The Truth Behind Fear Based Marketing and Modern Agricultural Practices

The other day I decided to treat myself to a large bowl of ice cream. I was feeling like it needed a little extra something, so I decided to add some chocolate syrup and whipped cream. When I looked at the can of whipped cream, I had somewhat of an epiphany when I saw a bold label that said, “No Artificial Growth Hormones.”  I stared at the label as an agriculturalist and an advocate for the industry and began to understand why there is such a distrust between consumers and producers.

GMOBy definition, a scare tactic is a strategy intended to manipulate public opinion about a particular issue by arousing fear or alarm. Scare tactics are used all the time. They are used in politics, in advertising, and even by our own mothers. We have all had our mothers wag their finger in our face with a “do this or else” threat. While these tactics may seem relatively harmless, in some situations they can be incredibly dangerous. The reality we are facing is that most consumers today are three to four generations removed from their family farm. This distance creates space for misconceptions and misinterpretations to take hold and prevent consumers from thoroughly understanding the day to day operations of a farm or ranch and how their food is produced. This becomes worrisome when consumers begin to gravitate towards things such as “non- GMO” foods or foods with a “no artificial growth hormone” label because of scare tactics used by marketers and the stigmas that surrounds these things. There even has been questioning as to if the use of antibiotics is safe in animals meant for production.

GMOs, or genetically modified organisms, have hit the media by storm. Ultimately, this press has created a sense of distrust between consumers and producers regarding their food, where it comes from, and how it is produced. Consumers have legitimate concerns that demand to be addressed. These concerns include risks of exposure to pesticides, fungicides, and insecticides, which could lead to cancer. They are also unsure of the impact that they are making on the environment. Factually speaking, none of these things are true. GMOs have been presented to the public as an evil in our industry, when in fact, they are vital to many agricultural practices. The reality is that GMOs increase crop yields by 21% and cut pesticide use by 37%. Today, 12% of all cropland is planted with genetically modified crops. Highly regarded groups such as the American Medical Association, the American Association for the Advancement of Science, and the World Health Organization have all reported that there are no health risks associated with GMOs. Ultimately, agriculturalists have no choice but to utilize GMOs. With a rapidly growing world population, they are needed to increase food production in order to ensure global food security.

Cow facesAntibiotics and growth hormones have also been used to scare consumers as well. Like any living thing, animals get sick from time to time. Antibiotics are used to keep them healthy, and are only used when needed. It would be inhumane to not treat a sick animal. If your child was sick, you would more than likely take them to the doctor to receive antibiotics. The same is true for animals. Producers utilize antibiotics under the supervision and direction of their veterinarian. Once the animal is healthy again, a withdrawal time must be respected before the animal is taken to slaughter. This withdrawal time allows the antibiotic to completely pass through the animal’s system and ensure that no traces of antibiotics are in the meat that is available to consumers.

chickens-jj-001Growth hormones help increase an animal’s growth rate and feed efficiency. Steroid hormone implants are approved by the FDA because of rigorous testing that showed that these hormones have no negative effects on the treated animal or the environment. Another important thing to note is that the use of growth hormones it prohibited in poultry. This is because they are not practical or effective in these animals. So, the next time you see chicken advertised with an anti-growth hormone label, be aware of the fact that there are no poultry on the market that have been treated with such things. The label is just there to deter you from buying other chicken products and to scare you into buying the one with the label that appears “safer.” The FDA claims that food products that were raised with growth hormones are highly effective and safe for humans to consume.

At the end of the day, we as producers and advocates for agriculture must be proactive in educating the public and consumers about these issues and fear based marketing. Many people see labels advocating against many of the tools and practices used by producers today to protect their animals or to help them grow and become a higher quality product. These misconceptions are not going to go away overnight, but they are important to address. If all agriculturalists band together and make education a priority, this issue will slowly begin to resolve itself.

 

Rebel Sjeklocha (2)Rebel Sjeklocha is a senior at Maywood High School and is active in the FFA Chapter. She lives on her family’s cattle farm near Hayes Center. She shows cattle and horses and does a variety of other projects in her 4-H club. She has also served as an advocate for rodeo and agriculture as the 2016 Elwood Rodeo Queen.

 

 

 

 

 

 

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.

