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Volume 9, Number 11 - November 2003

This Month in Ag Connection

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Crop Residues Make Great Feed But Watch Out For Nitrates!


Dr. Tim Evans, a toxicologist at the University of Missouri Veterinary Diagnostic Laboratory, suggests getting the lower portion of the stalks tested, "just to be safe". A cow consuming 0.5% nitrate could abort and an adult cow consuming a level of 1.0% nitrate in the diet, could kill her. I don't think many producers want either problem to occur. However, with proper management and precautions, your livestock should be safe.

If you are a producer who utilizes corn residues to extend your grazing season, have the forage tested. Bring a representative sample of your residue into an Extension office to be tested for nitrates. Just because there has been good rainfall lately, doesn't mean nitrates have been diluted in the stalks. An agriculture extension specialist can test the residues, which is a subjective test. If a more exact level of nitrate is desired, the sample can be sent into the University of Missouri Veterinary Diagnostic Laboratory in Columbia for analysis.

For more information contact your local University Extension Center.

(Author: Wendy Flatt, Livestock Specialist)

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Choosing Insurance To Manage Risk

Insurance for a farm business is as important as planning which crops to grow and how to market crops. The financial stability of a business and a family may be at stake. Farmers have a variety of insurance needs due to the complexity and nature of the business. Deciding what to cover and for how much can be difficult. Farmers also vary in their financial position and ability to assume risk.

There are three broad questions to answer when determining insurance needs:

Barn and a contract
  1. What are the chances of any particular financial loss occurring?
  2. How great will the financial loss be if it does occur?
  3. How can insurance be used for protection from these losses, and how much will it cost?

When studying all the financial risks associated with a farm business and family, you will probably find that some events are very unlikely, and the cost of insurance cannot be justified. While you may find risks likely to occur, insurance may not be available or rates are prohibitive. The majority of risks and related insurance needs fall between those two extremes. Insurance agents should have statistics available as to the frequency with which certain events happen.

Financial Consequences

After looking at the possibilities of loss, take a look at the cost of losses that might occur. Some events may not require insurance protection and can be treated as the cost of doing business. An example of such a loss would be the death of a newborn calf to a beef producer. Other losses can present a financial burden to the business, such as the destruction of a hay barn containing the winter feed supply.

The effect of a loss is probably the most important factor in decisions regarding business and family insurance. A rule of thumb is to insure against those events that cannot be absorbed or handled without causing considerable financial hardship.

Evaluating Needs With Available Funds

Once the probability of loss and it's potential impact has been evaluated, it is time to look at the types of insurance available and the cost. Eventually, a comparison of insurance costs with available funds will have to be made. It is likely that the cost of your "wish list" of insurance coverage will exceed the amount of funds available. At that point, individual priorities have to be made concerning types of insurance to carry and the amount of protection to purchase. A few types of insurance that are common on farms include: fire, medical, disability, comprehensive liability, workers' compensation, life, crop, vehicle and unemployment.

It is helpful to set up a priority system based on importance when determining what insurance coverage is needed and affordable. Using classifications such as: Most Important, Important and Less Important can help in making difficult choices. Following these steps will lead to sound decisions.

(Author: Mary Sobba, Ag Business Specialist)

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Risk Management - What Is It?

The term risk management is often used in agriculture and typically the first thought is crop insurance. Risk management may include crop insurance, but it includes much more. From a study conducted jointly by Texas A&M and Kansas State University a group of more than 100 farmers and 20 lenders from the two states identified the top sources and degree of perceived risk and uncertainty as follows:

High Risk
  1. Commodity price variability
  2. Commodity yield variability
  3. Changes in input costs
  4. Changes in environmental regulations
  5. Unforeseen litigation
  6. Changes in machinery costs
  7. Injury, illness or death of operator
  8. Availability of skilled labor
  9. Family health problems

The pilot group also identified the most important risk management strategies as follows:

Low Risk
  1. Debt management
  2. Enterprise diversification
  3. Forward contract selling
  4. Liability insurance
  5. Hedging the selling price
  6. Government program participation
  7. Commodity options
  8. Cash contingency reserves
  9. Multi-peril crop insurance
  10. Operator life insurance
  11. Using futures to hedge
  12. Being a low cost producer
  13. Off-farm investments
  14. Using a variety of production techniques
  15. Purchasing health insurance

Alternative methods for managing price risk tended to dominate the list, followed by financial management strategies. It is interesting to see that government programs were not viewed as a high source of risk, yet they were viewed as a risk management strategy.

