The Top 2 Percent

These days, we hear more and more about “The Top Two Percent”, those Americans, according to the President, who need to be paying more in taxes to help balance our budget. American farmers, who happen to also be two percent of the population, are caught in the crossfire of this claim. Now, I could go on and on about how Obama’s second term is going to hurt small business; but I’m going to focus on the main point: taxes. You see, family farms like mine are also small businesses, and, due to our wonderful tax system, are taxed as such. Let me explain...

Most family farms, like mine, are incorporated into what’s called a LLC (Limited Liability Corporation). Now, an LLC is a great way to operate; it gives you some liability protection from lawsuits, and if your business does fail, it can help keep you from loosing everything you’ve ever made. But there is a bad part of LLC’s: the taxes.

Now, LLC owners, like most Americans, file a 1040 with income and expenses. So let’s just use some simple examples. Right now, President Obama wants to raise the tax rates on the “top 2 percent”--those who earn over 250,000 a year--substantially. That will cost family farms millions, and hurt folks like me who are trying to earn an honest living, and provide jobs to others. See, when I file taxes, I have to attach what’s called a “schedule F” to my 1040; it shows how much farm income is passed on to me. Let’s say my farm “makes” 200,000 dollars in profit. Now, anyone who owns a business can tell you, you never, NEVER, actually “make” that. That’s what you show on paper; in reality, you may not have paid yourself anything, or maybe only a few thousand dollars; you’re constantly reinvesting in your business. But that doesn’t matter; according to the IRS, you made 200,000 dollars. Now, if your spouse works in town, as mine does, and has a good job, you can eclipse 250,000 pretty fast. 

This rhetoric about “top earners paying their fair share” is a killer. I can tell you right now, we are sitting on capital, as many small business owners are, because we are unsure about what the future holds in terms of taxes, regulations, ect. Regulations like Dodd-Frank have made it harder and harder for the small town banks to lend us money to operate, forcing us to keep more cash on hand. Instead of spending hundreds of thousands of dollars with local contractors build more grain and fruit storage, we’ll sit on our hands and see what the future holds. 

This isn’t just in farming, folks. This is happening everywhere.

Elections have consequences, and we have to live with the will of the majority. Unfortunately, I believe far, far too many in that majority have never signed the front of a paycheck, balanced the books, and paid the taxes. But, if you understand what I’m saying, and if you agree that we need to keep small businesses hiring and growing, please, take the time to talk with your congressperson about this issue. 

Jeff VanderWerff is a 4th generation farmer from Sparta, Michigan. When not ranting about politics, he raises corn, wheat, soybeans, apples, and peaches. You can find him on YouTube at www.youtube.com/agsalesman

Free (corn) Markets

Just incase you’ve been living under a rock for the last 3 months or so, the Midwest, hell, the whole country, has been gripped by a massive drought, which has crippled yields, especially for corn and soybeans. In fact, the crop failures are so massive, that corn and soybean “futures” (prices) have reached record levels; and those costs, unfortunately, will in some way be passed on to the consumer. 

It’s not that we want to charge you more, but our hands are tied. The corn cattle and chickens eat is more expensive; same goes for the soybeans that pigs and dairy cows consume. And then, there’s the pink elephant in the room: 

Ethanol.

Many, many grain famers, like myself, sell some of their corn for ethanol production. Now, there is a by-product, called DDG, that is fed to cattle in place of “whole” corn, so it’s not a total net-loss for feed. However, that hasn’t stopped several livestock groups and some producers from calling for a “waiver” for the amount of ethanol the government says we need to put into our gasoline.

Now understand, I’m writing this from the perspective of a grain farmer; but I’m also writing as a consumer of meat and dairy products. What I have the biggest problem with, in this whole “waiver” debate, is that the government is picking winners and losers, and when that happens, we all loose.

If we allow the government to shut down ethanol production to satisfy the demands of livestock producers, then what about the inverse? When corn prices crash, can we demand an increase in ethanol to prop up my industry? How about then dairy prices drop; should we control supply with a national quota system? The same quotas could apply to pigs, turkeys, ect. 

If we head down this road today, we are asking the government to take away our rights to free markets tomorrow. 

