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


This Month in Ag Connection
Grain Markets -- What if I'm Wrong?
Weed Control Guide Now Available
Early Season Weed Competition
Changes in Atrazine Setbacks
Cyanazine Phase Out
Charitable Contributions of Farm Raised Inventory
Build a Better Shoe Box - Farm Business Management Records
March 1997
Volume 3, Number 3

Ag Connection - Other Issues Online


Publishing Information
Ag Connection is published monthly for Central Missouri Region producers and is supported by University Extension, the Commercial Agriculture program, the Missouri Agricultural Experiment Station and the College of Agriculture, Food and Natural Resources, UM-Columbia. Editorial board: Maryann Redelfs, Managing Editor; Parman Green, James Rogers, Mark Stewart, Melvin Brees, Don Day and Ron Alexander.

MailboxComments or Suggestions?
Please send your comments and suggestions to Maryann Redelfs, Agronomy/Information Technology Specialist, University Outreach and Extension, 608 E. Spring Street, Boonville, MO 65233, call 660-882-5661, or send messages by e-mail to: redelfsm@missouri.edu.

To send a message to an author, click on the author's name at the end of an article.


Grain Markets -- What if I'm Wrong?

Pick up nearly any farm magazine and you'll find an article about risk management. Last year's record corn and wheat prices along with the new government program, without price safety nets, have focused farm editors' attention on marketing and risk management. There have always been risks in marketing. Market plans should consider the question: "What if I'm wrong?"

Some things have changed. The grain surpluses of the late 1980's are gone. World demand has been strong and supplies have tightened up in recent years. One good crop year will no longer cure tight supplies. This past year's second largest U.S. soybean crop and third largest corn crop didn't cure them! But this does not mean prices can't drop — for example, corn and wheat prices are currently about half of what they were at last year's highs.

Demand is strong, but users have become more comfortable in dealing with tight supplies. Commodity users have adopted "just-in-time" inventory management where they only buy to meet current needs, instead of purchasing large inventories in advance. This caused sharp price moves in last summer's corn market, when users scrambled to meet needs before the new crop became available. Tight supply markets are very sensitive to any changes in fundamentals. As the new crop harvest began, prices dropped quickly.

It's easy to be wrong. In 1995 many producers (along with help from a lot of market advisors) sold too quickly. They took advantage of what had been historically high prices only to see prices go much higher to record levels. Not wanting to make that mistake again, they avoided making early sales in 1996 only to see prices drop sharply into harvest. No doubt, 1997 will offer many opportunities to be wrong again.

Successful marketing involves taking advantage of profitable prices and using flexible strategies that fit changing market outlooks. One method to accomplish this is to avoid selling all of your crop at once and spread sales over time. A scale-up sales strategy involves setting price goals and then selling portions of the crop when the goals are met. If prices continue to increase, additional sales are made as each higher price goal is met.

A variation of the scale-up strategy is a scale-down strategy. This can be used when prices are expected to go higher, but no one knows how much higher. The idea is to hold off sales as the market rises until a peak is reached and the market starts to drop. Sales are then made before it drops lower. If the down trend continues, additional sales are made before prices drop even further. This strategy requires discipline and is more difficult to do than a scale-up strategy. The idea behind both strategies is to increase the average price received.

Minimum price contracts, if available, are another way to make sales and avoid being wrong if prices go higher. These cash contracts carry a fee (paid for the contract), but they guarantee a minimum price and allow selling at prices above the contract price if they occur.

Options provide flexibility in marketing. Buying a put option gives the right to sell a futures contract (enter a hedge position) without the obligation to complete the transaction. The effect is similar to a minimum price contract. A price floor is established, but the top side is left open. Options also have a cost in the form of a premium paid for the rights obtained. Call options can be used to offset previous sales. A call option provides the right to purchase a futures contract and, in effect, re-own grain that has already been sold. Both of these "have your cake and eat it too," option strategies allow setting a price and still taking advantage of higher prices.

A futures hedge can also provide market flexibility. A hedge can be lifted (or offset) if the market situation changes. Many farmers have avoided futures because they require more marketing skills, better timing, and the increased risks of margin calls.

Although it is easy to be wrong when markets are volatile, these markets can also provide profitable opportunities. Learning to use new marketing tools and choosing flexible market strategies can provide the keys to success. Remember that "if you always do what you've always done, you wind up with what you've always got!"

Author: Melvin Brees, Farm Management Specialist

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Weed Control GuideWeed Control Guide Now Available

The 1997 Weed Control Guide for Missouri Field Crops is now available at your local University Extension Center. The cost is $7.50.

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Early Season Weed Competition

How long can you let weeds grow with the crop before they start reducing yield potential?

The introduction of Roundup Ready soybeans has triggered questions regarding the impact of early season weed competition on crops. These same questions also apply to other postemergence herbicide plans.

Under most situations, soybean yields will not be influenced by early season competition if weeds are controlled within four to six weeks of planting. However, the critical period of competition for weeds emerging simultaneously with crops varies depending upon weed specie, weed populations and environmental conditions. This critical period is shortened with dense weed populations, highly competitive weeds, or limited soil and water resources.

In fields with moderate infestations, growers have ample time to make postemergence applications without affecting the crop's yield potential. In fields with high weed populations, applications may need to be made earlier than would be optimum for full-season weed control with a single application.

Researchers at the University of Illinois investigated the impact of the duration of common cocklebur competition on soybean yields during three growing seasons. Cocklebur was planted the same date as soybean at a population of five plants per 10 feet of 30" soybean rows (one plant per five square feet). Cocklebur was removed by hand at various dates after planting. This study illustrates the impact of environment on the critical period of competition. In 1976, allowing cocklebur to compete with soybeans for five weeks did not reduce yields (small increases actually were observed). In the other two years, small yield losses were observed when cocklebur was allowed to compete with the soybeans for two to four weeks. The results of this study are similar to other experiments conducted with moderate weed infestations.