Missouri extension is working to address the risk sources and strategies. The University of Missouri Ag Economics Department, MU Value-Added Agriculture Development Center and Regional Agribusiness Extension Specialists are developing a Profit Focused Agriculture curriculum for Missouri farmers/ranchers.

(Author: Mary Sobba, Ag Business Specialist)

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Taxation Tidbit: The Capital Gain Tax Maze

Question: I am considering the sale of 160 acres of my farm to a local hunting club. I have read that the long-term capital gain tax rate has been lowered to either 15% or 5% depending on the level of taxable income. Why, then, is my tax advisor indicating that I will have to report and pay 25% on a portion of the gain?

Bills and coins

Answer: The capital gain tax maze is best understood utilizing an example. But first, here are the basic tax rates frequently associated with the sale of a farm: 10%, 15%, 25%, 28%, 33%, or 35% tax rate on ordinary gain 25% tax rate on unrecaptured Section 1250 property depreciation 5% or 15% tax rate on long-term capital gain For farms, Section 1250 generally includes depreciable real property other than single-purpose agricultural structures and property used as an integral part of production.

Example: Farm was purchased for $80,000. The farm consisted of 160 acres, 1 barn and 2 machine sheds. At the time of purchase, $50,000 was allocated to the 160 acres of land, $5,000 to the barn, and $25,000 to the 2 machine sheds. The depreciation on the barn and machine sheds (Section 1250 assets) under the depreciation method selected has amounted to $27,000 which is $2,000 greater than what would have been allowed if a straight-line method of depreciation had been chosen. The farmland and buildings were sold August 1, 2003 for $240,000 ($220,000 for the land and $20,000 for the barn and 2 machine sheds).

$240,000 Sale Receipts
- 53,000 Return of remaining basis: $50,000 land & $3,000 bldgs. (0 tax rate)
$187,000 Gain
$ 2,000 Recapture of Section 1250 excess depreciation claimed over straight-line depreciation (ordinary income tax rate)
+ 15,000 Unrecaptured Section 1250 depreciation up to the amount of gain on Section 1250 assets ($20,000 - $3,000) (25% tax rate)
+ 170,000 Long-term capital gain on Sec.1231 property (5% or 15% tax rate)
$187,000 Gain

(Author: Parman R. Green, Ag Business Specialist)

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Hay For Sale Listings

Hay bales

Hay for sale listings are a joint venture of the Missouri Department of Agriculture and the University of Missouri,Columbia. Listings are on the AgEBB web site: Sellers can enter their own listings and anyone can view the listings

The listings include sellers names, city, county and phone numbers. Hay can be listed by region, forage, and bale type. The number of bales and approximate weight of each bale is listed. Nutrient content of the hay is also included if the hay has been analyzed. The listing also provides an area for such information as "first cutting" or "don't call before 6 p.m."

To list hay you wish to buy or sell:

Hay listings will be left on the AgEBB system for 60 days unless updated.

(Author: Don Day, Natural Resource Engineer/Information Technology Specialist)

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Loan Deficiency Payments


Loan Deficiency Payments (LDP's) are kicking in this fall. You can check the payments for your county by visiting the following web site:

You can check any county in the nation from this site. Watching this can make a difference in your income.

(Author: Mary Sobba, Ag Business Specialist)

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Asian Lady Beetles


Many have called about the Asian Lady Beetles that are invading homes. These are harmless (actually beneficial) insects. Control is not recommended. Closing up places where they enter the home is recommended. This can be done by sealing all outside cracks and crevices around doors, windows, siding, utility pipes and other openings with a good quality silicone or silicone-latex caulk. Window screens should not have any tears and should fit snugly inside the window frame. Install insect screening over attic and exhaust vents.

For more information, see the following web site:

(Author: Don Day, Natural Resource Engineer/Information Technology Specialist)

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Publishing Information

Ag Connection is published monthly for Central Missouri Region producers and is supported by University of Missouri Extension, the Commercial Agriculture program, the Missouri Agricultural Experiment Station and the MU College of Agriculture, Food and Natural Resources. Managing Editor: Kent Shannon.