2013 Pasture Renovation Conference Videos

The program videos from the 2013 Pasture Renovation Conference has been posted. Please visit our Vimeo page at https://vimeo.com/channels/486509 to view the videos.

Tax Implications of Drought-Related Livestock Sales

Nathan Kemper, Author

Kim Magee, Reviewer

University of Arkansas Division of Agriculture

 

The beef cattle industry in Arkansas was especially hard hit by the 2012 drought.  Poor pasture conditions, increased cost of inputs, reduced revenues from low hay production, and lower cattle marketing weights all contributed to eroding farm income. A survey done in late summer gathered data from cow-calf farms in Arkansas.  545 responses were received from farmers in 58 counties. The results showed that the drought had a drastic impact on farmers’ cattle sales. Over 73% of farmers reported that they planned to sell calves as much as two and a half months earlier than normal.  Compared to a typical year, farmers reported that:

 

• 49% had sold more mature cows
• 41% planned to sell more mature cows
• 41% had sold replacement heifers
• 30% were planning to sell more replacement heifers

 

Arkansas Farmers May be Able to Postpone Payment of Income Tax

 

Arkansas farmers who sold livestock in 2012 due to a weather-related condition may be able to postpone reporting the gain from these additional sales until the next tax year.  These early sales may have been caused by shortage of water, poor grazing conditions, low feed production, or other consequences of weather-related conditions. There are two tax options available to farmers. Farmers must meet all of the following conditions to qualify:

 

1. Your principal trade or business is farming.
2. You use the cash method of accounting.
3. You can show that, under your usual business practices, you would not have sold or exchanged the additional animals this year except for the weather-related condition.
4. The weather-related condition caused an area to be designated as eligible for assistance by the federal government.

 

Tax Option 1 – Postpone reporting taxable gain on additional sales of any livestock for 1 year

 

Code Section 451(e) – The first option known as the deferred sales receipt method has the broadest class of animals that qualify. The income from livestock or poultry sold in excess of normal sales (whether raised or purchased) may be deferred for up to one year.  To postpone a gain, farmers must attach a statement to their tax return for the year of sale.  The statement must include the following information for each class of livestock for which a gain is being postponed:

 

1. A statement that you are postponing gain under Internal Revenue Code (IRC) section 451(e).
2. Evidence of the weather-related conditions that forced the early sale or exchange of the livestock and the date, if known, on which an area was designated as eligible for assistance by the federal government because of weather-related conditions.
3. A statement explaining the relationship of the area affected by the weather-related condition to your early sale or exchange of the livestock.
4. The number of animals sold in each of the 3 preceding years.
5. The number of animals you would have sold in the tax year had you followed your normal business practice in the absence of weather-related conditions.
6. The total number of animals sold and the number sold because of weather-related conditions during the tax year.
7. A computation, as described above, of the income to be postponed for each class of livestock.

 

Option 1 is the ONLY option for livestock held for sale (e.g., steers, feeder heifers). Not all income must be deferred to the following year.  One advantage to farmers using Option 1 is that some income can be taken as income for the drought year and some can be deferred to the following year.

 

Example – Option 1:  Farmer Smith normally sells 20 cows each year.  Due to the 2012 drought, Smith had no pasture or hay to feed his cattle and he sold 50 cows rather than the normal 20.  Smith sells the 50 cows at $650 per head.  Since 20 cows are sold in a “normal” year, the amount of sales that can be deferred calculated as follows: 30 cows at $650/head = $19,500.  The 20 cows sold at $650/head would be reported as income in 2012 for $13,000.

 

Tax Option 2 – Postpone and avoid paying taxes on the gain from the sale of breeding, draft, or dairy animals if they are replaced within a specified time frame

 

Code Section 1033(e) – The second option is the “involuntary conversion” option.  Income from drought-related sales of draft, breeding, or dairy animals (no sporting animals) sold do not have to be recognized if the proceeds are used to purchase replacement livestock within two years from the end of the tax year in which the drought-related sales take place.  The recovery period for federally declared disaster areas is extended to four years.  The new livestock must be used for the same purpose as the livestock sold (breeding stock replaced with breeding stock). The taxpayer must show that weather caused the sale of more livestock than otherwise would have been sold in a typical year. Under option 2, the area does not have to be declared a federal disaster area.  The requirements under option 2 are the following:

 

1)      Evidence of existence of the weather conditions that forced the sale or exchange of the livestock.

