As we move briskly through the month of February, farmers should prepare for the annual trip to the tax preparer. While each farmer’s situation is unique, there are several items nearly everyone should check off their list prior to arriving at a tax appointment.

First of all, make sure to have a copy of the most up-to-date accounting report for tax year 2009. Communicate with your tax professional as to what type of report to produce. As you assemble your year-end accounting report, be aware that expenses such as utilities, fuel, property taxes and business vehicle use must be examined to determine the business portion of those expenses. If you don’t reflect the business use in the accounting report, make sure to have notations prepared to share with your tax professional.

Generally, income received within the business year is taxable. If you sold commodities using deferred payment contracts, make sure to bring those contracts to your appointment. Also make sure to include any paperwork from Farm Service Agency that addresses government program payments. If you received any crop insurance payments in 2009, bring along any supplemental paperwork showing the total insurance benefit plus any insurance premium that may have been withheld.

You should bring all tax documents to your appointment that are used to report income to the Internal Revenue Service. Federal reporting documents include W-2s and 1099s. Any money reported on these forms must be included on your tax return. 

Some 1099s may not necessarily arrive at the end of the year. 1099s reporting patronage from a cooperative may have been mailed earlier in the year. You will have to contact the cooperative for a duplicate copy if you have misplaced the form.

While most farmers are cash-basis tax filers, accrual basis filers must also bring a complete listing of farm inventory to the tax appointment.

Additionally, the farmer should include records of medical, dental, property tax, education, and health insurance expenses. Most tax professionals will supply you with a checklist of items to bring along to your appointment.

Finally, I recommend packing a copy of last year’s tax return and accounting records. Adequate preparation for your tax appointment helps to decrease your stress and also helps your tax professional accurately prepare your income tax return. 

There is a variety of tools available for risk management in the area of dairy.  One of the least understood, and certainly least used is that of Livestock Gross Revenue Management (LGM).  LGM is an insurance product similar to products available to crop producers.  An LGM contract includes the costs of the inputs, expected production and anticipated value of the production to provide an income insurance policy.  Having said that, you might understand why it is not widely used.  Insurance agents need to be trained and certified by the USDA risk management agency before they can sell and service these policies.  They might actually be a good choice, especially for smaller dairy producers who have difficulty participating in other dairy risk management systems because of low volumes of milk.

 Robert Tigner, University of Nebraska, and I have been invited by a qualified agency to participate with them in a series of workshops around Minnesota, Iowa and Wisconsin to help explain the tool, and other tools for dairy risk management.  The meetings will include hands-on time with computer programs to show how the system can work, and how to work into the system if you were to utilize it.

 The meetings will include discussion about LGM and how it can help your dairy operation. Each meeting will include a featured speaker to talk about relevant dairy risk management strategies. The meeting will include an update on risk management and dairy outlook.  Participants will complete examples on computers to enhance understanding of this new tool. We will have computers available, but if you have a laptop computer with wireless capabilities, bring it to the meeting.  Lunch or supper will be provided at all of the meetings. Meeting rooms have limited space so please RSVP!

 City                             Date                Time                Location                                            

New Ulm, MN             Jan 26, 2010               7 PM           Microtel ((near Holiday Inn)  

Morris, MN                 Jan 27, 2010             11 AM          Best Northland Prairie Inn                             

Albany, MN                 Jan 27, 2010               7 PM          Country Inn & Suites                          

Rochester, MN            Feb 3, 2010                7 PM          Holiday Inn, 1630 S Broadway             

Rochester, MN            Feb 4, 2010                8 AM          Rochester International Events Center

Webinars                     Feb 8 & 11, 2010     11AM & 2 PM    

Send us your email address to sign up    (high speed internet required)   

RSVP to : 

     Marv Carlson                           Ron Mortensen                          Steve Nicklaus

    712-240-8395                           515-570-5265                           515-851-0137

    marv@dairygrossmargin.com     ron@dairygrossmargin.com      steve@dairygrossmargin.com

I’m looking forward to this opportunity to see more about the LGM product myself, and help introduce more dairy producers to the value of dairy price risk management as a tool for their farms.

