Dan Piller reported on the front page of Sunday’s Des Moines Register (“Pressure’s on to sell farmland before end of the year”) that, “The clean, placid appearance of post-harvest Iowa farmland appears to be far removed from the messy fog of Congressional politics and the fiscal cliff.
“But pressure is intense to sell land before Jan. 1 when, if Congress doesn’t intervene, capital gains taxes will rise from 15 percent to 23.8 percent and deductions on estate taxes will drop from $5 million to $1 million.”
Mr. Piller noted that, “On the front lines of Iowa’s farmland boom, farmers and landowners are filing into small-town meeting halls for auctions with one eye on the tax debate in Washington.
“‘The tax changes are on everybody’s minds. We have a sale every day, except Sundays, between now and Thankgiving,’ regional sales manager Sam Kain of Farmers National Co. said before selling 169 acres of Bremer County farmland from the estate of Alvin and Maxine Walther on the day before the election.”
The article, which included this graphic on Iowa farmland values, added that, “The extra inventory of land sales hasn’t cooled off Iowa’s hyperheated farmland boom. In October the state set a record price of $21,900 per acre in Sioux County.”
The Register also documented recent farmland sales in Iowa for $15,700 and $15,600 per acre.
Yesterday’s Register article added that, “The drought last summer apparently added more fuel to Iowa’s farmland boom, especially when Iowa’s fall harvest yields were better than feared.”
Note that Reuters writer Charles Abbott reported on Friday that, “Farm and ranch income shriveled this summer during the worst drought in half a century, according to three Federal Reserve regional banks [Chicago, Kansas City, St. Louis] that oversee Farm Belt lending, with livestock producers hardest hit as pastures withered and feed prices soared.
“Even so, agricultural economists from the Fed banks say the farm sector could post record high income this year. High market prices and insurance indemnities will help compensate grain producers for drought-shortened crops, a buffer that livestock producers lack, they said on Friday.”
The AP reported yesterday that, “Farm Bureau President Doyle Johannes says the estate tax rate could jump from 35 percent to 55 percent, and estates worth more than $1 million could be taxed. Right now estates aren’t taxed unless they’re worth more than $5 million.
“Johannes says if the changes take effect an average 1,200-acre North Dakota farm could owe $2 million in estate tax. He says that could force the breakup of family farms.”
William La Jeunesse reported on Friday at Fox News Online that, “Rancher Kevin Kester works dawn to dusk, drives a 12-year-old pick-up truck and earns less than a typical bureaucrat in Washington D.C., yet the federal government considers him rich enough to pay the estate tax — also known as the ‘death tax.’
“And with that tax set to soar at the beginning of 2013 without some kind of intervention from Congress, farmers and ranchers like Kester are waiting anxiously.
“‘There is no way financially my kids can pay what the IRS is going to demand from them nine months after death and keep this ranch intact for their generation and future generations,’ said Kester, of the Bear Valley Ranch in Central California.”
The update pointed out that, “Two decades ago, Kester paid the IRS $2 million when he inherited a 22,000-acre cattle ranch from his grandfather. Come January, the tax burden on his children will be more than $13 million.
“For supporters of a high estate tax, which is imposed on somebody’s estate after death, Kester is the kind of person they rarely mention. He doesn’t own a mansion. He’s not the CEO of a multi-national. But because of his line of work, he owns a lot of property that would be subject to a lot of tax.”
Friday’s update stated that, “But according to the American Farm Bureau, up to 97 percent of American farms and ranches will be subject to an estate tax where the exemption is set at $1 million. At that rate, the federal government will pocket $40 billion in 2013 and up to $86 billion in 2021. That contrasts with just $12 billion this year.”
And, Nathaniel Popper and Nelson D. Schwartz reported in today’s New York Times that, “Business owners and investors are rapidly maneuvering to shield themselves from the prospect of higher taxes next year, a strategy that is sending ripples across Wall Street and broad areas of the economy.”
Lori Montgomery and Zachary A. Goldfarb reported in Saturday’s Washington Post that, “In a display of bipartisanship unseen since the GOP captured the House in 2010, Republican and Democratic leaders met for more than an hour with President Obama at the White House. They emerged unified, with a message of reassurance for nervous taxpayers and investors — though intense haggling over the shape of a [budget] deal is yet to come.”
Jackie Calmes and Jonathan Weisman explained in Saturday’s New York Times that, “Both sides indicated after the 70-minute White House meeting that their goal is a two-step compromise… [A]s tentatively envisioned, a compromise would provide an immediate down payment of at least $50 billion to reduce this year’s projected deficit, in lieu of the automatic measures that would hurt the economy by their size and suddenness, economists say. Second, it would define a framework for negotiating a long-term ‘grand bargain’ in 2013 to shave annual deficits by perhaps $4 trillion over the first decade.”