The Economist magazine created the Big Mac index as a way of measuring the value of the world’s currencies relative to the U.S. dollar.  The Economist states, “The index is based on the idea of purchasing-power parity, which says exchange rates should move towards the level that would make the price of a basket of goods the same in different countries.”  The basket of goods chosen by the magazine to compare across countries is a McDonald’s Big Mac.  The cost of the hamburger in different countries is converted into U.S. dollars and the local cost compared to average U.S. cost to determine the relative value of each currency.  Countries where the hamburger costs more compared to the U.S. have currencies more expensive than the dollar; and countries where it costs less have currencies less expensive relative to the dollar.

The Economist found the average cost of a Big Mac in four U.S. cities was $5.28.  According to the index, the cost of a Big Mac in Switzerland, Norway, and Sweden is greater than the cost in the U.S., thus these countries’ currencies are more expensive relative to the U.S. dollar.  In all other major countries, particularly in some major agricultural competitors (i.e. Canada, Brazil, Australia, and Russia) the Big Mac costs less, indicating a currency cheaper than the U.S. dollar.  Based on the index, the value of the dollar remains high but the gaps between the dollar and other currencies narrowed since the last time The Economist calculated its Big Mac index, a positive sign for U.S. exports.

Big mac and dollar

Most observers believe the U.S. dollar will continue to drop in value through 2018.  Economic growth in other countries is relatively strong, putting upward pressure on other countries’ currencies.  Also, the dollar continues to remain relatively high historically, suggesting its due for a correction.  All in all, a continued decline in the value of the U.S. dollar in 2018 should work to support growing U.S. agricultural exports.  (The big Mac index: The Mac strike back, the dollar’s decline is a small victory for burgernomics, The Economist, Jan. 20th, 2018.)

 
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 a firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide an in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

2016 Farm Program Payments . . .

Economic Tidbits 12.18.17

Nebraska crop producers received $646 million in Price Loss Coverage (PLC) and Agriculture Risk Coverage—County (ARC-CO) payments last fall for the 2016 crop year.  In total, the USDA distributed $6.9 billion in payments to participating producers under these two programs.

The maps below show the final payment rates in each county for combined yield, irrigated, and non-irrigated rates under the ARC-CO program for corn, soybeans, and wheat.  In Nebraska, 97 percent of farms producing soybeans participate in ARC-CO, 95 percent of farms producing corn participate, and 65 percent of farms producing wheat participate.  The average ARC-CO payment per base acre for the 2016 crop year was $53.89 per acre for corn, $5.65 per acre for soybeans, and $11.46 per acre for wheat.  As shown on the map, many farmers were in counties which did not receive payments under ARC-CO for soybeans.  In addition, farmers in many counties with separate irrigated and non-irrigated corn yields did not receive payments for non-irrigated corn.

 

Dr. Brad Lubben, agricultural economist at the University of Nebraska-Lincoln, expects payments under ARC-CO for the 2017 and 2018 crops to be much less because average prices for program commodities have fallen.  He projects no payments for soybeans or sorghum for this year, but the lower prices will trigger substantial payments for those wheat and grain sorghum producers who enrolled in the PLC program.  Lubben projects total crop program payments for this year (2017 crop) will equal $200 million and will be less than $100 million for the 2018 crop year.

 

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 a firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide an in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

What’s Ahead for 2018 . . .

Economic Tidbits 12.18.17

The USDA expects prices for corn, cattle, and soybeans to be off a bit in 2018.  Prices for wheat and hogs are expected to be higher.  Given the large production levels of all these commodities in recent years, prices, while soft, have been stable due to relatively strong demand, boosted in part by robust export markets.  The strong demand needs to continue, and, thus far, signs point to demand remaining strong.  For example, Jim Robb, director of the Livestock Market Information Center, recently said the average American is expected to eat 219 pounds of red meat and poultry this year, the highest level since 2007.

bigstock-field-5378624.jpgIn years past, crop producers could count on farm program payments to help offset the sting of lower prices.  This won’t happen in 2018 as payments will be substantially lower.  Dr. Brad Lubben, an extension economist at the University of Nebraska-Lincoln, estimates program payments received by Nebraska producers could be $400 million less next year.

