Economic and Policy Update

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Economic & Policy Update

April 26, 2016 Volume 16, Issue 4

Decision Tool for Hauling Grain to Market

Edited by Will Snell & Phyllis Mattox

While hauling grain to the market is the last input cost in the production of grain it can be the most critical decision a producer has to make, especially when margins are thin.

Determining which market to sell your grain (if you have options) can be a complex decision. Should I sell my grain to the closest elevator or should I haul it a further distance to receive a price premium? What market you choose not only will determine the price you receive but will also determine the cost associated with hauling. The market that provides the best price may not always be the most profitable option. The balance between maximizing the price per bushel received from the buyer and minimizing hauling costs could be the difference between making a profit that year or being in the red.

Decision Tool for Hauling Grain to Market - Jordan Shockley Modest Changes in 2016 U.S. Burley Contract Volume and Prices - Will Snell How Different are Kentucky Millennials from their Parents?

- Brett Wolff - Tim Woods - Jairus Rossi

There are many factors that will impact the cost of hauling grain and determine the most profitable option. Those factors include: grain price, hauling distance, fuel price, wait time, quality discounts, and truck capacity. It is common for most producers to make their market decision based on only one of these factors. However, all of these factors need to be considered when determining the most profitable market option.

To aid in this decision, a Microsoft Excel tool has been developed to help producers choose what buyer to sell their grain based on the factors listed above. By entering the required inputs into the tool, the estimated hauling cost and net grain price received is calculated for each buyer (up to 6 buyers) and the buyer with the greatest net price is determined. In addition, the discount schedules for each buyer are determined based on moisture levels and the buyer’s discount method. The decision tool can be found on the website http://www.uky.edu/Ag/AgEcon/shockley_jordan.php, And is titled “Grain Hauling Decision Guide”. In addition to the Excel based tool, a grain hauling app for your iPhone or Android devices is currently being developed and should be available for download in the coming year.

Jordan Shockley, Jordan.shockley@uky.edu

What is Self-Employment Tax? - Laura Powers Our Land-Grant Values: The University of Kentucky College of Agriculture, U.S. Meat & Poultry Exports are Projected to Rise - USDA Economic Research Service

Food and Environment was founded as, and remains a land-grant institution, committed to improving the quality of life for Kentuckians. Our research, teaching, and extension programs are part of a national system that maintains a statewide presence and links local, state, and global issues. Agriculture, food, and environmental systems are key components of Kentucky's economic future, and the college is playing a prominent role in those areas with its programs.

Educational programs of Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin.

UNIVERSITY OF KENTUCKY, KENTUCKY STATE UNIVERSITY, U.S. DEPARTMENT OF AGRICULTURE, & KENTJCKY COUNTIES, COOPERATING.

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Modest Changes in 2016 U.S. Burley Contract Volume and Prices The global burley supply/demand balance has improved greatly over the past year resulting in modest changes in U.S. burley contract volume for 2016, following significant reductions in 2015. Smaller crops in South America, Africa and the United States. coupled with a surprising modest increase in U.S. cigarette production helped offset the impacts of a strengthening U.S. dollar on U.S. burley international competitiveness. Globally, world burley production is down around 20 percent over the past two years. USDA’s March 2016 planting intentions report did indicate U.S. burley tobacco growers are expected to increase planted acres 5% in Kentucky, but were flat across Tennessee and the entire U.S. burley belt. Assuming average yields, the planting intentions report would yield a 2016 crop around 165 million pounds (vs 145 million pounds in 2015 and 213 million pounds in 2014), which would likely be in the neighborhood of anticipated U.S. burley leaf export and domestic use for the 2016-2017 marketing year.

State

2015 Acres

2016 Planting Intentions

% Change

KY TN PA VA NC U.S.

58,000

61,000

12,000

12,000 4,000

+5% 0% -15%

1,200 950 79,150

-8% -5% 0%

4,700 1,300 1,000 78,900

Source: USDA Prospective Plantings Report (March 31, 2016)

Source: USDA Prospective Plantings Report (March 31, U.S. burley contract price schedules vary among the buyers, but generally indicates slightly lower contract prices for crop. U.S. burley prices have averaged around $1.95 for the past two growing seasons, compared to $2.06 in 2013. Accounting for inflation, U.S. burley grower prices have declined by more than 20% relative to the preU.S. burley price vary among but generally slightly lower contract prices for buyout era. contract Although the schedules value of the U.S. dollar the hasbuyers, weakened slightly in indicates recent weeks it has more than doubled its the 2016 crop.toU.S. burley prices around for thereduction past two growing seasons, compared toversus $2.06 value relative the Brazilian real have since averaged 2012 resulting in $1.95 a significant in U.S. burley competiveness in 2013.

