There are currently very nice premiums for feeder cattle and live cattle on the futures markets. August feeders are at $163.50 and the February live cattle contract is at $133.70, with April at $137.10. The futures markets are offering good hedges and producers ought to take a look at locking down some of these prices.
The Choice boxed beef cutout value rose to $1.95 last Thursday morning, which could be the start of an anticipated move above $2. Analysts are looking for the Choice cutout to move as high as $2.14 sometime this winter or spring. Packer margins are still in the tank and they are losing $55 per head on cattle. They paid $126.88 last week. Cattle feeders are losing about $50 a head right now but with corn prices taking a nose dive, they should see positive margins soon. Cash trade on fed cattle was expected to be $1 higher this week at $127-128 live and $205-206 in the northern Plains dressed markets.
Packers will more than likely slow production down and attempt to get the cutout values over $2. This brings us to testing consumer resolve to pay more for the beef they love. Average retail prices for all fresh beef were $4.81 last November and were $4.50 a year earlier. Where beef prices go is anybody’s guess, but we all know it’s going higher. Consumer demand for beef will be the key to our success and expansion of the beef industry. The price of meat protein is going out of sight for many consumers and they will be making decisions to buy chicken breast for $1.85, pork chops for $3.60 a pound, beef steaks or hamburger for $6.23 a pound—and up. I would have to say that the Beef Board has a big challenge before them.
Now that this fiscal cliff episode is somewhat over and everybody’s taxes went up, we can move on to the next drama. The new rules are not terribly bad and there were a few things in the new tax bill that were good for agriculture and a few, not so good. We now have a firm taxing rule on estates, not one that will change every two years. Although it looks fairly reasonable, we still need to eliminate it all together. The new deal is a $5 million exemption that is indexed for inflation, and your spouse will get $5 million too, then the balance is taxed at 40 percent. So between you and your spouse, your 2013 exemption would be a tick over $10 million after it is indexed for inflation.
Perhaps the best provision for agriculture was the renewal of Section 179 and bonus deprecation rules that have allowed high income farm operators to shelter large incomes in recent years. The bill extends 50 percent bonus depreciation through the end of 2013. It also raises the Section 179 deductions to the old level of $500,000 for 2012 and 2013. It also lifts the ceiling on equipment eligible for Section 179 for equipment purchased between Jan. 1, 2012, to Dec. 31, 2013. Purchases up to $2 million each year will be eligible.
The new capital gains rates apply for those with high adjusted gross incomes, but not necessarily high taxable incomes. For tax payers who hit the new 39.6 percent marginal rate, the maximum capital gains rate is 20 percent, plus the new 3.8 percent Medicare surtax that was tucked into ObamaCare.
However, capital gains rates could be 0 percent, 15 percent, 18.8 percent, 20 percent, 23.8 percent or 25 percent, because they are based on a combination of taxable income and adjusted gross incomes before taking any itemized deductions or exemptions into account. And the new 3.8 percent Medicare surtax kicks in on passive incomes including capital gains on those earning over $250,000 for couples.
Also, there is one tax that could catch land owners off guard. Starting in 2013, land owners who earn over the magic number of $250,000, for couples, will be required to pay the Medicare surtax on cash rents.
Then, we got a nine-month extension on the 2008 farm bill. This means that we will start the farm bill process all over again. Our congressional leadership appears to be a bunch of procrastinators who wait until the last minute to get anything done. They have been sitting on the farm bill for months and they have had 18 months to deal with this fiscal cliff fiasco. And what is insulting is they made no spending cuts in this bill. We all know that the politics are getting in the way of making common sense decisions.
Like I said last week, it’s time for term limits and to send fresh horses to D.C. — PETE CROW