The Times added that, “While such a two-pronged deal would put off the hardest and most far-reaching policy decisions until next year, no deal is possible unless the negotiators first decide on the deficit down payment. That installment, it is widely believed, must be large enough to satisfy financial markets, which oppose the automatic measures as too large and threatening but still want Washington to show some resolve toward getting the nation’s fiscal house in order.”
The Post article noted that: “While Obama is out of the country, the leaders said, their staffs will get to work on a framework to replace the year-end fiscal cliff with a less abrupt and less economically-damaging debt-reduction plan. The savings would be generated in two stages. The first would be a down payment composed of immediate tax hikes and spending cuts to replace blunt, across-the-board budget cuts set in motion during the 2011 debt-limit fight. The second would be a mechanism to force an overhaul of the tax code and long-term changes to entitlement programs next year.”
And, Saturday’s Wall Street Journal observed that, “Missing Friday was any consensus on how to avoid the impending income-tax-rate increase.”
Don Davis reported on Saturday at the Grand Forks Herald Online that, “A farm bill awaiting congressional action is being viewed more and more as a partial solution to the federal government’s debt and budget crisis… ‘There is a growing recognition that this could be part of the puzzle,’ said Sen. Kent Conrad, the North Dakota Democrat who leads the Senate Budget Committee and is a key player in fiscal cliff negotiations.
“Added U.S. Sen. John Thune of South Dakota, the No. 3 Senate Republican: ‘I think the farm bill can contribute to solving the fiscal cliff because it can achieve savings.’”
The article noted that, “Decisions are being made in secret by congressional leaders and the White House.
“‘It’s hard to know just what is going on,’ said U.S. Rep. Collin Peterson of western Minnesota, the top Democrat on the House Agriculture Committee. ‘From what I can tell from usually reliable sources high up in their (Republican) leadership, they are in the process right now deciding how to handle this. I think they want to get this done, but they haven’t figured out how to do it.’”
Denise Ross reported on Friday at The Daily Republic (Mitchell, S.D.) Online that, “Republican leaders in the U.S. House of Representatives have told Rep. Kristi Noem, R- S.D., that they want to pass a farm bill by year’s end.
“‘It is definitely on the agenda to deal with by the end of the year,’ Noem said during a conference call with South Dakota reporters Thursday.
“Congress faces another major issue with the same deadline — the fiscal cliff — and the farm bill could end up as part of that bigger deal, she said.”
A news release Friday from Sen. Kent Conrad (D., N.D.) stated that, “[Sen. Conrad] met today with Secretary of Agriculture Tom Vilsack for an update on Farm Bill negotiations as farm country leaders from both sides of the political aisle work to pass a new five year farm bill before the end of the year.
“‘Time is not on our side right now. The longer it takes to secure a deal, the worse that deal is likely to be for North Dakota’s family farmers and ranchers,’ Senator Conrad said.”
Rep. Jim Costa (D., Calif.- Ag. Comm.) and Rep. Tim Johnson (R., Il.- Ag. Comm.) both recently called for action on the Farm Bill, while a recent article noted that, “Dairy farmers face a fiscal cliff of their own if Congress fails to approve a farm bill or extend the current one before the end of the year.”
Rep. Joe Courtney (D., Conn.- Ag. Comm.) stated on the House floor on Friday: “Madam Speaker, how does $7 for a gallon of milk sound? Well, that’s where we’re headed on January 1 if we don’t pass a farm bill. Why haven’t we passed a farm bill? Because the House Republican leadership has refused to bring it up for a vote on this floor despite the fact that the Senate, on June 19, passed a bipartisan farm bill that protects a safe, stable food supply for this country and saves $23 billion for the Federal budget deficit.
“In the meantime, we’ve had 13 weeks of recess, the 2008 bill has expired, and for dairy farmers who are facing record feed and fuel costs, they have had their complete market collapse beneath their feet. And we’re going to have $7 a gallon milk on January 1 if we don’t act.”
The USDA’s Economic Research Service issued a report on Friday titled, “Potential Farm-Level Effects of Eliminating Direct Payments;” and Kansas State University Professor Art Barnaby released a paper on Friday titled, “Understanding the Standard Reinsurance Agreement, Explains Crop Insurance Companies’ Losses.”
Biofuels- EPA, Renewable Fuel Standard (RFS)
Gregory Meyer reported on Friday at The Financial Times Online that, “The White House on Friday rejected requests to halt a government mandate to blend billions of gallons of corn-based ethanol into US petrol supplies, keeping alive a big factor in the bull market for food commodities.
“State governors allied with livestock and poultry producers petitioned to waive the Renewable Fuel Standard, as the worst drought in half a century scorched the US corn crop and sent prices to record highs.