[Partnership and participation with any commercial product or business does not imply endorsement of their product or service.]

Management of nutrients to maximize profit while maintaining environmental quality will be the theme of a MAJOR educational program at Mankato on February 18.  The program to be held at the Verizon Wireless Center will begin at 8:30 with registration and finish at 3:45.  The program is packed with information that focuses on the management of nitrogen and phosphorus wrapped around a free lunch.  The entire program is targeted for all who work with Minnesota as well as the urban neighbors. 

Mr. Dan Froelich will begin the day with a description of sales patterns for nitrogen and phosphate fertilizer in Minnesota.  This topic will be followed by a discussion of the REAL hypoxia zone in the Gulf of Mexico provided by Cliff Snyder of the International Plant Nutrition Institute.  The morning session will be capped by a panel of farmers and a crop consultant who work very hard to manage fertiilizer and manure so that environmental quality will be preserved.

There will be three breakout sessions after lunch.  One will feature nitrogen management topics such as Corn Belt N Guidelines, New Technology Tools for Predicting N rates, and the results of the recent Nutrient Management Initiative.  A second session will provide a new look at manure management, a comparison of nutrient losses from fields fertilized with either manure or fertiilizer, and the best management practices for the application of phosphate.

The third session will include a description of a highly successful nutrient management program in Wisconsin, new programs in agricultural drainage, and a documentation of what is moving through tile lines. The  time for each topic is allocated so that attendees can move from one session to another and no miss anything.

Nationally recognized speakers from Kansas State University, Purdue University, and the University of Wisconsin will present cutting edge information in combination with faculty from the University of Minnesota.

It seems that farmers are always being criticized for something.  In the past few months, some of the more notable negative articles have appeared in TIME and the MINNESOTA DAILY newspaper.  Those who work closely with Minnesota farmers know that these criticisms are not justified.  In the real world outside of the narrow vision of a few journalists, crop producers have made substantial changes in how they manage fertilizer.  These changes were made to improve profitability and, at the same time, protect the environment.  They have not received credit for making these changes.

More changes are in sight for the future.  These changes will also focus on profitability and improvement of environmental quality.  These new changes on the horizon will be described by the speakers.  This meeting is an excellent opportunity to learn about the latest technology.

Pre-registration is not required.  However, to better prepare for the noon meal, if you could call 651-201-6141 if you and/or friends and neighbors plan to attend, it would be a big help.

If you seek further information, you can contact either Brian Williams (Brian.C.Williams@state.mn.us; 507-665-6806) or George Rehm (rehmx001@umn.edu :507-263-9127).

February 18 will be a day packed with good information.  I hope to see many of you in the Verizon Center in Mankato.

Financial losses for swine and/or dairy producers may result in a Net Operating Loss (NOL) for calendar year 2009.  A Net Operating Loss occurs when the business experiences a loss that cannot be offset by all other sources of income on the tax return (such as wages or investment income). 

You essentially have two options with an NOL.  You can either carry the loss forward using the NOL to offset tax due in future years or you can carry the loss back to offset taxes already paid.  With Internal Revenue Service, the NOL carry back is the default action…..you have to file a special election to carry a loss forward.

With an NOL, you lose your standard deduction and exemptions for the year of the loss.  Additionally, on a carry back or carry forward, only regular tax is offset by the loss.  The NOL does not affect self employment tax.  On an NOL carry back for 2009, farmers can elect to carry back the loss up to five years.  The normal carry back period for an NOL is two years.  The expanded carry back period is a result of new Federal tax legislation that will only affect tax years 2008 and 2009. 

Always make sure to discuss you individual situation with your tax professional.

