Wheat Production Reported Down 2% From August

USDA made some small changes in its August forecasts of wheat production in the small grains summary released in its Sept 30 Small Grains Summary Report.

All wheat production in 2010 is now estimated at 2.224 billion bushels, down 2 percent from the August forecast but still slightly above 2009 production. All winter wheat production is pegged at 1.485 billion bushels, HRW at 1.018 b bu, SRW at 238 million bushels and white wheat at 229 m bu. Other spring wheat production increased to 627 m bu, up from 584 m bu in 2009, and durum production totaled 111 m bu, compared to 109 m bu a year ago.

Barley is another small grain in production decline. USDA estimated production at 182million bushels, down 20 percent from 2009, even though average yield is projected at 73.6 bushels an acre, up slightly from last year. Like oats, the barley acres harvested were down 21 percent from 2009, the lowest level since 1882.

U.S. Wheat Exports Highest in 20 Years

USAgNet reports the 2010 crop year is turning out better than expected for many U.S. producers, due to expanding demand for U.S. wheat which is pushing prices higher. USDA is currently projecting exports to reach 1.25 billion bushels, up more than 40 percent from the very low 2009 level and similar to 2007 when exports reached 1.26 billion. Still many analysts feel the latest estimate is conservative and anticipate final exports could rival the 1992 level of more than 1.35 billion.

As of mid-September, of U.S. wheat sales have reached 570 million, up nearly 60 percent from last year, and ahead of the pace needed to reach USDA's goal. Hard red winter and hard red spring have been the biggest benefactors so far. Hard red winter sales are at 265 million bushels, compared to only 125 million a year ago, as they have gained the most by the shift in demand from the Russian export ban. Recently, more competitive prices from French wheat into North Africa and some pullback in other markets, has slowed the weekly sales pace for the U.S., but demand is expected to remain as strong as our rail and export capacity allows.

The U.S. achieved strong yields nationwide on the 2010 crop and overall grade parameters on the hard red crops are high as well, despite below average protein levels on both the winter and spring crops for a second consecutive year. Comparatively, U.S. protein levels are still at the high end of the world wheat mix. USDA's latest production estimate is 2.26 billion bushels, about 50 million bushels higher than 2009, despite nearly 2 million fewer acres. A record national yield estimate of 46.9 bushels per acre is 2 bushel higher than last year. The stronger production and large carryover supplies from 2009 will push available supplies in the current marketing year to 3.3 billion bushels, up from 3 billion last year. Imports are expected to fall to 100 million bushels, compared to 119 million last year, and are likely to drop further, on weaker demand from U.S. millers for Canadian wheat due to a stronger Canadian dollar and a sharp drop in anticipated Canadian quality.

Total demand for U.S. wheat in the 2010 marketing year could exceed 2.4 billion bushels, higher than production and imports, supporting a net decline in year-end inventories. Domestic use is expected to grow to 1.19 billion compared to 1.14 billion last year. Food use accounts for 940 million bushels, up from 917 million in 2009, and feed use should rise marginally to 170 million bushels, compared to 149 million last year.

Year end inventories at the end of May 2011 will remain large at 902 million bushels, compared to a mere 306 million at the end of May 2008, but it is certainly more supportive to prices than earlier projections which had U.S. inventories exceeding 1 billion by the end of the marketing year. Average producer prices are expected to range from $4.95 to $5.65 per bushel, compared to $4.87 last year. Higher protein hard red wheat and higher grades of durum will average more, but the rise in world wheat prices has benefitted all classes. This should make for a strong profit year for most producers, especially when combined with above average yields.

Chicago wheat futures Wednesday slipped to 2-month low

Xinhua News Agency reporsts that Chicago wheat futures Wednesday slipped to 2-month low thanks to improved condition for wheat planting in world's major producers. Soybeans also saw further drop while corns rallied on increased demands.

December wheat fell 0.2 cents, or 3.2 percent, to 6.835 U.S. dollars per bushel. November soybean shed 11 cents, or one percent, to 10.99 dollars per bushel. December corn gained five cents, or one percent, to 5.05 dollars per bushel.

Traders said the ongoing fundamental pressure for wheat mainly comes from improved conditions for winter planting in Russia and U. S. as well as favorable growing conditions in Australia and Argentina

According to weather forecasts, some regions in the west and south of Russia may enjoy 0.2 inch of rainfall on Thursday and eastern Ukraine may get one inch by Oct. 1

Gasoline climbed to a two-week high as a U.S. government report showed an unexpected decline in supplies while manufacturing accelerated for a second month in China, the second-biggest oil consumer. The rally in gasoline will help boost ethanol demand and usage of corn.

