Welcome Dr. Kent Wolfe Director, Center for Agribusiness and Economic Development, University of Georgia College of Agricultural and Environmental Sciences
Local Comments Mr. Rome Ethredge County Coordinator/ANR Agent UGA Extension – Seminole County
Summary of the 2014 Georgia Agricultural & Agribusiness Outlook Dr. Nathan Smith & Dr. Curt Lacy Extension Economists, Department of Agricultural & Applied Economics The University of Georgia College of Agricultural and Environmental Sciences
Animal Products and Timber Outlook Dr. Curt Lacy Extension Economist-Livestock
Livestock Marketing Information Center Data Source: USDA-AMS, Compiled & Analysis by LMIC
Livestock Marketing Information Center Data Source: Iowa State University
Big Story in Pork Production PEDV = Porcine Epidemic Diarrhea Virus. Highly contagious type of Coronavirus Confirmed in 22 states. Deadly to small pigs and piglets. Could reduce domestic pork production by 2-3 percent in 2013-2014.
Pork Summary Expect slightly more production Stable prices Improved profits
Livestock Marketing Information Center Data Source: USDA-NASS Lower Feed Cost and 2013’s Reduced Broiler Production Leads to Expansion
Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC
Livestock Marketing Information Center Data Source: USDA-NASS, Compiled & Analysis by LMIC
Livestock Marketing Information Center Data Source: USDA-AMS
Big Picture Items Antibiotics GMOs Humane treatment of animals
Honey Reports 2013 Piedmont and North Georgia experienced 20-25% below normal honey yields due to: - record amounts of rainfall - below average temperatures Southern Georgia experienced the complete opposite with average to above average honey yields. Due to a decrease in overall honey production, honey prices rose 11% from 2011-2012 and 10% from 2012- 2013 with the trend expected to continue in 2014.
Timber and Forest Products Outlook Improving economy should help 91 bio-energy facilities planned for SEUS – 2 pellet mills in GA Improving exports – Hardwood to Europe – All wood and products to China
Livestock, Poultry, and Timber Summary Improving economy should support demand for all livestock and poultry products. Lower grain prices and tight supplies will bolster demand for feeder cattle. Lower grain prices and increasing exports should support livestock and poultry prices. Higher prices and lower costs = higher profits in 2014.
Georgia Row Crops Situation and Outlook for 2014 Nathan Smith, Don Shurley, and Amanda Smith Department of Agricultural and Applied Economics University of Georgia
Row Crop Situation Heading into 2014 Challenging production season with wetter than normal conditions and cooler temperatures into middle of the summer and then dry late season. Supply outpacing demand in most crops. Downtrending prices, especially since harvest.
2013 – Mixed Year For Yields 2013 Ag Forecast 201220135 Yr. Avg.Record Corn180 bu.175 bu.153 bu.180 bu. (2012) Cotton1,091 lb.850 lb.830 lb.1,091 lb. (2012) Peanut4,580 lb.4,430 lb.3,739 lb.4,580 lb. (2012) Sorghum, Grain55 bu.50 bu.45 bu.53 bu. (2009) Soybean*37.5 bu.40 bu.30.5 bu.37.5 bu. (2012) Tobacco2,250 lb.1,750 lb.2,196 lb.2,470 lb. (‘91,’96) Wheat*49 bu.60 bu.48 bu.56 bu. (2008) * New Record set in 2013
Corn Price Outlook South America shifting back to soybeans. Exports, livestock feeding and size of U.S. and foreign corn crops will influence corn prices in the future. Reduced U.S. acres 2 million or more. Prices likely to range between $4.75 and $4. Another 14 Mil. Bushel crop would push prices below $4.
Soybean Market Factors Tight US supply situation. Global demand for soybeans and products growing. Bullish exports sales and shipments. Increase in South American production.
U.S. Soybean Supply and Demand 2013 Reversal of down trend in production and use. Tighter supply situation due to increased exports.
