ASFMRA News January 3, 2017

Printer Friendly
Bookmark and Share

Trump and Appraisers: What a New Administration Might Mean

In the run up to the election, we looked at how the candidates’ tax proposals differed, and how they may impact certain valuation dependent areas of the tax code. Now that Donald Trump is poised to become our country’s 45th President, it’s worth looking at his proposals – as well as those of the Republican-controlled Congress – to figure out what impacts might be felt by the appraisal community.

Recently, Chair of the House Financial Services Committee Subcommittee on Housing and Insurance Blaine Luetkemeyer (R-MO) indicated during a November oversight hearing that the appraisal regulatory system may be due for some “tweaks”. Given the tenure of the hearing, one focus may be on the role and responsibilities of the Appraisal Subcommittee. Another area of concern for the subcommittee was on the veracity of automated valuation models, or AVMs. While quality control standards for AVMs were mandated under Dodd-Frank, subsequent changes to that law might further delay or entirely eliminate the requirement.

Another area to pay attention to is efforts by the anti-estate tax community to push for full and immediate repeal of the tax. Such a move would eliminate the need to plan estates around future tax consequences, and could lead to simpler estate distribution methods. Such a reduction in planning needs may adversely affect those who perform valuations in connection with estate plans. Conversely, though, the need for valuations of estate assets upon death may increase as individuals leave larger assets intact without worrying about potential estate tax bills, and instead need to liquidate or distribute assets to beneficiaries.

As for income tax and the role of noncash charitable contributions (including conservation easements), the last plan presented by the President-Elect would cap all itemized deductions to $100,000 for an individual or $200,000 for a couple. Such caps could disincentivize such giving, even with a five year carryover period. Moreover, reductions in both the tax rate and an increase in the standard deduction could reduce the benefit of making such contributions versus selling the item outright. This potential change could reduce the demand for conservation easement and other noncash charitable appraisals.

Congress Opens First Session of the 115th Congress

Both the House and Senate returned to Washington this week to begin the first session of the 115th Congress. House members will re-elect Paul Ryan (R-WI) as Speaker of the House before taking their oaths of office. Committee assignments will be announced later this week. The Senate started its session at noon on Tuesday and is expected to take up a budget reconciliation bill in the near future that will start the process of repealing the Affordable Care Act. The Senate also will begin the process of holding nomination hearings for the incoming Trump Administration’s Cabinet Officers.

No official announcement has been made by the President-Elect regarding who will lead his Agriculture Department, at the time of writing this article. But the press is widely reporting that Sonny Perdue, a former Georgia Governor, will get the nod in the very near future. Trump and his aides have interviewed several others, including former Texas A&M University President Elsa Murano, former Texas Representative Henry Bonilla, Texas Agriculture Commissioner Sid Miller, former Texas Agriculture Commissioner Susan Combs, former California Lt. Governor Abel Maldonado, Idaho Governor Butch Otter, and Senator Heidi Heitkamp of North Dakota, a Democrat.

The 2016 Agricultural Year in Review

2016 has certainly been an interesting year to watch the agriculture economy. David Widmar, ag economist for Purdue’s Center for Commercial Ag, and Brent Gloy, former ag economist with Purdue University have put together a year in review list of the most notable stories in ag economy in 2016. Head-Scratching Net Farm Income Estimates — The USDA initially noted that net farm income for 2015 and 2016 was falling to historic lows, but in August issued estimates much closer to the long-run, real average. The change also made a big difference to sector-level financial ratios. As Brent put it, the “revised updates paint a slightly more favorable picture of a generally unfavorable situation.” One driver behind the change has been the rapid rate at which farmers have pulled back on capital expenditures.

The Year of the Soybean! — Soybeans have been the (almost) only source of excitement and momentum in the grain markets in 2016. A short South American crop sent futures higher late in the spring. Favorable growing conditions then led to a large U.S. soybean crop, but commodity prices have rallied since harvest lows. It’s probably safe to say that soybeans provided an economic boost to a lot of producers in 2016. Learn more.

First 100 Days of Trump and Congress

Republican leaders are teeing up a FY 2017 budget resolution that will be taken up in the first few weeks of the 115th Congress when members return to Washington, DC next week on January 3. As trump-first-100-dayshas been promised, the budget resolution will contain reconciliation instructions leading to the repeal of many, but not all, of the provisions of the Affordable Care Act (ACA) (P.L. 111-148).

One of the main reasons Congressional Republicans are targeting the ACA is because it is unsustainable as constructed. The federal government spends more on health care than any other part of the budget. According to the Committee for a Responsible Federal Budget (CRFB), health care costs in the U.S. “are growing rapidly due to rising per-capita health costs and an aging population. Over the next 30 years, combined federal health spending is projected to grow by 3.3 percent of GDP – from 5.5 to 8.8 percent – explaining more than half the increase in projected deficits.”