Recent forecasts suggest Nebraska net farm income for 2018 will grow 5.9 percent.  Dr. Lubben expects net farm income to settle between $4.0 and $4.5 billion through 2020.  All this suggests the continued need for cost cutting, working with financial institutions, strategic marketing, and financial planning to help continue to navigate through the soft prices.  Several factors will influence the profitability of agriculture in the coming year:

U.S. Economy:  The U.S. economy has momentum.  The unemployment rate, 4.1 percent, is at the lowest rate since 2007, hourly earnings were up 2.5 percent in December compared to the prior year, personal income levels are growing, and the country’s GDP is expected to grow 2 percent in 2018.  A growing economy means growing demand for food, especially meats.  The positive outlook for the U.S. economy should be a plus for agriculture.

World Economy:  World economic growth is expected to be around 2.7 percent in 2018, helping boost export demand for U.S. agricultural products.  Pay special attention to the economies of Canada, Mexico, China, Japan and South Korea, typically Nebraska’s largest customers for agricultural goods.  The economies in each of these countries are expected to grow, with China expected to grow at around 6 percent.  These growing economies should provide opportunities to sell Nebraska agricultural products.

Trade Policy:  The biggest potential threat to agriculture remains the trade policy of the Trump Administration.  The U.S. is negotiating with Canada and Mexico to modify the North American Free Trade Agreement (NAFTA).  President Trump has threatened to withdraw from the agreement if he is not satisfied with the outcome of the negotiations.  President Trump has also said he wants to renegotiate the U.S. trade agreement with Korea (KORUS).  These trade agreements have been important contributors to growth in Nebraska’s exports.  Watch the actions of the Trump Administration on trade policy.

Value of the Dollar:  Changes in farm income tend to run counter to changes in the value of the dollar.  The value of the dollar today is roughly 10 percent less than it was in early 2017.  No doubt the drop contributed to the competitiveness of U.S. agricultural products and helped boost exports.  A growing economy and higher interest rates will tend to push the dollar higher.  Watch the dollar in 2018 to see if the decline in value continues.

Federal Taxes:  Congress passed, and President Trump signed, major tax reform legislation last month.  Early signs point to the reform legislation resulting more dollars in producers’ pockets through tax savings.  The extra dollars will help offset the cash flow squeeze.

 

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 a firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide an in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

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.

Section 199A of the tax code contains two deductions which could affect taxes paid by farmers and ranchers: a “regular” deduction and a “coop” deduction.  Under the regular deduction, producers can deduct 20 percent of any “pass-through” income from a Schedule F, Subchapter S, or partnership from taxable income.  Limits to the deduction apply to incomes above $315,000 for those filing joint returns, and the deduction is limited to 20 percent of the net of taxable income less capital gains and cooperative distributions.  Under the coop deduction, producers who sell to a coop, and are members of the coop, can deduct 20 percent of total payments received from coops from taxable income.  The deduction is limited to 100 percent of the net of taxable income minus capital gains.  Note, the deductions are only applicable if a producer has taxable income and producers can only utilize one of these deductions, and not both.  Finally, the Section 199A deduction does not reduce self-employment income.

The future of the coop deduction is very much in flux.  The IRS has not issued final rules and private grain companies are lobbying Congress hard to remove the provision.  The Congressional authors of the deduction have admitted it was not their intent to give coops a competitive advantage and have pledged to find a solution.  Yet it remains to be seen whether the political leverage can be mustered to enact a change in Congress.

The federal tax bill also eliminated Section 1031 exchanges on personal property including tractors, combines, tillage equipment, etc.  Removal of the 1031 exchange was a trade-off to the increased expensing levels contained in the bill for bonus depreciation and Section 179.  There are a couple implications of this change that producers should be aware.  First, the elimination of 1031 exchanges on equipment can have implications for self-employment taxes.  Since the trade-in value received on equipment will now be treated as ordinary income, and the depreciation expense is still reported on Schedule F, there will be a reduction in self-employment taxes.  Second, because of how Nebraska determines the taxable value of personal property, the removal of Section 1031 exchange will increase the taxable value on new equipment purchases and consequently, the amount of personal property taxes paid.

As always, changes in the federal tax code will affect each taxpayer and farm or ranch operation differently given their unique circumstances.  Before making any dramatic changes to a farm or ranch operation or marketing plans, producers should always discuss such changes with a tax preparer or accountant.

 

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 a firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide an in-depth examination of key issues affecting Nebraska’s farmers and ranchers.

Federal Tax Saga Enters Next Chapter . . .

