Show-Me-Select Heifers

The December 8, Show-Me-Select Bred Heifer Sale will be the fourth sale to be held at Palmyra. Our area was one of the two areas in the state to start this replacement heifer program in 1997. The program is proving to be beneficial to both the cooperating herds and to buyers of the heifers.

The thirty-eight buyers at the Northeast Show-Me-Select Sale were surveyed to see how they got along with the heifers they purchased. Thirty-six of the 38 buyers returned their surveys. This represented over 500 head of Show-Me-Select heifers that calved in the spring of 2000.

Out of the 512 head only 51 head were assisted in any way at birth. That is only ten percent. The national average for first calf heifers being assisted at birth is about 22 percent. Of the 51 head, ten head were assisted due to abnormal position of the calf, which is something we can't control. So, only eight percent were assisted for reasons we can control.

Only four percent of the calves were lost at birth. Again, the national average is between 8-10 percent for first calf heifers. Seven head of the heifers aborted prior to calving time. So, 95 percent of the Show-Me-Select heifers had a live calf.

Another aspect of the Show-Me-Select heifer sales that many buyers like is the fact we give them estimated, projected calving dates. One thing we were really pleased with this year was that over 90 percent of the heifers calved within two weeks of their projected calving dates.

These results were real similar to results from the first two Show-Me-Select sales held at Palmyra, Mo. The three year average for number assisted at birth is 9.5 percent and number born dead is 3.8 percent. This represents over 1000 head of heifers sold in the three years we've been having a sale at Palmyra.

The following was taken from Ron Plain’s Weekly Swine Economics Report.

The hog-corn ratio (the price per hundredweight of live hogs divided by the price of a bushel of corn) has long been used as a quick indicator of the profitability of hog production. It is also a pretty good predictor of future changes in sow numbers. When the hog corn ratio (HCR) is high, hog production is almost always profitable. This inevitably results in an expansion in sow numbers. A low HCR usually indicates financial losses for hog producers which leads to a cut back in the breeding herd.

For recent hog cycles, an HCR above 20 has signaled a coming expansion and an HCR consistently below 20 has signaled a forthcoming cutback in hog numbers. It is usually about five quarters after the HCR goes above (below) 20 before hog slaughter goes above (below) year earlier levels.

Hog prices have spent much of this year in the $40s. Despite these somewhat mediocre prices, the hog corn ratio has been above 20 since mid March. The reason for the high HCR is, of course, low corn prices. Each of the last four years has produced a 9+ billion bushel corn crop and this year's crop is forecast to be a record 10.36 billion bushels. Needless to say, corn prices are very low. For the six months ending in September, the HCR has averaged above 26, the highest average for this time of year since 1987.

With the traditional five quarter lag, one shouldn't expect hog slaughter to go above year levels until the third quarter of 2001, five quarters after the HCR went above 20. USDA's September hogs and pigs report indicates hog slaughter could go above year earlier levels sometime during the first quarter of 2001. My calculations, based upon gilt and sow slaughter, indicate barrow and gilt slaughter is likely to go above year earlier levels at the start of 2001.

Why a quicker than average response to a high HCR? My explanation is that the hog industry currently has a bias towards growth. Pork production per sow has been increasing by 3% per year recently. This is double the historic rate. Unlike pasture systems, modern hog facilities are too expensive to run half full. Finally, there are a lot of producers who feel they need to be bigger to remain competitive.

Hopefully, historic relationships will win out again and hog slaughter will stay below year ago levels until the fall of 2001. But, don't be surprised if we are close to the end of the current down phase of the hog cycle.

Whole Soybeans & Beef Cows

Some of my co-workers have run some field trials the past two winters on feeding whole soybeans to beef cows. The idea is to see if unsaturated fatty acids (vegetable oils) will enhance the reproductive efficiency of the beef cow. Whole, non-processed soybeans contain 18% fat and 38% protein.

They have fed 3.5 pounds of whole soybeans per head for 30 to 45 days prior to calving. Yes - prior to calving not breeding!! The control cows were fed a comparable ration of corn gluten and soybean meal for the same period. After calving the supplemental feeding was stopped.

The results were that both first service conception and overall pregnancy rate was increased by feeding the whole soybeans. On the average of three trials the first service conception rate was 17% higher for the soybean fed cows and overall final pregnancy rate was 6% higher.

Another way of looking at it is if you had 100 cows you would have 17 additional calves that would be 21 days older at weaning and you would have 6 more total calves at weaning. I guess I would not expect these results in all cases, but with the present price of soybeans, it may be worth considering.