The new version of the Ag Income Tax Update for Farm Families is posted online.  This is a 21 page fact sheet that lists and explains many of the tax law changes for 2009 and 2010.  The new fact sheet may be found at:

http://www.extension.umn.edu/agbusinessmanagement/

When fertilization of Minnesota crops is considered, major attention, of course, is devoted to using adequate amounts of nitrogen, phosphorus, and potassium adjusted for the relative supply in soils as measured by an appropriate soil test.  Magnesium (Mg) is also essential for optimum growth and development of all crops.  Scince amounts required are not large, it is classified as a SECONDARY nutrient.  By contrast, nitrogen, phosphorus, and potassium are classified as PRIMARY nutrients.

In the plant world, Mg is part of each chlorophyll molecule.  Therefore, this nutrient is an essential factor in the process of photosynthesis—one of the most important physiological processes in the biological world.  If plants are deficient in Mg, the leaf veins are usually dark green with the area between the veins showing a very light green color.  The light green is a consequence of the lack of chlorophyll.

In soils, Mg exists in an available form as the ion with two positive electrical charges written as Mg++.  Because of these positive charges, the Mg ion is attracted to (not attached to) the negative electrical charges of the clay sized particles and is, therefore, not leached from soils.  Because of this attraction, Mg is also not very mobile in soils.  The exchangeable Mg (the Mg associated with the clay size particles) varies over a wide range in Minnesota.  The concentration of exchangeable Mg can be as high as 1,000 or 2,000 ppm for the calcareous soils in the western part of the state  to 50 to 100 ppm in the acid sandy soils of the east.

Magnesium is not a villian in Minnesota soils.  There are some who adhere to a belief, and it is only a belief, that high concentrations of Mg is soils have a negative effect on soil properties and, thus, can be harmful to crop growth and yield.  This belief is not supported by research.  In fact, research has shown that high amounts of added Mg have had no negative effect on yield (see Table 1).

                                                                               lb./acre                              ton D.M./acre

1. control                                                                    0                                            1.29

2. calcitic lime                                                           0                                             1.42

3. calcitic lime + Mg                                              300                                             1.44

4. dolomitic lime                                                        0                                             1.51

both liming materials were supplied at a rate to supply 3500 lb. ENP/acre

In this study, the calcitic and dolomitic limestone was supplied at a rate to supply 3500 lb. of Effective Neutralizing Power (ENP) per acre.  The calcitic limestone contains no Mg while the Mg concentration in dolomitic limestone varies from 8% to 11%.  When additional Mg was applied at a rate of 300 lb./acre, magnesium sulfate (epsum salts) was the source.  It is very soluble and, therefore, readily available.  All liming materials and the epsum salts were broadcast and incorporated in the early fall prior to seeding the alfalfa in the fall and the soybeans in the following spring.

The yield of both alfalfa (Table 1) and soybeans (Table 2) was not affected by the application of Mg.  In this study, the amount of Mg added to the soil increased moving from treatment #1 to treatment #5 and yields did not decrease.  Therefore, it’s easy to conclude that Mg WAS NOT harmful to the soil.

Table 2. Increasing amounts of applied magnesium and yield of soybeans.

1. control                                                                 0                                                  42.4

2. calcitic lime                                                        0                                                   46.0

3. calcitic lime + Mg                                             300                                                 46.3

4. dolomitic lime                                                     0                                                   49.3

both liming materials were supplied at a rate to supply 3500 lb. ENP/acre

Some believe that high levels of Mg in soils are responsible for hard soils and, therefore, increase runoff and erosion.  The studies that produced this conclusion were conducted in the laboratory whith very high rates of Mg being used.  Those conditions did not come close to simulating conditions that would occur in Minnesota soils.  A brief consideration of properties of Minnesota soils leads to the common sense conclusion that Mg is not harmful to soils.  In western MN, levels of exchangeable Mg are high.  Yet, in eastern MN, exchangeable Mg levels are low.  If other conditions such as soil moisture, amount of added N etc. are the same, crop yields will be the same.

A discussion of Mg in soils would not be complete without mention of calcium to magnesium ratios.  The thinking that there is some “ideal” ratio for these two nutrients in soils is probably the most bogus concept in soil fertility and fertilizer use.  There is no research evidence to support the concept of an “ideal”ratio.  In fact, results of field trials in Wisconsin clearly show that the calcium to magnesium ratio can vary over a wide range without having any statistically significant effect on yield (Table 3) regardless of soil texture.