Economic Tidbits logo

The federal tax reform saga has turned a page and is moving into the next chapter in the U.S. Congress.  On the House side, the Ways and Means Committee advanced H.R. 1, the Tax Cuts and Jobs Act, to the House floor with a committee amendment.  The full House is expected to take up the bill later this week.  On the Senate side, Senate Republicans last week released a draft of a reform proposal which differs markedly in some provisions with the House plan.  The Senate plan will be taken up by Senate Finance Committee this week.

U.S. Capitol night2The Ways and Means Committee amendment . . . Perhaps the most significant change in H.R. 1 for farmers and rancher with the committee amendment concerns the treatment of pass-through income.  The initial draft of H.R. 1 created a 25 percent rate on a maximum of 30 percent of pass-through income.  The committee amendment instead creates a 9 percent rate, phased in over five years starting with 11 percent, on the first $75,000 in pass-through income for any person earning less than $150,000 in income from the business.  The 9 percent rate is phased up to 12 percent (the lowest rate for individuals under the proposal) for income levels above $75,000 and fully phased out at $225,000.  The committee amendment also clarifies farmland rental income would not be subject to self-employment taxes.

The Senate plan . . . For individual filers, the plan would maintain seven tax brackets and adjust the rates slightly.  It would repeal the deduction for state and local taxes, including property taxes, claimed by individual filers on Schedule A.  In tax year 2015, Nebraska individual filers claimed deductions of $145 million for state and local taxes-of this, $30 million was for real estate taxes; $1.2 million for sales taxes; and $109 million for state income taxes.  Itemized deductions for home mortgage interest for homes valued up to $1 million and medical expenses would be maintained.  The plan would also double the standard deduction and double the estate tax exemption.

The Senate plan . . . For businesses, the Senate plan lowers the corporate tax rate to 20 percent, but not until 2019.  The bill would also establish a 17.4 percent deduction for pass-through income based on the Section 199 domestic manufacturing deduction.  It is unclear how these proposed changes would affect farm and ranch taxes, particularly as the plan also repeals the Section 199 deduction.  More information is necessary to fully analyze potential impacts.  The Senate bill would allow equipment put in service before 2023 to be fully expensed, and expands the Sect. 179 business expensing to $1 million in property.  The present limit is $500,000.  And finally, cash accounting would continue for businesses with less than $25 million in gross receipts and businesses would be able to deduct state and local taxes paid by the business as an expense.

Both Houses of Congress have pledged to have legislation passed before the end of the year.  No doubt there will be several more page-turning chapters left in the federal tax reform saga.   Stay tuned for how the twists and turns could impact agriculture producers’ bottom lines.

 

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.

Five Tips That Can Make Life Easier for Crop Insurance Claims.

Whether its rain, hail, or heavy winds, fall harvest has been rough in Nebraska. Tough weather can mean yield loss and reasons to look at whether losses are covered by your crop insurance.

“Just because you didn’t buy coverage for wind damage, your multi-peril insurance may have you covered depending on your situation,” says Farm Bureau Financial Services agent, Shannon Hannappel.

Hannappel says there are five things farmers should keep in mind if crop insurance claims are on your horizon.

IMG_0085

1. Communicate with your agent right away if you think you have experienced even a slight loss.

“There’s no need to wait. Getting connected with your agent even when you aren’t sure there’s a loss is always the best course of action,” says Hannappel.

2.  Keep good production records.

“If you’re commingling crops in your grain bins, make sure you can clearly identify what crops came from specific fields by marking your bins.

3. Keep irrigated and non-irrigated production yields separate when recording your production.

“At harvest, everyone wants to keep rolling, but taking the time to differentiate between irrigated and non-irrigated yields is important for your APH history and sometimes can determine if you get paid for a loss or not.” 

4. Report your production levels to your agent right away, even if you’re not sure if there’s a loss.

“Don’t wait till February to report production numbers. The sooner we can get the information the better to move a claim.”

5. Post-harvest, be sure to line up a year-end planning conversation with your agent.

“It’s always better if we have the opportunity to visit about what risks your concerned about for the upcoming growing season; especially if you’re looking to make some changes in your operation for the upcoming year, i.e. adding specialty crops or moving from traditional to an organic practice.”

 

 

Hannappel says the goal is to make sure you are protected in a way that meets your operation’s needs.