“However, the US Environmental Protection Agency turned down the call [related EPA links here and here], its second such refusal since a 2007 law prescribed rising volumes of biofuel in the national motor fuel supply.”
The New York Times noted on Saturday that, “To approve a change in the standard, the agency would have to conclude that the fuel rule would ‘severely harm’ the economy. The E.P.A. said it had analyzed 500 potential market variations and that most of them showed no impact from the use of corn for ethanol; those that did showed an average impact of 7 cents a bushel, less than 1 percent of the price, it said.”
Rep. Bob Goodlatte (R., Va. –Ag. Comm.) expressed “disappointment” in the EPA decision, while both he and Sen. Pat Toomey (R., Pa.) indicated they would press to end ethanol mandates legislatively. Sen. John Barrasso (R., Wy.) noted that the decision would increase food costs, and Sen. John Boozman (R., Ark. –Ag. Comm.) called the EPA’s policy “misguided.”
On Friday, House Science Committee leaders Ralph Hall (R., Tex), Jim Sensenbrenner (R., Wis.), and Andy Harris (R., Md.) called EPA’s decision “short-sighted and alarming.”
A coalition of livestock, poultry and dairy producers indicated Friday that the RFS is “broken,” and pointed out that, “In fact, dozens of poultry, pork, beef and dairy operations have filed for bankruptcy, been sold or simply gone out of business over the past several months because of rising feed grain prices.”
Ian Berry and Kelsey Gee reported yesterday at The Wall Street Journal Online that, “While the drought has retreated from the headlines, the pain could just be starting for meatpackers and consumers. Meat companies typically lock in their feed costs in advance, and were somewhat insulated when grain prices soared over the summer.
“But producers can only avoid the higher costs for so long, and analysts are projecting meat prices to climb. The U.S. Department of Agriculture, for example, estimates that retail beef prices will increase 4% to 5% next year, half a percentage point above this year’s jump.
“Some parts of the livestock and poultry industry already have begun showing strains from higher prices. Last month, a California turkey and chicken producer, Zacky Farms LLC, filed for bankruptcy, citing soaring feed costs.”
Also, Daniel Yergen noted on Friday at The Financial Times Online that, “The International Energy Agency this week projected that the US could overtake Saudi Arabia as the world’s biggest oil producer by 2020…[T]he US will rapidly become much less dependent on oil imports.”
Dr. Yergen added that, “The US’s imported oil will increasingly come from the western hemisphere, especially Canada, which already supplies almost 30 per cent of total US oil imports.”
And the AP recently explored some of the costs and benefits of specific kinds of grasses that could potentially be used as a renewable energy source.
On a separate EPA issue, Eliza Krigman reported on Friday at Politico that, “Republican leaders of the House Science Committee want to know if EPA Administrator Lisa Jackson is using private email addresses or psuedonyms to conduct official business in an effort to dodge public scrutiny.”
Howard Schneider reported on the front page of today’s Washington Post that, “As U.S. cornfields withered under drought conditions last summer, Brazil’s once-empty Cerrado region produced a bumper crop of the grain, helping feed livestock on U.S. farms and ease a drought-related spike in prices.
“The U.S. imports of Brazilian corn were small by world standards. But they are rising fast, and they mark just one element of the increasingly complex and sometimes contentious relations between the world’s agricultural superpower and its fast-growing competitor amid shifts in the global economy.”
Christopher Doering reported late last week at The Des Moines Register Online that, “The drought that has plagued Iowa and much of the United States shows no sign of abating this winter, throwing into flux the moisture conditions when the spring planting season begins next year, U.S. government weather forecasters said Thursday.”
Jeremy W. Peters reported in Saturday’s New York Times that, “The House of Representatives voted on Friday to take a step toward normalizing trade relations with Russia, sweeping away one of the last vestiges of cold-war-era policy.
“The final tally was 365 to 43, an unusually large majority for a body that seldom agrees to do anything in a bipartisan fashion.”
The Wall Street Journal noted on Saturday that, “The Senate is likely to pass similar legislation before year’s end, congressional leadership aides from both parties said.”
On Friday, House Agriculture Committee Chairman Frank Lucas (R., Okla.), Rep. Steve King (R., Iowa- Ag. Comm.), Rep. Adrian Smith (R., Neb.), Rep. Kevin Brady (R., Tex.), Sen. John Thune (R., S.D.- Ag. Comm.) and Sen. Max Baucus (D., Mont.- Ag. Comm.) noted the potential overall economic benefits of the bill, including to the agricultural sector.
On a separate trade measure regarding the U.S. and EU, a news release last week from the National Pork Producers Council stated that, “While maintaining its support for a free trade agreement between the United States and the European Union, a coalition of U.S. food and agricultural organizations led by the National Pork Producers Council reiterated that any deal must include agriculture and that the EU must address non-tariff trade barriers.”