World Soybean Supply and Use Million Metric Tons Beg Stocks ProductionImportsDomestic Crush ExportsEnd Stocks World60.11283.54104.40239.57107.8370.23 U.S3.8488.660.4145.8639.464.63 Total Foreign56.28194.88103.99193.7168.3665.60 Argentina24.3553.50038.509.727.98 Brazil15.7689.000.1037.0044.0019.76 Major Importers13.0514.8393.6289.790.3414.46 China12.1912.206968.350.2313.66 Source: Janauary 10, 2014 WASDE
Soybean Price Outlook Relatively tight US supply again, but World supply not as tight. Crush about the same as last year. Exports key for prices heading into 2014, China growth and positive crush returns indicate more soybean imports. More acres in US and GA Prices likely between $10 and $11 per bushel.
Peanut Market Factors Better crop than expected in 2013 leads to large carryover. Exports down Domestic Use up Overall Use down
Peanut Price Outlook Early contracts offered for $425 per ton. Some with $50 premium for High Oleic’s like Georgia 09B. Peanut prices to be determined in part by cotton prices before planting. Acreage expected to increase 10-15% Prices likely to range between $425 and $475 per ton.
Cotton Market Factors For 2014 Record level of World Stocks Slowly improving World demand Acreage and production in 2014 Chinese stocks policy and impact on demand for imports (US exports)
Ending Stocks, China and Rest of the World (ROW) China has built massive stocks But, ROW has actually declined
China An Increasing Unknown and Source of Instability Two years of building stocks (why, impacts) Imports cut by ½ this year News that imports will decline further for 2014 What will happen to large stocks/reserves? China began to auction off stocks, mills did not want News that some mills are closing, relocating elsewhere
2014 Price Outlook US and World production likely to increase Demand should continue to improve Chinese imports (US exports) may decline significantly Prices (Dec14 futures) likely to range between 75 and 85 cents. High end of this range and rallies may depend on supply shocks
2014 Outlook Most prices lower due to increase in production. Demand increases on soybean side. Corn use other than ethanol to pick up. Soybeans may have most optimistic outlook Fewer acres of corn and wheat in Ga and more acres of peanuts, soybeans. Cotton, stable to up. Profit margins tighter.
2014 Net Returns Comparison Non-Irrigated 2013 Ag Forecast CornCottonPeanutsSorghumSoybeans Expected Yield857503,4006530 Expected Average Price$4.60$0.78$440$4.14$10.80 Crop Income Per Acre$391$585$748$269$324 Variable Costs Per Acre$289$436$543$226$238 Return Above Variable Cost$102$149$205$43$86
2014 Net Returns Comparison Irrigated 2013 Ag Forecast CornCottonPeanutsSorghumSoybeans Expected Yield20012004,70010060 Expected Average Price$4.60$0.78$440$4.14$10.80 Crop Income Per Acre$920$936$1034$414$648 Variable Costs Per Acre$653$542$651$344$321 Return Above Variable Cost$267$394$383$70$327
Keynote Mr. Will Thompson Associate James, Bates, Brannan, Groover LLP
Successful Succession Willard D. Thompson, J.D., LL.M. “By failing to plan, you are planning to fail.” -Winston Churchill
What We Will Cover Tax Law Update Critical Questions Techniques
Tax Law Update “The hardest thing in the world to understand is the income tax.” -Albert Einstein
Federal Transfer Tax Changes “Permanent” Lifetime Exemption $5.34 million in 2014 per individual Indexed for inflation in future years Excess over exemption is taxed at 40% Estate and Gift Tax are unified – they share the same exemption Portability Annual Exclusion $14,000 per year to any beneficiary tax free Expected to increase at a slower rate than the lifetime exemption
Farmers, Landowners and Taxes Unfortunately, no matter the laws in place, farmers and landowners often bear more than their fair share of the Transfer Tax burden According to the US Department of Agriculture, a farmer is more than twice as likely to owe Federal Estate Tax at death as an average person After they have paid a lifetime of Income Tax, their assets may be subject to Estate Taxes at their death
Business Succession “Plans are nothing; planning is everything.” -Dwight D. Eisenhower
Succession is a Process Succession is a whole-family process that affects everyone in the family deeply and differently It will change the family system forever More often than not, the new business leader also becomes the next leader of the family
Succession is a Process Continued It is not a one-size-fits-all process Owners of family farms and agribusinesses, in particular, struggle with unique characteristics that extend beyond the business to personal relationships It is the ties among parents, children, siblings, spouses and in-laws that make a succession plan a necessary part of not only managing personal wealth but more importantly the business itself It is important to talk with your family about establishing a business succession plan to begin the process of developing a transition for your family business With open communication, between generations, it is more likely that your business goals with be met while maintaining harmony in the family