2)      A computation of the amount of gain realized on the sale or exchange.

3)      The number and kind of livestock sold or exchanged.

4)      The number of livestock of each kind that would have been sold or exchanged under the usual business practice if the weather condition had not occurred.

 

Farmers should carefully consider future intentions for rebuilding their herds when opting for the second option.  When replacements are purchased, the date of purchase should be attached to the tax return along with the cost, number of animals and kind of animals.

 

Example – Option 2: Farmer Smith normally sells 20 cows from her beef herd each year. In 2012 due to the drought, Smith sold 70.  This was 50 more than normal.  Smith plans to purchase additional cows in 2013 to replace the extra 50 cows sold.  The average price for all 70 head was $675/head.   Only the 50 extra cows sold qualify for the deferment and because the cows were raised rather than purchased, they have a zero tax basis.  The 50 head at $675 = $33,750 of deferred income.  Farmer Smith can now invest the $33,750 in replacement cows in 2013 and have a zero tax basis in the new replacements.  If Smith only invests $20,000 in replacement cows in 2013, then the difference ($33,750 – $20,000) of $13,750 must be reported as taxable income by amending her 2012 income tax return.

 

This report is for educational information only and is not a substitute for tax advice from your CPA. Farmers considering either Option 1 or Option 2 due to drought-related livestock sales in 2012 should refer to the IRS Farmer’s Tax Guide for 2012 returns (http://www.irs.gov/pub/irs-pdf/p225.pdf).  Print this document and visit with your tax accountant about your options for deferring income from your drought-related livestock sales from the 2012 drought.

 

Table 1. Summary of Tax Options Related to Drought-Related Livestock Sales

 

	Option 1			Option 2 –
	Deferred Sales Receipts			Involuntary Conversion
Tax Code	Section 451(e)			Section 1033(e)
What livestock qualifies?	All livestock			Draft, breeding, or dairy livestock
Requirement of disaster area declaration?	Yes			No, but declaration increases replacement period to 4 years
Must livestock be in the affected area?	No			No
Must livestock be sold in the affected area?	No			No
Must weather have caused the sale?	Yes			Yes
Provision applies to:	Sales in excess of normal practice			Sales in excess of normal practice
Provision allows:	Postponing recognition of income by one year			Deferral of gain by carrying over basis to replacements
Is repurchase required?	No			Yes
What is the basis in replacement livestock?	Not applicable			Reduced by gain that is deferred
What is the period for replacing?	Not applicable			Two years from the end of the taxable year of sale or 4 years if area is eligible for federal assistance
What is the time limit for making the Election?	Due date for return for year or sale of livestock held for resale and 4 years after the year of sale for draft, dairy, or breeding livestock			Two years from the end of the taxable year of sale

 

Source: Adapted from J.C. Hobbs “Tax Consequences of Weather Related Sale of Livestock”

 

Other Resources

IRS Farmer’s Tax Guide: http://www.irs.gov/pub/irs-pdf/p225.pdf

Economic Impact of the 2012 Drought: http://srmec.uark.edu/beef/

OSU Fact Sheet: “Tax Consequences of Weather Related Sale of Livestock” (http://osufacts.okstate.edu)

LMIC Fact Sheet: “Tax Implications of Drought Induced Livestock Sales” (http://www.lmic.info/)

Making the Most of This Unplanned Pasture Improvement Opportunity

John Jennings – Professor, Extension Forages

 

Forage problems resulting from the 2012 drought will extend into 2013. However, many of those problems could be disguised as unplanned pasture improvement opportunities. Not all farms have the perfect forage or livestock system in place. After assessing the drought’s damage to pastures and to livestock herds, producers should seriously think about possible changes and improvements. Does that field need to be reseeded and if so does it need to be the same forage species or variety?  Could the grazing and hay systems be made better to avoid such disastrous effects in the next drought? All good questions, but the answers will be unique for each farm. Good assessment of actual damage and weed pressure will be critical. Soil tests for all pastures will be extremely helpful. The following options can help direct forage improvement efforts.

