Ag Connection
Your link to the Universities for ag extension and research information


Volume 10, Number 10
October 2004
 

 

This Month in Ag Connection

 


--

Penny Wise or Dollar Foolish
Winter Water for Livestock
Livestock Risk Protection (LRP) Available In Missouri
Taxation Tidbits:  What's Your Social Security Strategy?


[This Month in Ag Connection] [Ag Connection - Other Issues Online]
-
Penny Wise or Dollar Foolish 
Forages vary in nutrient content and quality more than any other feedstuff used by cattle, sheep and goat producers.  Mid-Missouri hay varies greatly by plant species, maturity at harvest, rained-on hay, moisture levels when baled, and equipment operator skill. 

Legume hay is typically higher in crude protein (CP) than grass hays – but this is not always the case.  Vegetative fescue hay can have CP levels as high as 17%, while mature alfalfa can be as low as 13% CP.  Visual appraisal of the hay for color, seed heads and aroma frequently can be misleading in determining hay quality.  A forage analysis is the only way to accurately evaluate hay quality. 

A forage analysis will cost between $14 – 18 and should be looked at as an investment in cost effective animal performance.  If the nutrient value of a hay source is underestimated, the unnecessary supplementation increases feed costs.  If the nutrient value of a hay source if overestimated, then there can be a loss in animal performance. 

A quick example:  While a .25 lb reduction in daily gains on backgrounded calves does not sound like much, it will reduce the weight of the calves by 7.5 lbs in 30 days. With a $70 calf price this reduction in gains will reduce the sale value of a calf by $5.25.  At the more current $1.05 calf price this jumps the cost of the reduced performance to $7.85/ head.  In this example, the investment in a forage test will be recovered on just 3 to 4 calves. 

Extension agronomists have a habit of saying “Don’t guess, soil test”.  Be dollar wise and apply that comment to hay analysis – “Don’t guess, hay test”.  Hay probes are available in many University of Missouri Extension Centers.  A lab many Central Missouri Producers use is: Custom Lab, Inc. based in Golden City, MO.  Their address is PO Box 391, Golden City, MO 64748 (417) 537-8337, customlb@ipa.net 

(Author:  Mark Stewart, Livestock Specialist) 


[This Month in Ag Connection] [Ag Connection - Other Issues Online] 

Winter Water for Livestock 

We often focus on summer water as larger quantities are needed in the summer.  Winter water is equally important.  Livestock will perform better with a water supply that is at least 40º F.  Limiting water intake can depress animal performance more quickly than any other nutrient deficiency.

Often water can become contaminated, especially if livestock are allowed access to a pond in one spot.  Safety of livestock is also a concern if livestock are allowed access to a frozen pond.

The objectives of developing a winter water supply include the following:

Be sure you have an adequate quantity of water.  Tables showing the amount needed for various livestock are available in UMC Guide 1801, How To Size A Farm and Home Water Systemat your local University of Missouri Extension Center or on the web at:  http://muextension.missouri.edu/explore/agguides/agengin/g01801.htm

Provide some system for freeze proofing the water.  This can include various types of freeze proof waterers, some homemade, some purchased.  Be sure they will be as foolproof as possible. Now is a good time to check your waterers.  There is nothing more uncomfortable than working on a waterer when it is sub-zero outside.

Insulate waterers to reduce problems with freezing.  Make sure the insulation inside the waterers is in good condition.  Conserve heat by caulking the base of automatic waterers and seal the access door with weatherproof tape.  Reducing wind exposure can also lower energy costs.

Be careful that electric water heaters don’t have stray voltage.  This will cause a small shock to animals and will cause them to reduce the amount of water they drink.  See resources at the end of this article for more information on stray voltage.  Be sure electrical connections are proper and are adequately grounded.  (One good way to check for stray voltage is to stand on the ground barefooted and lick the metal waterer -- NOT.) There are more  pleasant and sophisticated methods described in the web link below.  Local electricians can assist and some Rural Electric Cooperatives have resources.

Float valves are important.  Valves can be either full  flow or restricted flow.  Full flow are usually used with small-reservoir, high-recharge water systems.  Restricted flow may restrict flow as much as 80 percent.  They are usually used in large-reservoir, low-recharge systems.  Full flow valves may have a  problem handling algae and impurities in pond water.  On some models the screen can be removed and alleviate the problem, with others, it may aggravate the problem.  Float devices should be selected that will stand up to damage by livestock.