                                                                ———————-ton D.M./acre———————

2.28                                                               3.31                                                    —

2.64                                                               —                                                      4.14

4.76                                                               3.40                                                    —

4.81                                                                —                                                     4.12

8.44                                                               3.22                                                    —

The addition of Mg to a fertilizer program is sometimes needed for production of optimum yield.  If there is a question of need, have soil samples analyzed for Mg.  Suggestions for direct application of Mg to corn are provided in Table 4.  If Mg is needed for legume production, it can easily be added as dolomitic limestone.

             ppm                                                                   —————lb.Mg/acre————–

   0 to 50                                                low                      10 to 20                       50 to 100

 51 to 100                                        medium                      trial, 10 lb./acre                0

Most Minnesota soils contain adequate amounts of Mg for optimum yield.  When needed, Mg is important.  There is no need to be concerned about the harmful effects of Mg.

One of the primary things that I was recruited to report on with this blog was crop conditions.  Since there has been a lot of talk nationally about the amount of unharvested crop and what that means, I thought I should share some perspectives on the end of the 2009 growing season in Southern Minnesota. 

The USDA crop report still shows around 9% of corn unharvested in Minnesota.  While you can find a standing corn field around here if you try, for all intents and purposes, harvest was completed in this area.  I have had a chance to travel around the state since the start of harvest and I know that a lot of the unharvested corn is up in the Red River Valley.  I would guess that many parts of the valley that I saw back in late October are still at about 50% harvested as the calendar turns to 2010.  The only area in the Southern half that I can find that still has significant crop left is in a band running from about Hutchinson to Willmar.  I do not have a good estimate regarding that area, but my best guess is that there is still about 10% left.

While on this subject I feel that it is important to make a few comments on the USDA crop progress reporting.  I can not make any comments regarding how the data is compiled, calculated or used, but I have served as a crop reporter for many years and I can say that the numbers reported are no where near an exact science.  First and foremost, where I sit typing right now in Owatonna, I am about as close to Kansas City as I am to Roseau, MN, meaning that the statewide average doesen’t mean much to me.  Actually if you would like to lump Iowa together with Minnesota, the averages probably come closer to the actual situation in the bottom three tiers of counties than the current state average does.  In addition, nearly everyone filling out the surveys on a weekly basis (Extension Agents, FSA directors, SWCD supervisors, etc.) makes a best guess based on what they are seeing.  I don’t, and neither do most of these individuals, have time or resources to scientifically determine what numbers to enter each week.  I have the good sense to not report when I don’t know, but I know others feel that it is their duty to fill the survey out every week whether they are confident of their numbers or not.  So, you can take that little piece of information for what it is worth.

To get back to the year end crop report that I intended to do, I will start with Soybeans.  Most were very disappointing, and there were many reports of around 40 bu./A.  You will occationally find someone saying that theirs went 55, but most farmers that I work with that are straight shooters tell me that their whole farm averages are around 45 or slightly lower.  For most farmers this is a big disappointment, as most are shooting for 60.  They probably should shoot for 60, but that is a topic for another day.  The national average is probably going to be around 42.

Corn yields were fantastic with many whole farm averages of 190+.  I personally did a yield check for a farmer that had four years continuous corn in strip-till that was 230.  Most farmers agreed that their best ground was running between 210 - 260 or even higher.  There were many reports of yield monitors going over 300 is places, but that is always suspect as to if they were calibrated, or even working properly.  The only down side is that test weight was very poor with reports as low as 44, but most runing in the 48 - 50 range.  In addition, there was a lot of mold on the tips of ears toward the end of harvest.  This did not affect grain quality in most cases, but there is a lot of innoculum available within bins and there is significant potential for grain to go out of condition this spring when the temperature warms.  If I were managing on-farm stored grain and knew that I had significant amounts of mold at the end of harvest I would be sure to move that grain first when making winter delivery.