 

Options:

1. Do nothing and let the surviving forages regrow
2. Try to thicken the thin pastures with more of the same species
3. Add legumes to thin fields
4. Renovate damaged pastures and convert to other forage species or varieties

 

Option 1 -Do Nothing:

Success with this option will be dependent on severity of drought damage, the existing forage species, and willingness of the operator to nurse the field back to health. Tall fescue fields are resilient and often produce enough seed in summer to repopulate a drought-thinned stand. However, armyworms in spring ruined seed production in many fields. Prolonged grazing during drought reduced plant populations further. Careful field observation in early spring will reveal how much reseeding took place. Some thin fescue and bermudagrass fields will eventually fill in, but this make take a year or more. Clover died out in a majority of fields. White clover is a prolific reseeder and that seed should volunteer. Common bermudagrass produces seed and any surviving rhizomes will regrow next season. Any fields left “as-is” to regenerate on their own will need to be managed like new seedings. This means good management of fertility, weed control, and use of deferred grazing.

 

Option 2 – Try to thicken pastures with the same species

Adding seed to fill in a thin pasture can prove beneficial, but it should be managed like a new seeding. Fall rains have stimulated a lot of weed growth that can hinder seedling forage establishment. Guessing at a seeding rate based on percent damage is difficult. It is best to use a full seeding rate on damaged areas to make this option effective. Simply spreading a little seed over a weedy field hoping something good will happen has a high chance of failure. Spring oats can be planted as a nurse crop with fescue or orchardgrass although these grasses are best planted in fall. Do not plant annual ryegrass with fescue and orchardgrass seed. Ryegrass will crowd out most other forages and will produce seed that can continue to be a problem. Plant bermudagrass in late spring.

 

Option 3 – Adding legumes

Thin pastures provide a great opportunity to interseed legumes. Legumes improve forage quality and reduce N fertilizer need. Fall or late winter seeding is recommended for fescue pastures. Fall seeding is recommended for bermudagrass and other warm-season grass pastures. White and red clovers are popular perennial clovers and arrowleaf and crimson clovers are popular annual clovers. Controlling weeds this season and replanting clover in fall would be a good approach.

 

Option 4 – Renovate damaged pastures and convert to other forages

Converting damaged fields to different forage species can help extend the grazing season, improve forage quality, or reduce fescue toxicity. Make sure the new forage fits the operation because renovation is an expensive and time-consuming process. Pick a new forage based on seasonal forage need. For example, warm-season grasses should be considered in fescue-dominant systems. Cool-season grasses should be selected in bermudgrass or bahiagrass-dominant systems.

 

Diversity of seasonal forage species on the farm improves forage production throughout the year. Both cool-season and warm-season forages should be included. In north Arkansas the ratio of cool-season to warm-season forage should be about two-thirds cool-season and one third warm-season forage. In south Arkansas this ratio may be reversed due to a longer growing season. At the simplest level, a perennial cool-season grass like fescue and a perennial warm-season grass like bermudagrass should serve as the forage base.  Adding more species makes the forage program more stable and dependable over time.

 

Individual pastures can be single forage species or simple mixtures. It is not necessary to have complex forage mixtures in each pasture. In fact, complex multi-seasonal forage mixtures within individual pastures are not desirable for all pastures because it complicates management during weather extremes. However, a robust combination of warm- and cool-season forage species in different pastures across the farm is desirable to improve forage availability during weather extremes. This separation simplifies management practices such as fertilization, weed management, and planning seasonal grazing or hay harvest. The transition of grazing cool-season forages to warm-season forages can also be accomplished more easily.

 

 

 

Arkansas Grazing Lands Conference

 A conference for producers and landowners who want to have more profitable and resource rich operations

 

March 12-13, 2013

Crowne Plaza Hotel,

Little Rock, AR

Speakers include:

Joshua Dukart

Holistic Management Educator

Dr. Bruce Anderson

Forage Specialist, UNL

Several South Central and Southeast Producers

 

 

Registration—$125

Includes most meals

Call: 501-682-2915

Support funding provided by Natural Resources

Conservation Service

 

For more information: http://www.argrazinglandscoalition.org

 

Implanting Beef Calves

Processing spring-born calves often includes tagging, castrating, and giving a 7-way vaccine for blackleg protection.  Cow-calf producers that market their calves at weaning through local livestock auctions are missing the opportunity to earn more income from their calf crop if not using growth promoting technologies such as growth implants.  This video clip provides a quick introduction to implanting for cattle producers that are not familiar with the practice.