I’m not going to propose a solution to this issue; I know folks at all corners of this table who are struggling, and who have strong opinions. The larger question I simply want to ask, is, are we as farmers and ranchers ready to give the government this much control over the principals of free market economics that we all thrive under??

Jeff VanderWerff is a 4th generation fruit and grain farmer from Sparta, Michigan. To learn more about his family farm, and the drought, visit www.youtube.com/agsalesman

Bailouts, Handouts, and Crop Insurance

So there seems to be a lot of confusion out there by many people, including people who I believed understood how this system works for farmers. In the spirit of full disclosure, the numbers I’m sharing are generalized, and this blog is going to be long...so bail now if you’re not into understanding economics, farm finance, and insurance.

People often see or hear about a crop loss, in this case fruit, and wonder about the “bailout” the farmers will receive. Well, first off, there is no bailout. My farm isn’t GM, and I don’t have union clout to demand help. The government does provide disaster payments, so I’ll address those first.

When you hear about a farmer receiving a disaster payment, some would have you believe that a USDA or FSA (Farm Service Agency) person shows up at the farm, says “well Jeff, how bad was it?” and whips out a check for a couple of hundred grand. Let me impart some reality on you; we last had a major freeze event in 2010. Joe and I lost about 1/2 of our crop that year, and the government declared a disaster for our area. That started a going-on-two-year bureaucratic nightmare that still hasn’t resulted in my seeing a single damn dime of money. Is the government going to just “mail me a check”? Probably, but who knows when; if it was really that dire, I’d be bankrupt looonnnngggg before those ultra efficient government employees decided to act. Oh, and the amount? Probably about 20 or 30 thousand dollars which yes, sound like a lot, but when your farm has gross revenue north of 300 thousand a year, it’s peanuts.

So that brings us to crop insurance, which most of us have, and all of us support. So here’s the basic rundown of how it works; every year in October, I have to decide if I want to have insurance for the next year; keep in mind, I’m still picking my current crop and now I need to start making decisions about my NEXT crop. And if I do want insurance, you pay now. Upfront. Like, 20 grand. And no, they don’t except monthly payments, food stamps, or American Express. It’s cash on the dash if you want to play. So let’s say we do have that catastrophic loss that we saw this year; first, it’s not like car insurance. They don’t run out, look at the damage, and pay. They wait; we MIGHT see an adjuster by July or August. And the check? Probably October 1, best case. So every year, you write this check, hoping you don’t freeze, or have hail, but if you do you have your crop insurance. Payday, right? Well, check out the math....

So here’s where the rubber meets the road. How much insurance money comes in, versus how much it costs to keep the lights on. So here it is:

Crop insurance revenue: roughly 1100 dollars per acre; I farm about 120 acres.

Cost of sprays, trimming, mowing, and maintenance: around 1300 dollars an acre.

Cost of payments for such minor things as: land, bank loans, machine payments, insurance, utilities, ect: around another 75 thousand dollars a year.

So do the math: at the end of the day, even this this “huge payout” I’m loosing my ass. Plain and simple. Crop insurance isn’t about a “giant payday”, it’s about keeping the wolves away and hopefully living to fight another day. 

And here’s where the shit really hits the fan; we have NO apples. NONE. ZERO. ZILCH. Ok, well, I did find enough for a pie the other day, but that’s about it. See, normally, a loss of 1/2 the crop would trigger an insurance payment; or a hail event would trigger it. In either case, you still have some apples to sell, for something. Even we lost 1/2 the crop, we’d have enough to sell, with the insurance proceeds, to break even. Not the case this year; the crop insurance check I’ll receive this fall is the only revenue my farm will have until about October....of 2013.

So let me put it in real terms for most people: you make 100,000 dollars per year. Due to a disaster, you aren’t going to receive your pay, but you have insurance. In the analogy, you would be receiving about 40,000 dollars. Could your family live on that? Think you’d have to cut back on anything? 

Right now, the farm bill is being re-written; the main debate focuses on direct payments and crop insurance. This farmer supports eliminating direct payments, and improving crop insurance. I hope you’ll do the same.

What's in a (local) name?

 So on our weekly trip to Meijer this week for groceries, Alyssa and I did our typical stroll through the dairy case for a few items, and to look at food in general (yeah, exciting life I live), when we made this discovery.