Accounting for inflation, the all-important Brazilian leaf. U.S. burley grower prices have declined by more than 20% relative to the pre-buyout era. Although the value of the U.S. dollar has weakened slightly in recent weeks it has more than doubled its value relative to the Brazilian real since 2012 resulting in a significant reduction in U.S. burley competiveness versus the allGRADE BUYER important Brazilian leaf.

1 2 3 4 A $1.97 $1.87 $1.69 $1.02 B $2.06 $1.97 $1.89 $1.24 C $2.04 $1.99 $1.86 $1.48 D $2.04 $1.98 $1.88 $1.45 E $1.98 $1.87 $1.69 $1.23 F $1.96 $1.83 $1.62 $1.09 2016 AVG. $2.01 $1.92 $1.77 $1.25 2015 AVG. $2.02 $1.93 $1.77 $1.32 2014 AVG. $2.05 $2.01 $1.89 $1.40 2016) the 2016

2016 vs 2014

-$0.05

-$0.09

-$0.12

-$0.15

BUYER GRADE Fuel and fertilizer prices will be lower for the 2016 growing season, but labor (which accounts for nearly 50 percent of 1 2to increase.

3 4 labor costs, coupled with anticipated flat prices will require better production costs) continues Higher yieldsAand quality$1.97 leaf to insure for the$1.02 2016 crop. $1.87 profits $1.69 LaborCreform remains issue for $1.48 tobacco growers, but don’t anticipate any policy action in this $2.04 an important $1.99 $1.86 Presidential election year.

Other key items to monitor are changes in the U.S. exchange rate, FDA action on tobacco D $2.04 $1.98 $1.88 $1.45 regulations, federal crop insurance reform, and how tobacco leaf and products are treated in U.S. trade agreements.

Will Snell, wsnell@uky.edu

UK Ag Economist, April 2016

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How Different are Kentucky Millennials from their Parents?

Part of the 2015 Kentucky Food Consumer Survey compared food behaviors and values of Millennials and older adults. The tables below summarize some of the results that may be helpful to Kentucky producers and vendors struggling to understand the patterns and preferences of younger customers.

Monthly Frequency of Food Behaviors, Millennials vs. Older Adults Food Related Activity Breakfast at restaurant Dinner at restaurant Eating in the car Eat processed snack foods Eat processed food for meals Read nutrition labels Eat salads Discuss nutrition with friends and colleagues Buy organic foods Buy food marketed as locally produced Prepare dinner at home Preserve food by freezing (times per year) Preserve food by canning (times per year) Visit a farm (times per year) Buy food directly from farmers or farmers market (times per year) Fruit and Vegetable Intake (servings per day)

Millennials†

Older Adults†

1.6 3.8 2.9 6.1 5.9 7.0 5.2 3.8 3.1 4.0 15.8 7.1 2.3 2.1 3.6

1.4 3.1 2.1 5.2 5.0 6.0 5.7 2.6 2.3 3.8 17.2 6.6 2.1 2.0 4.0

4.1

5.0

t-test‡ *** *** *** *** *** * *** *** *

**

† Values indicate average times per month group members engaged in the activity. ‡ t-test statistical significance between mean group responses reported at 90% (*), 95% (**) and 99% (***) confidence levels.

Millennials reported here as participants born after 1980.

Factors Affecting Food Purchasing Choices, Millennials vs. Older Adults Food Purchase Factors Health Concern Lose Weight Engaged with Like-Minded Helping Environment Support Local farms Access to better Quality Food Access New Food Varieties Help Family Eat Better Knowledge about Food Production Felt Organic Was Safer

Millennials†

Older Adults†

t-test‡

3.9 4.4 3.3 4.1 4.6 5.4 4.6 5.5 4.8 3.9

4.1 4.3 3.1 3.9 4.6 5.2 4.5 5.3 4.5 3.5

*

* ** ** ***

† Values are group averages from a Likert scale of 1-7 with 1 = "less of a factor" and 7 = "a significant factor". ‡ t-test statistical significance between mean group responses reported at 90% (*), 95% (**) and 99% (***) confidence levels.