Click on the title to be re-directed to the blog homepage to view the video  if the email software prevents the video loading.

To access the transcript, please click on the following link: Implanting Beef Calves Script

Livestock Placings Contest

The Livestock Placings Contest that was scheduled for 2:00 p.m. February 22 will be held; however, it will start at 4:00 p.m.  Cards will be available to pick up starting at 2:30 at the Pauline Whitaker Arena.

Be Careful to Manage Interseeded Winter Annual Grasses for Warm Season Grass Growth

By: Paul Beck, Professor – Animal Science

 

Over the past few years of drought, short hay supplies, and high feed prices; we have been recommending that producers interseed cool-season annual grasses (such as wheat, rye, and ryegrass) into warm-season grass pastures. By doing this producers are able to graze these pastures for 9 or 10 months instead of the 4 to 5 months of grazing we normally expect from pastures containing only warm-season grasses. For example, last fall we were able to interseed rye and ryegrass into pastures containing a mix of bermudagrass and crabgrass in mid to late October (when the Bermuda and crabgrasses regrowth slowed down). We then were able to graze stocker steers from mid-November to mid-February at a 1 steer per acre stocking rate. These steers gained 218 pounds or about 2.6 lbs per day! The steers were removed and replaced with a different set of calves in late February at a stocking rate of 2 steers per acre, the stocking rate was doubled because of extremely rapid spring forage growth that occurs from late February to May each spring. There are, however, several issues with this production system that can cause big problems if they are not controlled.

 

Everybody that has ever grown a garden knows that bermudagrass and crabgrass are very hardy plants and difficult to kill. One of the sure fire ways to kill bermudagrass is to smother it out. We can easily do this in pastures or hay meadows with our cool-season annuals if we are not careful. If allowed to grow uncontrolled late into the spring when warm-season grasses are breaking dormancy the cool-season grasses will out-compete the warm-season grasses for sunlight and nutrients. This will delay the growth of the warm-season grass or in severe cases reduce stand vigor or thin out warm-season pastures. Last year we had an early spring with warm conditions conducive for bermudagrass growth in April. The annual ryegrass was growing very rapidly at this time and where we were not able to graze it down or cut it for hay or silage in a timely fashion growth of the bermudagrass was delayed. In June it turned off hot and dry for 2 months and there was virtually no growth in these pastures (and hay meadows) until we started getting rain in August and September!

 

Because our cool-season forage crops have the slow growth in the fall and winter and rapid growth in the spring we are required to have a lower stocking rate in the fall than in the spring (as described above). So, if we are trying to graze a set number of cows or calves, we will need to plant more acres for fall use than we can possibly use during the spring. One way to reduce this problem is to only plant the number of acres we can graze during the spring, but that would require limit grazing or limiting the use of the cool-season forages in some way until spring growth occurs.

 

If we plant enough winter annuals to stock with our cattle in the fall and winter, then we may be able to adjust fertilizer levels to drive forage production for the times when we need more (fall) and put out less when we have more forage than we can use. Fertilizer is a good investment if we need or can use the additional forage it will produce; it is not worth its cost if the forage will not be used.

 

The best alternative may be to harvest the additional forage for hay or silage. If we have the equipment and are ready to roll when the time comes, wheat, rye, and ryegrass all make good hay and can be a valuable resource for wintering cattle later in the year. At the Southwest Research & Extension Center, the only way we were able to make it through the last couple of winters was because we were able to cut the additional cool-season grass growth for hay and silage. In one year the cool-season forages we preserved was the only crop we were able to bale.

 

Cool-season grasses can be a detriment to our warm-season pastures and hay meadows, delaying our first warm-season hay cutting or delaying summer grazing. But, with proper management these effects can be lessened and total forage production will be greater than if we managed for warm-season grasses alone.