Hunger to Become Key Issue in Global Politics

The prices of wheat and other agricultural commodities have risen yet again, following the already significant price increases of 2007 and 2008. According to the Humboldt Forum for Food and Agriculture, these are the early indicators of a latent food crisis, which will hit the world within the next ten years.

"If no decisive action is taken, the prices of key food commodities are likely to be 50 to 100 per cent higher by 2020 than they were at the turn of the millennium. This would dramatically increase the level of hunger and malnutrition, around the world," says Harald von Witzke, president of the Humboldt Forum for Food and Agriculture, an international think tank, headquartered in Berlin, Germany.

Over one billion humans are already malnourished. Every day, 16,000 children die as a result of malnutrition. Even a moderate increase in the price of food would significantly worsen the nutritional status of the poor, who typically have just $1.25 per day or less in purchasing power, with approximately 75 percent of that dedicated to food. This serious situation is set to worsen dramatically as our food needs look set to double in the first half of the 21st century.

According to von Witzke, sustained high food prices would not only lead to food riots, as they did in 2007 and 2008. They also have the potential to significantly increase international migration away from food insecure countries with agriculture becoming a key industry. "The world is running out of time. Both the poor countries and international development assistance have to take swift and decisive action. The neglect of agriculture must end."

Von Witzke's recommendations include investing in agricultural infrastructure and education, and making mineral fertilizer, cropping protection and modern seed varieties available to farmers in poor countries.

Big Equipment Purchases Blessed in New Tax Legislation

DTN news reports a bill approved by Congress in late September revives the popular 50 percent bonus depreciation rule for new equipment that had been part of the emergency stimulus package in 2008 and 2009.

Farmers could harvest sizable tax write offs in a new small-business law, giving extra incentives for end-of-year equipment and truck purchases. The U.S. House approved the legislation Sept. 24, following Senate action earlier this fall, and President Barack Obama signed it into law Monday.

In an effort to jumpstart the economy, Congress raised the threshold on Section 179 expenses from the current limit of $250,000 to $500,000 for tax years beginning in 2010 and 2011. The terms apply to both new and used equipment.

In the past, this deduction phased out as eligible purchases exceeded $800,000, but the new threshold was raised to $2 million. With commodity prices rebounding, and crop yields relatively good, some farmers may be able to capitalize on the extra tax generosity. "Now a lot of grain can be reported as farm equipment on the tax return," said CPA Andy Biebl, a principal with LarsonAllen in Minneapolis and DTN's tax columnist.

The law also revived the popular 50 percent bonus depreciation rule for new equipment that had been part of the emergency stimulus package in 2008 and 2009, but the deal won't last long. The new legislation retroactively extends the 50 percent bonus back to qualified property acquired and placed in service since Jan. 1, 2010, but before Jan. 1, 2011. "This is supposed to be an incentive for taxpayers to buy equipment, but a lot of us can't figure out how effective that will be given that we are here in the last days of September," Biebl said. "It's a sign of the desperation out there."

New vehicles under 6,000 pounds also get a boost. The first-year deduction for a new auto will move from $3,060 to $11,060 and for a light truck from $3,160 to $11,160. Used vehicles purchased during 2010 continue to be subject to the lower caps.

Agricultural attorneys and accountants generally welcomed those new provisions, although with caveats. "Remember, many states do not couple with the federal government on the depreciation provisions," advised Roger McEowen, an Iowa State University agricultural law professor. "The restoration of bonus depreciation and the enhancement of expense method depreciation will further complicate return filing in those states" and may mean producers need to keep two sets of books.

One highly unpopular provision buried in the new tax law applies to landlords. Until now, owners of rental property operating as "passive" investors have been exempt from the requirement to issue a Form 1099 report on payments of $600 or more to service providers. Starting with payments made after 2010, if a landlord spends $600 or more for bookkeeping, painting, repairs or other services, he would be required to issue a Form 1099-MISC to both the IRS and the payee.

The new rules mean "taxpayers with land in the Conservation Reserve Program also would have to file information returns for payments made to farmers that, for example, provide mid-contract maintenance services on the land that totals $600 or more," McEowen said.