Republican leaders are also likely to fulfill a long-time promise to overhaul the U.S. tax code. To do so, they will again employ the congressional budget resolution process for FY 2018 and include reconciliation instructions to make necessary changes to the tax code. More information.

USDA to Allow CRP Termination / Transfer for Beginning Farmers

Starting January 9, 2017, USDA will offer an early termination opportunity for certain Conservation Reserve Program (CRP) contracts, making it easier to transfer property to the next generation of farmers and ranchers, including family members. The land that is eligible for the early termination will be among the least environmentally sensitive land enrolled in CRP. Normally if a landowner terminates a CRP contract early, they are required to repay all previous payments plus interest. The new policy waives this repayment if the land is transferred to a beginning farmer or rancher through a sale or lease with an option to buy. Details on the early termination opportunity will be available starting on January 9, 2017, at local USDA service centers.

FSA and RMA Simplify Cover Crop Reporting

Farmers enrolled in Farm Service Agency (FSA) programs or crop insurance (Risk Management Agency, RMA) will find simplified reporting of cover crop acres for 2017 and a change on cover crops use as forage. The FSA and RMA are simplifying cover crop reporting with shared guidelines and a common form. FSA’s new cover-crop-reporting system offers farmers four choices: cereal/grasses, legumes, brassicas or mixes for reporting purposes.

Also new for 2017, farmers may have livestock graze cover crops or harvest them for forage without FSA counting that as a crop. A farmer needs to report cover crops by one of the applicable reporting deadlines: July 15 for spring-planted crops and December 15 for fall-season crops. FSA and RMA will continue to follow the Natural Resource Conservation Service’s (NRCS) termination guidelines for cover crops. 

Producers Report 2016 was an Unbalanced Year

As 2016 draws to a close, the analysis by many farmers and ranchers across West Texas would mark it down as an unbalanced year. Although it has been perhaps the wettest year in history and crops and rangeland have thrived, the livestock and commodity markets have fallen to historic lows.

Add to that, a drop in land values and farm income declines and agriculture and agribusiness will enter 2017 with mixed signals and limited enthusiasm.

According to the USDA’s Economic Research Service, median household income for farming families remains near historic highs, but that’s because of higher off-farm earnings which have supplemented on-farm income. The higher off-farm earnings are expected to help stabilize losses due to low commodity prices.

Rainfall in the Concho valley and extended region reached above normal totals of more than 35 inches compared to average yearly rainfall levels around 19 inches.

The cattle market has been declining all year, except for some good bounces in the summer where it got higher, but it continued to go down into October like it traditionally does, said Charley Christensen, general manager of Producers Livestock Auction. Full article.

What Does the Fed Rate Hike Mean for Farm Country?

On Dec. 14, the Federal Reserve raised interest rates for the first time since 2008. The hike is expected to be followed by three more in 2017 and forecasts claim this will mean higher borrowing costs in the near future.

Two days after the Fed’s action, Matt Montiero, Senior Vice President and treasurer for Farm Credit Mid-America, spoke with Delta Farm Press about what happened in 2016 and expectations for the new year. Among his comments:

On what 2016 brought farm country…

“In very broad strokes, the lower crop prices haven’t helped with farm income. Of course, that income hasn’t been as strong as in past years when we were at the peak of the ag cycle.

“Sentiments for the next few years are that we’ll remain in that same kind of environment. We don’t see an immediate rebound to crop prices.

“We don’t do any of our own internal forecasting – this is just looking at USDA predictions on crop prices and other external sources.

“Land prices, though, have held pretty firm, all things considered.”

Interest rates

On 2016 interest rates…

“As for interest rates, for a while we expected several increases over the course of the year. We ended up just having the one that was announced Wednesday.

“That was part of an upside, a pleasant surprise to many although it was because the economy wasn’t recovering as fast as the Fed would have liked. But at least the rates, on the short end of the curve, were held low. Learn more.

Farm Profits Have Fallen, But Nebraska’s Rural Areas Still Sprout Pockets of Growth

The outlook may sound bleak for Nebraska’s agriculture-dependent economy as farmers wrap up the third year in a row with falling profits: The decline has economists talking about state budget cuts, rising farm loan defaults and falling land values.

Main Street businesses that depend on farm spending say the picture might be dimmer, but they’re not yet turning out the lights.

Interviews with business owners in the heart of northeast Nebraska corn and cattle country reveal a mixed picture: Some retail shops report strong sales. Some are hustling just to keep the decline to single digits. Others say they’re managing through the downturn, shifting strategies to move where the money is, knowing that what comes down will eventually come back up.

The showroom floor was quieter than usual this month at Big Country Auto in Madison, a town of 2,400 just south of Norfolk, where the shop bulldog, Enzo, carried around a toy, looking for someone to play with. She lumbered past the tires of a $66,875 F250 truck that dealership manager Chad Boettcher would love to sell. Full article.