Now, at first glance, you say, wow, great, local, Michigan brand cottage cheese!! Finally, I can support a local brand for my cottage cheese needs!!










So, you spin the container around, and you see this....

Ohio, you say!??! What the hell, I thought this was a Michigan product!??! Ohio!??!

So you read down a little further, and you start seeing this plant number codes...

Plant Codes Here ^^^^

So what exactly are plant codes?? Well, my friend, the plant code tells you exactly where the product came from, mainly incase there is ever a recall. But for our purposes, it's going to tell us where the product was made, and most likely, where some of its ingredients came from. In this case, it came from plant 26-330. Using our handy-dandy link to the FDA's website we see that the first numbers, 26, signify a Michigan plant. The second numbers, 330, are the plant code; plant 330 is the Country Fresh plant located in Grand Rapids. This plant uses milk from many of my neighbors, and a lot of milk from West Michigan in general.



Same product, same plant, same milk.

The "Michigan" brand: 3.99

Country Fresh brand: 2.49

Just because the label says where it came from, in this case Ohio, that doesn't mean it actually came from there. When in doubt, check the label, and if you're still unsure, do a little research. The information is out there.

Dale Carnegie: More important than John Deere

Right now, there seems to be a lot of debate, some quite heated, within the ag community as to how we should or should not be connecting with consumers. We've started hearing words like "agtivist", which would imply that we have left the relm of rational discussion, and moved into the world of extremism.

I would disagree with that.

In nearly ten years on the road in sales, I becase a deciple of the teaching of Dale Carnegie. The Carnegie teachings of how to Win Friends, and Infulance People literally changed my life and the way I interact with people. That said, I belive strongly that we can't use a one-way approach to talk with consumers about what we do; they don't want to be told, they want to have a dialouge. However, we need to recognize that there are people who will confront us, question us, and villify us who have zero interest in polite conversation.

I think back a couple of weeks ago to the Chipotle commercial issue; now, if a person saw that ad, had questions, and is truely interested in a conversation about what they saw and didn't understand, I'm all in. I'll spend hours trying to explain what we do, and how we do it, as long as your willing to listen. However, when you come out swinging with the typical "factory farm" and "corperate ag" remarks, I'm going to get defensive. At that point, you've pretty much shown me your not interested in a discussion, your interested in causing trouble.

Now, there are those among us that believe we can win everyone to our way of thinking by holding hands and singing a little song; but I'm more of a realist. When you really cut down to it, 20% are for us, 20% are against us, and 60% are in the middle looking for real answers; and it's that 60% I'm after.

Conversation with consumers is valuable, and it's a necessary part of what we do now as farmers; just make sure that when you're talking, your audience is listening.

Priorities.

Like all farmers, we spent the last couple weeks of a successful year talking about what to do with the fruits of our labor (that would be profits, which can be rare in the farming world) and decided to come up with some priority items for 2012. Now, I’ve heard lots of chatter from other farmers about the new combine or tractor they wanted to pick up, or about pre paying for some of their fertilizer for next year. Our list, however, looked a little different.

Item number 1 on the 2012 goals list: obtain MAEAP (Michigan Agricultural Environmental Assurance Program) verification. For those that don’t know, this is a voluntary, grower-initiated stewardship program under which your farm goes through an extensive third-party audit to certify that you are using the best environmental stewardship practices. It can be costly, and is time-consuming, but it is worth it to know we are doing everything possible to protect our natural resources. We needed to complete a couple of major items before we could proceed, so that’s where the money went first.

Item number 1: New orchard sprayer. Our old sprayer worked, but this new machine is the most state-of-the-art sprayer available. It will allow us to better control where we spray, and also allow us to use lower use rates of our pesticides, because the coverage is so much better. Expensive, but very, very worth it.

Item number 2: Fuel containment diking and a loading pad. Now, this is something that we could have applied, and waited around for, government conservation funding, but this is important. We decided to make it a priority issue, get it built, and move on. In reality, this was the one major item that was holding our verification up, so now we should have no trouble obtaining our certification.

When it comes down to it, we will end up making the same business investments that other farmers make; more grain storage, maybe a newer semi tractor, or a even a new combine. But right now, we’re going to make sure we’re doing whatever it takes to protect our natural resources, because at the end of the day, if we don’t have our land, then that combine is going to be a really expensive lawn ornament.