Clemson University researchers tested several types of floats in a demonstration.  They noted some big differences between the various floats.  The following were the types they tested:

bullet

Standard inexpensive over-the-counter floats

bullet

Standard toilet floats

bullet

High volume floats designed like a toilet bowl float

bullet

Two different commercial floats

Clemson researchers reported that the first two types of floats worked well for low flow situations where very few animals were watering in a trough or where you had   oversized troughs.  The only advantage to the standard toilet bowl float was that it could be mounted in a tank that had an underground feed supply line.  This float must be protected from livestock tampering.

See more information on this project at:  http://www.clemson.edu/laurens/local/water.pdf 

Other resources for planning livestock water systems include:

bullet

Missouri Grazing Manual, M157 

bullet

Water Quality For Livestock Drinking,  EQ0381, University of Missouri
http://muextension.missouri.edu/xplor/envqual/eq0381.htm 

bullet

Watering Systems for Grazing Livestock, Iowa State University
http://www.extension.iastate.edu/Publications/PM1604.pdf

bullet

Livestock Water Development, Ohio State
http://ohioline.osu.edu/anr-fact/0012.html

bullet

Livestock Water Quality, University of Nebraska
http://ianrpubs.unl.edu/beef/g467.htm

 Stray Voltage Resources:

bullet

Stray Voltage and Electrical Safety Problems Go Hand-in-Hand, University of Wisconsin
http://www.bae.umn.edu/extens/aeu/aeu2.html

bullet

Stray Voltage Check Sheet, University of Wisconsin
http://cecommerce.uwex.edu/pdfs/A3586.PDF

 (Author:  Don Day, Natural Resource Engineer)


[This Month in Ag Connection] [Ag Connection - Other Issues Online] 

Livestock Risk Protection (LRP) Available In Missouri

On July 29, 2004, the Federal Crop Insurance Corporation’s (FCIC) Board of Directors authorized expansion of all the LRP plans of insurance for Swine, Feeder Cattle and Fed Cattle to include Missouri.

LRP insurance offers single-peril price-risk protection to feeder, fed cattle and swine producers. Producers are able to protect against declining prices by purchasing an insurance contract with a specified coverage price. If market prices fall below the specified coverage price, an indemnity is paid to the producer. Because the LRP contract is market-based, coverage prices and premiums change daily. Although LRP offers price level protection, producers using LRP are still exposed to basis risk. Thus, successful use of the contract by producers will require knowledge of local basis. LRP is a revenue insurance program that is reinsured and subsidized by the FCIC.

In 2004, the Risk Management Agency (RMA) made some major changes. LRP will not be available when the option market is open, so a person cannot compare current premiums and select the least expensive.

Another change is a procedure to apply a factor for certain cattle to allow insurance on heifers, Brahmas, dairy cattle and feeder cattle at all weights.  There will be daily sales limits for the program as well as annual funding limits.  Therefore the maximum daily sales limit will be $1 million or as set by RMA. They have put into place catastrophic measures that will shut down the market if something extreme happens, such as the BSE announce in 2003.

Feeder Cattle

bullet Settlement price is the Chicago Mercantile Exchange (CME) Settlement Commodity Index price
bullet Two weight ranges: under 600 lbs and 600-900 lbs.
maximum head, 1,000 per endorsement and 2,000 head per year

Fed Cattle

bullet Settlement price is the USDA 5-Area Weekly Weighted Average Direct Slaughter Cattle price, Live Basis 35-60% Choice category
bullet Weight at the end of the policy period in the 1,000-1,400 pound range
bullet Expected to grade select or better and yield grade 1-3
maximum head, 2,000 per endorsement and 4,000 head per year

Swine

bullet A swine contract may be purchased for up to 10,000 head of hogs that are expected to reach market weight near the end of the insurance period. The length of insurance available for each Specific Coverage Endorsement (SCE) is from 13 to 26 weeks. The annual limit is 32,000 head per producer per crop year (July 1 to June 30). Swine rates are based on the CME Lean Hogs futures contract and indemnities are calculated using the USDA Agricultural Marketing Service (AMS) price upon which the lean hog futures contract settles.

How Livestock Risk Protection Works

Example:  If the expected end value of feeder steers after a 21-week period was $84.55/cwt, a coverage level of 92% would yield a coverage price of $77.79/cwt ($84.55/cwt * 92%). If at the end of the 21-week period the CME feeder cattle price index is higher than $77.79/cwt, no indemnity is paid. However, if the index is lower than $77.79/cwt, an indemnity equal to the difference between the coverage price and ending value of the CME feeder cattle price index is paid. This example did not take into account the cost to purchase the insurance. LRP does not guarantee basis, so it is important for producers to understand and anticipate the basis in the markets in which they sell cattle.