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Hobby loss is an often misunderstood area of taxation, causing worry to the taxpayer involved in a business. Congress sets rules which state that in order to deduct expenses in excess of income for a given venture, you must be engaged in that venture for profit. Profit is defined as income greater than expenses, where expenses include depreciation of capital assets. The rules on hobby loss provide an objective standard to determine whether a taxpayer has a legitimate business operation or is attempting to generate tax losses to offset other income. If there is no intent to make a profit, the IRS assumes the activity is a hobby and will disallow deduction in excess of income. The general test to measure profit motive is whether the activity has generated a profit in any three out of five consecutive tax years. If the activity deals with breeding, training, showing, or racing horses, the test is any two out of seven years. While many taxpayers are aware of this general test, it is usually as much information as the average taxpayer knows. For the struggling business owner whose business venture is not showing a profit, it is often a concern that the IRS will follow the general test and disallow all deductions. However, there is more information available to help the taxpayer in this situation.

The "hobby loss" profitability test of three out of five years (or two out of seven for horse breeders) does not determine whether a business will be considered a hobby by the IRS. This test only allows the IRS to look at the business in more detail. Until the test of failing to show a profit for the stated number of years is met, the IRS cannot question the profit motive. Once the business has to show a profit in three out of five years (or two out of seven for horse breeders), the IRS can look at the business. This does not automatically mean they will, only that they can. In addition, the test does not automatically determine whether a business should be considered a hobby, but rather that the IRS can examine it in more detail.

The actual decision of whether a business has been operated with a profit motive is based on all facts and circumstances. There are nine factors set forth in the IRS regulations to be used as guidelines – no one factor or group of factors will determine the outcome. It is a subjective judgement call where all facts are taken into account. However, the taxpayer can protect himself or herself by being aware of these nine factors and using them as guidelines. Most importantly, the taxpayer can further be protected by keeping good records.

1. If it looks like a duck and sounds like a duck, it is a duck. Is the activity carried on in a business like manner? If the taxpayer keeps business like books and records, changes methods of operation that are not working, tries to use new techniques of profit-making ventures to increase efficiency and profitability, or even abandons a business venture that is going nowhere, the profit motive may be indicated.

2. Can you take advice? What is the expertise of the taxpayer or his or her advisors? The taxpayer should be able to show that he or she has studied the accepted practices of the venture engaged in and/or has sought advice from experts in the field. In other words, he or she has read books, taken classes, paid advisors, and taken their advice. If the taxpayer has gotten advice and information and has operated in a completely different manner, he or she should be prepared to show that an attempt has been made to develop new practices which could result in profit.

3. Are you spending time here? How much time and effort are being expended by the taxpayer in this business? If the taxpayer is spending significant personal time and effort on the activity, it can indicate a profit motive. Employing competent persons to run the activity for the taxpayer may also indicate a profit motive.

4. Is anything here worth money? Are the assets expected to appreciate? Overall profit could be reasonably expected from an increase in land value, cattle, or other assets, even if operations of the business are not showing a current profit.

5. Have you done this before? Has the taxpayer been successful in carrying on similar activities for a profit? If the taxpayer has carried on similar activities in the past and turned them from unprofitable to profitable, a profit motive could be assumed.

6. What’s been happening here? What is the history of income or loss? Are losses mainly a start-up situation, or have they been sustained beyond a reasonable length of time? If there have been unforseen circumstances beyond the taxpayer’s control, such as drought, fire, theft, war, depressed market conditions, etc., the reasonable length of time for loss could be extended. Again, good records would help support this type of claim.

7. Have you made any money? What profits, if any, have been earned? The occasional small profit from a venture offset by persistent losses would probably indicate there is no profit motive. A solid profit, though infrequent, or a reasonable opportunity to achieve an eventual profit might support the taxpayer’s profit motive.

8. Are you making money doing anything else? What is the financial status of the taxpayer? If there is no substantial income from other sources, it is a good bet the activity is meant to generate a profit. However, the presence of other income, especially during the start-up period of a venture, shows good planning and would not negate the profit motive.

9. Are you having fun? The presence of personal pleasure in an activity has often been used by the IRS to claim an activity as a hobby. However, the other factors mentioned in this article are also taken into consideration by the courts. The fact that a person enjoys a business in not sufficient to disallow the profit-making motive.

If you have taken a class related to your business, consulted with an accountant or business expert, or bought a book, keep the receipts. If you have taken advice and changed a method of operation to improve efficiency, write it down. If there has been a flood, drought, or disease in the area affecting your business profits, write it down, cut out the news articles, keep records. Record your hours, record your mileage, keep your receipts, and hope you make a profit next year.

This information is provided to educate taxpayers about the income tax consequences of hobby losses. If you need more specific information, or feel your farm or business operation is in danger of being declared a hobby by the IRS, contact your income tax preparer, or the University of Missouri Extension office in your county. Your University of Missouri Extension office can get you in touch with the professional you need.