To wrap up 2009 to completion I need to add that nearly all fertilizer applications that were intended to be done did get completed in this area.  Most tillage was completed also, the only exception being that there was a fairly significant amount (20% ?) of corn fields that did not get worked.  How this is dealt with will only be determined by how the winter progresses.  There is about two feet of snow on the ground right now, so the best guess is that we will have a late, wet spring regardless of temperature and precipitation in March.  If it does dry out early there might be the opportunity to till these fields yet, but most are going to be slated for no-till soybeans.  I would suggest that farmers might want to consider a shallow form of strip-till instead if it is available.  But this is also a topic for another day. 

Thus ends my 2009 reports, Happy New Year Everyone!

• MN Dept of Agriculture

 Access to MFAN is by one of these phone numbers: 

877-898-MFAN (6326)

866-379-6363 or

651-201-6326 (Twin Cities area)

You can also contact MFAN by e-mail at:

mfan.mda@state.mn.us

During working hours, these calls will be answered by designated staff within the MDA to start you into the system.  During evening, night or weekend hours (24 hours /day) the phones will be answered by Crisis Connection who will then start the process to help you and your family.  Either way, you have access to the same set of resources. 

Don’t let 2009 keep you in the corner.  If you feel the need for help, or even want to talk to someone about whether more help would be appropriate, call MFAN.  It could be your way to a healthier future.

Rather heavy snow last week put a real damper on lots of activities.  Although the official recording sites were lower, many people indicate they received 12 - 16″ of snow last week and wind to make it more fun.  I made it home from the Midwest Dairy Expo without too much difficulty ( one hour longer trip than the week before, though) but barely got in the driveway and then had the tractor stuck before I got it all the way out of the shed to plow snow.  There were 3 1/2 to 4 foot drifts after that wind.

Most of the crop is in the bin, but one still sees pockets here and there of corn standing in the field.  I talked to a farmer in the Goodhue area this week who combined over the weekend through a foot of snow in the corn field.  It went well, but he still had about 400 acres to go and bin space for only about 100 acres worth of corn.  He said he’d be storing some in “the Minnesota bin” for the winter.  I have to admit I haven’t heard that term before, but I didn’t need to think twice to what he meant.

Farmers are now finalizing their seed choices and orders for next season, and working hard to be ready for visits with their lenders.  Now more than ever, it is important to have a good balance sheet prepared and a projected cash flow ready to share.  While some input costs sound like they may be lower than in 2009, many farmers (especially livestock farmers) also added significant debt in 2009 so lenders will be looking more closely at your paperwork when they make decisions.  Also remember, it is not just your local lender involved.  Federal regulators are also watching banks more closely and putting pressure on banks to be sure the loans they write are good ones.  Quite a few lenders report they are working with Farm Service Agency loan programs either for direct loans or loan guarantees.  It those moves help you keep your farm business going and sound, don’t pass the opportunities.

There is general agreement throughout the Corn Belt that rate of N fertilizer needed for optimum corn yield is 40 lb./acre less if corn follows soybeans instead of corn.  Most crop producers and their advisors use this “N credit” when planning nitrogen fertilizer programs for corn production.  What is the basis for this “credit”?  Is a change needed for modern production?

It’s logical to assume that the 40 lb.N per acre “credit” is a result of the decomposition of the soybean residue remaining after harvest and the N in the nodules on the root system.  However, if the residue and root system including the nodules are analyzed for N, the total does not equal 40 lb. N/acre.  It is usually less by a significant amount.  So, are we sure that the “credit” is 40 lb. N/acre?  The answer to this question is “yes”.

Results of a study conducted at the Southern Research and Outreach Center at Waseca document the reality of this “credit”.  Various rates of N fertilizer were applied to both corn following corn and corn following soybeans.  This study was conducted for at least 11 years.  When corn followed soybeans, the N rate needed for optimum yield was 120 lb./acre.  When corn followed corn, the N rate for optimum yield was 160 lb./acre.  The difference of 40 lb./acre is the “N credit”.  Results of several research projects conducted throughout the Corn Belt have confirmed this “credit”.

