Her love for agriculture met her profession when  she traded out special education for a job at the local grain elevator. Though she was just  wanting to help out during the harvest season, her love for ag lead her to being the commodity trader for a feedlot and now a manager for a feed store. I have seen my mother put much time and money into spoiling my brothers and I with some awesome livestock, hotels for shows, and of course a fair amount of carnival food. I wouldn’t be as successful in FFA, 4-H or any other activities if it wasn’t for her support. Her ability to network with everyone in the industry shows me how important relationships are. I love sitting in the show barn doing nothing with her and aspire to be such as great of female agriculturalist as she is.


The passing of my father last year has allowed me to learn so much about him in such a short time. Hearing stories about his success in high school and college rodeo inspires me to chase after my dreams. My father served as a regional director for both high school and college rodeo, which gives me a sense of where my strong leadership skills come from. Also the amount of support and friends he had, shows me that the all the relationships  built in the agriculture family are those of gold. 


My oldest brother is completely responsible for my future in agriculture. The year he left me to do my own chores had me worried, but being forced to be in the barn by myself made me realize his love spending time with his livestock. After chasing his dreams of judging livestock in college it has made me work hard to be more like him. From Casper College to South Dakota State, he has grown as an agriculturalist and man as he prepares to be in the workforce in agriculture. I can’t wait to see where this industry takes him.


Lastly my brother Rhett. Yep, you guessed it, Rhett is “that brother.” The one that is so close to home, but  we don’t ever see him because he is busy experiencing new things, but mostly you can’t get him out of the roping arena. Rhett has demonstrated the importance of finding your perfect place while at school where he has excelled in his rodeoing and academics. Rhett’s good work ethic, love for talking, and positive attitude will make him do great things while running the Keystone Cattle Company in the future. 

After thinking long  and hard about how the words “family ranches” are more appealing than operations it made me think about how my operation would differ if it weren’t for my family. Agriculture is one of the fastest advancing industries yet it sits strong on a foundation of tradition and family. The closeness of family operations prove to be than producing goods but instead making a living worth loving. The future of agriculture will continue to grow but the tradition of the family farms and ranches will stand strong for ever.