Millennials reported here as participants born after 1980.

Source: T. Woods & J. Rossi, 2015 Kentucky Food Consumer Survey; N=502 Brett Wolff, brett.wolff@uky.edu Tim Woods, tim.woods@uky.edu Jairus Rossi, jairusrossi@uky.edu

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What is Self-Employment Tax? As tax season concludes for another year, it seems more people have been asking about self-employment taxes… what are they, what types of income are they based on, will I ever be eligible for social security. The selfemployment tax is the sum of Social Security and Medicare taxes (totaling 15.3%) owed on earned income. It is the same tax that employees (wage earners) pay through payroll deductions from their employers. Wage earners pay half of the Social Security and Medicare taxes while their employer pays the other half. Similarly, after calculating the full amount of the self-employment tax, the self-employed are able to deduct one-half of the selfemployment tax on the 1040 form as an adjustment to gross income.

Only earned income is subject to self-employment tax. According to the Social Security Administration, you are self-employed if you operate a trade, business, or profession either by yourself or as a partner. If your net earnings (gross revenue minus allowable expenses) are at least $400 in a year, then you must report those earnings as self-employed income on Schedule SE. Not all sources of income are considered “earned income” and subject to self-employment tax. Unless you are a lender or a broker, dividends and interest are not subject to self-employment tax. If you have rental property, unless you provide “substantial services” as a part of your rental agreements, rental income is excluded from selfemployment tax. Other examples of income not subject to self-employment tax include retirement income, social security, unemployment benefits, alimony, and child support. Additionally, members of certain religious sects are exempt from self-employment taxes.

If your business has a net operating loss (NOL) carryforward from a previous year, you will be able to reduce your gross taxable income by that loss, but the NOL will not reduce net earnings as they used to determine your selfemployment tax. In other words, your NOL may reduce income taxes owed, but it will not reduce selfemployment tax owed.

The question of when one can begin collecting social security has many “ifs and thens” and requires a more thorough discussion than what is allowed for here. Basically, however, you can begin collecting your full amount of social security retirement benefits at your full retirement age. Full retirement age varies with the year in which you were born. If you were born before 1937, full retirement age is 65. For those born after 1937, the retirement age increases. Currently, if you were born in 1960 or after, your full retirement age is 67. You can however begin PAGE collecting at age 62 but with reduced benefits. One can also8delay receiving social security benefits past full PAGE retirement age (up to age 70) and increase their benefits.

For5 more specific information about social security and the amount of benefits you may receive, go to www.socialsecurity.gov/estimator.

Laura Powers, laura.powers@uky.edu Area Extension Specialist Farm Business Management (KFBM) Pennyroyal Farm Analysis Group

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PAGE 5

Precision Conservation Management Program Announced

Economic Research Service United States Department of Agriculture U.S. meat and poultry exports are projected to rise

A strengthening U.S. dollar coupled with poultry trade restrictions related to highly pathogenic avian influenza (HPAI) led to a reduction in U.S. meat and poultry exports in 2015. However, U.S. red meat and poultry exports are expected to rise over the next decade as steady global economic growth supports demand for high-quality animal proteins.

Poultry is the largest U.S. meat export category, and broiler export growth is expected to resume over the next decade with strong nearterm gains reflecting a rebound from HPAI-related import restrictions.

China and Mexico are major US broiler export markets. U.S. pork exports are projected to continue rising, with Pacific Rim nations and Mexico among the key growth markets. U.S. beef exports are projected to grow as well, consisting mostly of high-quality, grain-fed beef shipped to Mexico, Canada, and Pacific Rim nations. This chart is from the interagency USDA report, USDA Agricultural Projections to 2025.

http://www.ers.usda.gov/data-products/chartgallery/detail.aspx?chartId=57095

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Precision Conservation Management Program Announced

University of Kentucky Department of Agricultural Economics 315 Charles E. Barnhart Bldg. Lexington, KY 40546-0276 Phone: 859-257-7288 Fax: 859-257-7290 http://www.uky.edu/Ag/AgEcon/extbluesheet.php

Economic & Policy Update View all issues online at http://www.uky.edu/Ag/AgEcon/extbluesheet.php

Educational programs of Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin.

UNIVERSITY OF KENTUCKY, KENTUCKY STATE UNIVERSITY, U.S. DEPARTMENT OF AGRICULTURE, & KENTJCKY COUNTIES, COOPERATING.