                                                                                        N Rate (lb./acre)

                                                                      _____________________________________

                                                       —————————–bu./acre————————–

corn                                                       75                               128                            143

non-nodulating soybeans                     118                              156                            157

The results of an interesting study conducted in Wisconsin show the benefit of the soybean crop that had no nodules.  These results are summarized in the following table.  In this study, corn was planted following corn, a crop on non-nodulating soybeans and a crop of nodulating soybeans.  Two rates of fertilizer N (80,160 lb.N/acre) were compared to a control (no fertilizer N).

Compared to corn after corn, the yield was increased by about 45 bu./acre if a soybean crop (nodulating or non-nodulating) preceeded the corn.  Application of fertilizer N increased yield in all three cropping situations.  Yet, yields from corn following corn were not equal to those for corn following soybeans.  These results agree with those measured at the Southern Research and Outreach Center.

Except for corn following corn, a rate of 80 lb.N per acre was adequate for optimum yield.  So, the nodules are not needed  for the “N credit”.   So, what is the basis for the “N credit”?  It is not well defined.  However the soybean root system does have a positive effect on a variety of soil properties.  For example, water infiltration is higher after a soybean crop.  More rapid decomposition of soil organic matter has been measured after a soybean crop.  Other soil properties are positively affected.  When all factors are considered collectively, the positive effect is equivalent to 40 lb.N/acre.

There are some who use a rule of thumb that gives a “credit” of 1 lb.N/acre for each bu./acre of the previous soybean crop.  This rule of thumb does not work and should not be used. 

It’s clear.  The “N credit” for a soybean crop is real and should be used when corn producers plan any N fertilization program. 

Over the past year dairy farmers have been agonizing over and living with milk prices well under their costs of production.  Everyone has a different cost of production, but a common statement has been, “If milk was at $15.00 per hundredweight, we’d be in fair shape.”  During much of the past year, it seemed that $15.00 mark was always 6 months or more ahead.  Each month that target kept moving farther away.

Well, the trend has finally switched.  In the past few weeks there have actually been opportunities to contract Class III milk for $15.00 per hundredweight (or higher) as early as February, 2010, and even a day or two in January.  History has shown milk prices have been over $15.00 only about 10% of the time, so-o-o-o, have you put any price protection in place for a portion of the milk you expect to produce in the next year?  If $15.00 would put most producers in pretty fair shape, it would seem prudent to look at locking in a floor-price of $15.00 or more when it is available. 

One tool for that floor price is a put option.  The put option is like an insurance policy that locks in a bottom price but still lets you take advantage of any price climbs.  Yes, there is a premium to pay for the put option, just like any other insurance policy, and that is the thing to watch.  Right now the premiums for put options are high (today from about $.62 to $1.15 for April contracts, depending on the price you select).  That would net an effective price of $14.13 to $14.60 protected (Contract price minus the premium).  Remember, this is the base Class III price.  Any component and quality premiums from your creamery are still on top of that price.  The catch?  You need to put out a pretty hefty premium payment for the protection. 

Generally speaking, the farther out you are willing to contract, the lower the premium will be, but that is not always the case.  One pretty consistent fact is that the offered contract price for a given month tends to decrease the closer you get to that specific month.  Looking well ahead of the current market month generally pays dividends.

If you are a large enough producer, you might want to consider an actual futures contract.  This will set your Class III price and protect your bottom price, but it will also lock you out of any price increases for the amount of milk contracted.  The price you contract is the price you are paid.  You need to contract 200,000 pounds of milk for a standard contract, however.

If you market your milk through a cooperative that offers contracting services, a contract with them might be available for as little as 25,000 pounds of milk in a month so it is easier for smaller producers to participate in that market.

Whatever your tool of choice, it is time to be watching the markets closely, determining a price goal and acting when that goal is reached.  Telling yourself, “it might go higher” is a good way to also watch it go lower and leave you out of the market.

If you said earlier that $15.00 was a pretty decent milk price, now is the time to be ready with action to back your words.