When several hundred tax practitioners attending a recent Iowa State University seminar heard the news, they gave a collective groan. "We may see a new industry pop up -- 1099 preparation," quipped Tom Lawler, a Parkersburg, Iowa attorney.

By Marcia Zarley Taylor,
DTN Executive Editor
and
Elizabeth Williams,
DTN Special Correspondent

DC Urban Wheat Field Reaches Members, Public, World Wide Web

The wheat industry came together this week to show the public and Members of Congress the wheat chain from farm to fork at the second Urban Wheat Field.

Wheat Foods Council, a NAWG sister organization, sponsored the event, supported by wheat producers from around the country who flew in to guide visitors through the exhibit.

The display included a quarter-acre of live wheat in pallets, a full-sized combine, multiple demonstration flour mills, a mobile baking laboratory and areas for trade and nutrition education. The event was staffed by more than 60 growers and 20 state organization staff who came in for the festivities, as well as D.C.-based staff from NAWG and U.S. Wheat Associates and experts in the areas of milling, baking and nutrition.

The Field opened Thursday morning with a reception sponsored by NAWG and highlighted by House Agriculture Committee Chairman Collin Peterson (D-Minn.), who cut the ribbon alongside NAWG President Jerry McReynolds, a producer from Kansas, and Wheat Foods Council Co-Chairman David Moore, a producer from Texas.

In addition to Peterson, Members of Congress in attendance included Rep. Jerry Moran (R-Kan.); Rep. Adrian Smith (R-Neb.); Rep. GT Thompson (R-Pa.); and Sen. Michael Bennet (D-Colo.).

On Wednesday, as the Field was being set up, growers and staff from NAWG-affiliated state wheat grower organizations canvassed Capitol Hill with milling and baking colleagues, holding more than a dozen meetings with Congressional staff members who don't frequently hear from wheat growers. Also on Wednesday, Peterson and House Agriculture Ranking Member Frank Lucas (R-Okla.) sent a Dear Colleague letter to their fellow Members describing the event and urging attendance.

During the day Thursday and Friday, multiple school groups visited the field, guided by wheat producers from around the country.

NAWG officers and other spokespeople also talked with members of the media who visited the Field to get the once-in-a-lifetime shot of a combine in front of the Capitol and with many radio stations and newspapers back home. Media covering the Field in D.C. have included ABC and NBC affiliates, USAToday.com, Agri-Pulse and others.

What Will Happen to Estate Tax is Really Up in the Air

The Farmer Stockman reports that there's been a lot of talk in Washington about what should happen to the estate tax. But American Farm Bureau Federation Tax Specialist Pat Wolff says that has not translated into action.

"Everyone here in Washington knows that unless Congress acts the estate tax will come back on Jan. 1 with only a $1 million exemption and a top rate of 55%, that's a tax level we haven't seen in 10 years," Wolff said. "Everybody agrees that something needs to be done before Jan. 1 but the debate is over what should happen, how much estate tax relief should be provided."

Since 2001 the estate tax exemption has been increasing as the rate decreased until it zeroed out at the end of 2009. However Congress didn't finish the job 10 years ago, leaving it to this Congress to keep the tax from reverting to pre-2001 levels.

Wolff says there is nothing certain about what Congress will and won't do. However the House of Representatives have already passed a bill that would set the exemption at $3.5 million with a tax rate of 45%.

"The Senate is where everything is gummed up, but the Senate is also where we think we can do better than the House," Wolff said. "Two very important Senators, John Kyl from Arizona and Blanche Lincoln from Arkansas, have agreed and are trying to get the exemption level up to $5 million."

Wolff says Farm Bureau would like to get rid of the estate tax altogether, but there are simply not enough votes to make that happen. Farm Bureau has stressed to Congress that estate taxes can hit farm families harder than other small business owners because 84% of farm assets are real estate-based.

Meanwhile, a new study has been released by the American Family Business Foundation that indicates as many as 1.5 million additional jobs could be lost if Congress allows the Federal Estate Tax to return next year. The report's author, Douglas Holtz-Eakin, former director of the Congressional Budget Office, says with fears of a double dip recession on the horizon, the last thing America needs is for Congress to threaten family-owned businesses with a huge tax increase, an increase that could put more jobs on the chopping block.

The study concludes that if the estate tax were reinstituted at a 65% rate, more than 1.6 million jobs would be lost. If Congress takes no action and the estate tax returns to the rate of 55%, between 1.4 million and 1.5 million jobs would be lost.