The LRP insurance program reduces the downside risk for producers, but it does not eliminate all risks. It is often compared to a put option contract, and there are similarities, but they are not the same thing. Producers may buy LRP only on the number of head they actually own. It is an insurance contract and once it is purchased, it cannot be cancelled, as can be done with a put option. Since it is insurance, it is clearly a tax deductible farm expense. LRP does not cover sickness or death of animals or the possibility of rising feed costs. Producers are subject to basis risk (the risk that basis declines relative to their forecast used to create their expected minimum sale price).

Another advantage to LRP insurance contracts is that 13% of the premium is subsidized. Another subsidy covers the administration of the insurance contracts and agent commission, funded through RMA.

Producers interested in LRP should contact a crop insurance agent and complete an application, which will be submitted through the approved insurance provider to FCIC. Missouri is just now getting crop insurance agents certified to sell LRP, so check with your local agents. LRP sales should begin about October 1, 2004. However, sales will only occur when the Risk Management Agency (RMA) announces daily prices on its website.

RMA Websites

bullet To obtain “Daily LRP Coverage Prices, Rates and Actual Ending Values”:
http://www3.rma.usda.gov/apps/livestock_reports/
bullet LRP-Swine:  
http://www.rma.usda.gov/pubs/2003/PAN-1667-08rev2.pdf
bullet LRP-Fed Cattle:
http://www.rma.usda.gov/pubs/2003/PAN-1667-10.pdf
bullet LRP – Feeder Cattle:
http://www.rma.usda.gov/pubs/2003/PAN-1667-10.pdf


(Author: Mary Sobba, Ag Business Specialist)


[This Month in Ag Connection] [Ag Connection - Other Issues Online] 

Taxation Tidbits: What’s Your Social Security Strategy?

Farmers who report income on a cash-basis have a tremendous amount of planning flexibility with regard to managing their Social Security costs and benefits. Ironically, given the significance of self-employment tax to the overall tax bill, few farmers take advantage of pro-active strategies for optimizing their self-employment/Social Security costs and returns.

Different strategies should be utilized during different phases of one’s career. Early on, just meeting and maintaining eligibility requirements for Social Security retirement, disability, and survivor benefits will be of extreme importance. However, in the later phase of one’s career, you may want to focus on maximizing the returns on retirement dollars, while maintaining your eligibility for Social Security benefits.

For farmers in this latter category, lumping income and/or expenses so earned income is relatively high every other year can yield substantially greater retirement benefits than utilizing the more typical scenario of trying to level-out taxable income each year. Advantages of this lumping strategy spring from the following factors:

Only the highest 35 years of indexed earnings are utilized to calculate Social Security retirement benefits.

There is a maximum annual earnings subject to the Social Security retirement tax.

The Social Security retirement calculation has a regressive benefit rate schedule based on your indexed earnings.

To demonstrate this point, Farmer A and Farmer B both age 66, retired in 2004 and started drawing Social Security benefits. Farmer A and Farmer B have identical farming operations and farm income. Farmer A had reported the maximum self-employment earnings from 1955 to 2003. Farmer B also reported the maximum self-employment earnings 1955 to 2003, except for two years 2000 and 2002. For 2000 and 2002 Farmer B shifted his farm income and expenses to artificially report zero earnings for those years, shifting that net income to 2001 and 2003.

Farmer A’s monthly Social Security benefit was calculated at $1,836. Farmer B, who avoided paying SE tax for 2000 and 2002, had an estimated monthly Social Security benefit of $1,801. While Farmer B will receive approximately $35 less Social Security per month, he saved approximately $15,143 in total taxes for the tax years of 2000 and 2002. The $19,976 of SE tax savings were offset by an estimated $4,833 of additional federal income tax.

Given the amount of dollars involved and the long-term consequences, you are encouraged to investigate and analyze whatever strategy you’re considering with your financial and tax consultants. This is one of those situations where doing nothing is doing something -- be proactive!

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


[This Month in Ag Connection] [Ag Connection - Other Issues Online] 


University of Missouri ExtensionAg Connection - Ag Connection Newsletter,  October 2004
http://outreach.missouri.edu/agconnection/newsletters/is-04-10.htm -- Revised: September 30, 2004
daydr@missouri.edu