Energy Companies Plan to Boost Wind Generation in New Mexico

Energy companies are expected to double the generating capacity of wind farms in eastern New Mexico over the next few years, thanks in part to federal subsidies and improvements in technology.

More than a gigawatt of wind capacity is now under construction or planned in New Mexico, said Jeremy Lewis, head of the energy, conservation and management division at the state Energy, Minerals, and Natural Resources Department.

If all of that comes on line, that would be enough to potentially supply nearly 700,000 homes every year.

“The costs for wind and solar have dropped precipitously, allowing a lot more renewable energy to move onto the grid,” Lewis told The Albuquerque Journal. “We’ll see a lot more wind energy connected to our economy moving forward.” Still, some question whether the uptick will be temporary since subsidies will be phased out by 2020 and President-elect Donald Trump’s incoming administration is expected to pursue fossil-fuel development over renewables. Read more.

Wind Energy is Important Economic Development Tool

Attracting new private investment is never an easy task. But by encouraging renewable energy development long before most saw the value, Iowa has now positioned itself as a national leader. After the partisanship of the recent political campaign season, there is an even greater need for our state to highlight the bipartisan nature of this success.

In 1983, Iowa became the first state to recognize the potential of wind energy by establishing a Renewable Portfolio Standard during Gov. Terry Branstad’s first tenure. A little over a decade later, Sen. Chuck Grassley became known as the “grandfather” of the federal wind energy Production Tax Credit for his role in securing the credit as part of the Energy Policy Act of 1992.Together, these forward-thinking policies have given our state a competitive advantage in producing wind energy and are driving economic growth throughout the state and region. Many Iowa communities, including the Greater Des Moines area, are reaping the rewards.

Iowa now generates more than one-third of its electricity from wind power, and the state’s energy rates are the seventh lowest in the country — 22 percent below the national average. The correlation between Iowa’s wind generation and its low energy rates can’t be overlooked. Wind power is frequently the lowest cost source of electricity on the grid, and adding wind power has helped create a business-friendly environment in our state that has helped Greater Des Moines attract both new businesses and those looking to expand. Full article.

Trump Team Turns Against Ethanol, Despite Campaign Rhetoric

As a candidate, Donald Trump supported ethanol. Today, perhaps, not so much. According to billionaire Carl Icahn, who is acting as a special adviser to Donald Trump, “there are people on the Trump team that believe ethanol itself does very little.” Icahn himself doesn’t like the US ethanol mandate, and said that the way that the program’s biofuel credits are swapped is, “a black cesspool of trading if there ever was one.”

Icahn, of course, owns a majority stake in an independent oil refiner and loved Trump’s pick of oil-industry-best-buddy (and ethanol foe) Scott Pruitt to lead the EPA, so he’s not an independent observer. When Priutt was named to head the EPA, the price of the Renewable Identification Number (RINs), which are the currency for ethanol trading, cratered. They have since bounced back, but there are still reasons for the ethanol industry to fear Pruitt’s effect.

As for what the future might hold, let’s listen to what Trump said about his then-rival Ted Cruz in the Iowa caucuses, calling him out as a tool of the oil industry: “And look, I’m not really blaming him because he’s financed by oil people. The oil people don’t want ethanol, it’s very simple… Your ethanol business if Ted Cruz gets in will be wiped out within six months to a year. It’s gonna be gone.” Only now, instead of Cruz being controlled by oil interests, it’s Trump himself. Watch the video.

Behind First Solar’s More than 50% Decline in 2016

Shares of First Solar Inc. (FSLR) are down about 51% over the course of 2016, due to a variety of factors including an overall difficult alternative-energy market, the announcement of a massive company restructuring alongside a major layoff and the surprise election of a president-elect, Donald Trump, who is seemingly hostile to support for renewable energy. (See also: Renewable Energy Suffers From Trump Win.)

With oil prices hovering around 10-year lows, energy companies in general have found it tough to turn a profit amid ultralow pricing. The market reacted poorly to First Solar’s report in mid November, as management slashed guidance in light of plans to accelerate the production of a more cost-competitive model. The Tempe, Ariz.-based firm said it would phase out its current model Series 4 solar panels, scrap plans for a Series 5 and go ahead with fast-tracking the production of a Series 6.

Despite disappointment regarding a $500 million to $700 million cost in impairments, along with a 25% trim of the firm’s employees, many analysts foresee the changes as a necessary step for the solar leader to stay ahead in the market as panel prices decline.

A reduction in the price of solar systems, while a great incentive for adoption on the consumer side, is difficult for companies such as First Solar attempting to stay above water with funds to invest in the future. Guggenheim Securities analysts foresee the sale price of S6 modules falling 25%, while the cost of producing them will drop 40% over the same period. This gives First Solar the upper hand as organizations around the world wean off reliance on fossil fuels and other low-cost traditional power sources. First Solar foresees its more cost competitive offering paying off big time in 2019. Learn more.