On November 10^th, 2006 corn prices had just broke out of their 10 year trading range, and started a period of wild volatility.  I was on my way to meet my friends and family for the annual deer hunt.  Like many committed deer hunters, we spend as many hours setting around the fire pit as we do hunting the 30-point buck.  This year, the fire pit topic was how to help farmers manage risk in a fast-paced and volatile market environment.  I was in the consulting business, helping farmers create marketing plans and market their commodities.  November had been stressful with corn markets marching higher and clients asking me “how much will it rise?”  I had no inclination how high the prices were going, but I did know these were extremely profitable prices and my job was to help clients manage these profits.

The main tool I used to keep the focus on profitability was an excel spreadsheet. While the job got done, it had many limitations.  First, I had to manually update the futures, options and value of unsold cash grain.  Unfortunately, the prices were often outdated as soon as I clicked the save button. Another nuisance was many clients either had an out-dated version of Excel or did not have Excel on their computer.  Finally, many clients struggled to navigate an Excel spread sheet due to the complexity of the sheets I had constructed.

That weekend at deer camp, I discussed my ideas with my deer hunting pals and there was a clear agreement that a better way to manage risk was needed.  It was those conversations that drove me to the drawing board when I returned home.

Until next time…

-Mark

Here is a great article on Risk Management by Pat Kroese of GrainBridge in the latest edition of the Corn and Soybean Digest.

Corn and Soybean Digest

As the cold weather sets in it’s a good time to review your potential income tax implications and prepare your income and expense statements for review with your tax accountant.   I’m sure you’ve been thinking about this very topic and excited to schedule that meeting or maybe not?

I don’t blame you, with the tax code for an average business so complicated it takes a tax engineer to wade through the pages of tax regulations.  With average incomes per farm rising by over 15% this past year its inevitable you’ll be subject to potential income tax liabilities which isn’t necessarily a bad thing.  However there are a couple of tips you should consider in this year’s tax season.

1. Bonus Depreciation – For several years the government has allowed for quicker depreciation of purchased assets to help stimulate investments.  Congress has extended this so-called “bonus” depreciation into 2011 & 2012 to encourage new equipment purchases.  The first-year depreciation rule allows you to deduct 100% of the cost of the qualifying purchased asset for the 2011 season.  In 2012 the allowable tax deduction will drop to 50% of the cost of the purchased asset.  Take advantage of this allowance while it lasts!  Ohio State Extension
2.  Section 179 Deductions – Make note of this section because it will change drastically going into 2012-13.  179 deductions allow’s you to deduct part or all the cost of a qualifying asset purchase in the past year.  For 2011 the deduction is limited to the tax payers total income up to $500,000.  For 2012 the deduction limit will drop to $125,000 and $25,000 in 2013.

Lean on your tax expert to help you manage through all the tax regulations over a warm cup of coffee this winter.  Additional news on this topic can be found at – Tax Ideas from Iowa State;

Until next time,

Pat Kroese, GrainBridge LLC