A study conducted at two central Iowa locations in 1991 illustrates the importance of considering weed populations when determining the appropriate time to make postemergence herbicide applications. Annual grasses were controlled postemergence with Accent at various times after planting corn. All herbicide treated plots were cultivated to control weeds that escaped the herbicides. A light infestation of giant foxtail and woolly cupgrass (<5 weeds/square foot) was present at Ames, whereas the Boone location had a heavy infestation (>40 weeds/square foot) of the two species.

At Ames, the site with the low weed population, Accent applications made from two to five weeks after planting protected corn yields from yield losses due to weed competition. However, at Boone, delaying treatment three weeks or more after planting resulted in yield losses when compared to the pre-emergence program. When dealing with high weed populations, early treatment is more critical in preventing yield losses.

The critical period of competition is determined by many factors, but probably the most important is the weed population or density in a field. With high weed populations, postemergence applications should be made within three to four weeks after planting (assuming the weeds emerged with the crop).

Contact: Maryann Redelfs, Agronomy/Information Technology Specialist
Source: Bob Hartzler, Iowa State University Extension

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Changes in Atrazine Setbacks

The EPA has now relaxed atrazine setback requirements. This is a change from the 1992 ruling where the EPA required numerous restrictions in the atrazine and cyanazine labels. These restrictions were in response to occurrences of triazines in surface waters. The restriction of most concern for Missouri growers was a 66-foot setback around surface tile inlets. With the prevalence of tile inlets on terraces, this restriction essentially eliminated or made the use of atrazine and cyanazine inconvenient in fields with many tile inlets.

The new EPA changes allow growers to apply atrazine or cyanazine around tile inlets without a setback if: the herbicide is incorporated immediately to a depth of 2 to 3 inches; or if the products are used in no-till combined with high crop residue management practices. If either of these practices is not followed, then the 66-foot setback around standpipes remains intact.

Manufacturers of these products have been notified to prepare supplemental labeling that describes these changes. You must have this supplemental label to use any atrazine or cyanazine product in this way or it will be considered a label violation.

In the announcement of these changes the EPA stated that they are very concerned about the contamination of water resources with the triazine herbicides. They will continue the special review of these herbicides and it is possible that new restrictions may be implemented in the future to protect water sources.

Contact: Maryann Redelfs, Agronomy/Information Technology Specialist
Source: Bob Hartzler, Iowa State University Extension

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Cyanazine Phase Out

DuPont and EPA reached an agreement to gradually phase out cyanazine, starting in January 1997. Maximum usage rate dropped from 6.5 pounds of active ingredient per acre to 5.0 pounds. The limit will drop to 3 pounds on January 1, 1998.

Supplies that remain after December 31, 1999 can be used at the restricted rate until December 2002.

Average application rates on corn are approximately 2 pounds per acre and were used on 17% of the corn crop in 1995. Cyanazine is found in Bladex, Extrazine II, Cy-Pro and Cy-Pro-AT.

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Charitable Contributions of Farm Raised Inventory

Contributing raised commodities to a charitable organization could provide you additional tax advantages. To a nonprofit charitable organization, there is no tax consequence from the receipt of $x,xxx of cash or commodities. However, if you are a cash basis farmer, there can be a substantial difference in the tax consequences.

The tax advantage results from the fact that the farmer-donor does not recognize any income from the gift transfer of inventory. The IRS has ruled the gift of raised farm commodities by a cash basis farmer represents a transfer of an asset, rather than the "assignment of income."

For farmers who use the standard deduction instead of itemizing, the charitable contribution of inventory removes this potential income from taxation. Also, whether you use the standard deduction or itemize, if your farm income is less than the self-employment earnings cap, the charitable gift of inventory will also reduce your self-employment tax liability. Thus, farmers gifting inventory to charities reduce their liability on federal and state income taxes and possibly on self-employment taxes.

The following are key factors for effective tax savings from charitable gifts of inventory:

  1. you must be a cash basis taxpayer;
  2. the gift must be of material participation inventory (you must have materially participated in the production of the commodity);
  3. gift prior year production (giving current year production reduces the deductibility of certain production costs) and
  4. title and control of the commodity must be transferred to the charity.

The direct transfer of raised inventory to a charity can provide for a substantial tax savings. However, the "i's" must be dotted and the "t's" crossed! Therefore, the review of this strategy with your tax consultant is advised.

Author: Parman Green, Farm Management Specialist

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Build a Better Shoe Box
Farm Business Management Records

No other tool available on most farms can contribute as much to business success as the farm record system. A good farm record system provides information about what happened in the farm business year and can be the best estimate of what may happen next year.

Cash income and expenses as reported on the tax return are relied upon too often as the measure of what is happening financially in the business. Cash transactions are poor indicators of business health because they do not include depreciation and changes in inventory. Depreciation and changes in inventory can convert an apparent profit on a cash basis to an actual loss.

Good farm accounting packages should provide the following financial reports: balance sheet (net worth statement); cash flow; and accrual profit/loss statement. Net worth changes indicate the long-term financial health of the business. An important role of the cash flow statement is its use in developing a projected plan for the next business year. The profit/loss statement reports business profitability. A good package should also provide methods for business production analysis (such as enterprise analysis).

Author: Don Utlaut, Farm Management Specialist

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University ExtensionAg Connection - March 1997
http://outreach.missouri.edu/agconnection/newsletters/is-97-03.htm -- Revised: March 20, 1997
daydr@missouri.edu