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Approaching This Ag Cycle Differently

Updated: Dec 30, 2018

CoBank has just published its 2019 outlook for farmers entitled “QUARTERLY U.S. RURAL ECONOMIC REVIEW Agriculture Limps into 2019” written Dec 2018. The document’s forecast for 2019 is not particularly encouraging for farmers, “Financial conditions in agriculture will remain challenging in 2019 … It will likely be the lowest in over a decade.”

The CoBank document predicts an outlook for non-Ag in the United States differently, “With unemployment rates at 50-year lows, job growth continuing strong, oil prices declining, and wage increases beginning to accelerate, the consumer remains a strong driver of growth well into 2019.”

Headwinds for farmers, according to the CoBank article, are “Trade uncertainties, rising interest rates, and domestic/global political developments will remain wildcards in the outlook.”

It was only a few years ago (2012) when an article was posted on the web site of the Federal Reserve Bank of Kansas City that reviewed the agriculture cycles and concluded that “U.S. agriculture appears to be in the midst of another golden era.” We are witnessing the same commodity cycle of boom-bust that farm families have been accustomed for generations, but some operations are beginning to think differently.

Farmers are Thinking Differently

Powered by the surge of new Fintech and Agtech tools, farmers are beginning to think of their farm operations differently because of the information provided to them by these new tools. The margins for 2019 are too slim (or nonexistent) to farm ‘the way we always have.’ Precision farming tools integrated with financial management can provide the farmer with the detailed analysis necessary to squeeze out every opportunity for profit.

New Revenue Sources

Farmers are also looking at their operations and approaching crop decisions with an eye towards the consumer to increase revenue and profitability. Organically grown crops have a significant price point over feed grade corn and soybeans. Farmers who are switching to organic farming are finding a totally different price point for their products because it moves them closer to the consumer and away from the commodity predicament.

Other farmers are going directly to the consumer with their own brand of dairy products, livestock protein (packaged meat, eggs) and even distilled spirits utilizing their own grain.

How to Pay for the Cost of Change

Changes to a farm operation that moves closer to the consumer requires funding. Organic farming certification requires very specific practices and timeframes that demand additional time and money from the operation. Bank loans or investor funds are two approaches currently used to gain the cash for change.

But what if the cash was already in your operation? But you will need to think differently to gain access to it. What if you could invest in yourself, with your plans and your ideas? The Monetized Deferred Payment Transaction (U.S. Patent Pending) MDPT provides a way to defer your ordinary income or capital gains taxes for up to 30 years but receive up to 95% of the net sale (land or farm products) in cash, in the form of a low interest loan.

Your CPA has been working with you each year to lower your tax liability when you sell land or farm products. Section 199A deductions, section 179 deduction and bonus depreciation, prepaying expenses etc. are just a few of the tools used by the CPA to help lower your operation’s tax obligations.

But what if your CPA used MDPT (I.R.C. § 453) to defer your constructive receipt of the sale for up to 30 years and you were able to get a low interest loan for 95% of that net sale to use to invest in the changes to your farm? You are taking what you would have paid in taxes, investing them in the changes to your farm with the plan to grow your assets and cash flow in the process.

Be advised, you will need to pay the required taxes for the sale dollars at the end of the deferral period. The MDPT approach does not eliminate taxes, it defers them into the future. But it will be planned and you will be paying the required taxes with cheaper dollars in the future, compared to today.

Set a New Course

There are numerous approaches and ideas to break free of the commodity farm cycle and set a new course for your operation. But it takes a new way of thinking and planning to see a future that is different than today. Funding is always a key part of change, investigate MDPT to see how it could work for you.


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