Nine Reasons Family Businesses Fail to do Succession Planning It is not urgent The focus on tax avoidance and “drop dead plans” creates a false sense of security Family member and/or employee push back It is always safer not to change Family businesses do not know how to undertake succession planning Lack of courage among the next generation family business leaders Senior generation family business leaders do not know how to be fair to their non-employee children relative to their employee children with respect to inheritance Family businesses see succession planning as an event – not a process It costs too much
What to do with the Family Business? Basically, you have three options: Pass it on to the family members Plan to sell it while you are alive Let your estate sell it
Critical Questions “When planning for a year, plant corn. When planning for a decade, plant trees. When planning for a life, train and educate people.” -A Chinese Proverb
Critical Questions How do we select the next leader of the company? When do we decide who will be the next leader of the company? When and how should leadership transition take place? How do we evaluate our new leader’s job performance? How do we provide meaningful careers for other family members who are not chosen to lead?
Find Your Successor and TRAIN HIM/HER NOW! 70-80% of family businesses pass to the owners’ children Not surprisingly, 70-80% of these businesses then FAIL, because the next generation has no idea how to manage the assets So… If the farm or agribusiness will stay in the family, who will run it? Is that person currently working in the business? Are they being trained to run the business? Are they currently being brought in on the decision making process? Is there someone who can assist a family member in running the business after you are gone?
What are the Problems we see with These Potential Heirs? Not financially responsible Do not understand the family business No clue as to the amount of work it took to accumulate your wealth or the value of money Constantly spending beyond their needs Potentially ruin the initiative of younger generations
How to Avoid These Problems? You need to start planning! “A good plan today is better than a perfect plan tomorrow.” - George S. Patton
Doing Nothing Means dying “intestate” (legal jargon for “without a Will”) Each state has laws that dictate how an intestate person’s property will be distributed You have absolutely NO CONTROL Property may go to people you don’t want and in ways of which you do not approve This technique is roughly described as “letting the chips fall where they may”
Joint Ownership with Spouse Planning may be necessary after the death of the first spouse when still in a period of mourning No time for planning if both spouses die simultaneously Assets are subjected to creditors and predators of both spouses There is NO remarriage protection: Your assets may end up with people you never knew
Giving Away Assets You lose control May cause huge problems if Medicaid assistance is needed within 5 years after the gift is made You may lose significant tax benefits (although, if properly done, you may gain some significant tax benefits)
What is a Will? A formal document that allows you to direct the transfer of property you own at your death
A Properly Drafted Will Allows You To: Set aside to provide for your surviving spouse for her lifetime Choose who receives those assets after the surviving spouse’s death Select which children ultimately receive which assets and in what amounts (i.e., farm vs. insurance) Avoids or minimizes family confusion and disagreements Minimizes or eliminates estate taxes
What is a Trust? A Trust is a legal relationship – a special kind of contact designed to control property management and distribution A Trust has three separate roles: Grantor (also referred to as Trustor, Settlor, or Creator) who created and funds the Trust Trustee who holds the property and administers the Trust Beneficiary who receives benefit from the Trust
What is a Trust? A Trust is a contract between two parties for the benefit of a third party Grantor Beneficiary Trustee
Wills and Trusts Enable Sophisticated Estate Planning Creditor/Predator Protection Remarriage Protection Estate Tax Minimization Additional care for children (or spouses) with special needs that are disqualified for government benefits
Limited Liability Companies LLCs are highly flexible and customizable tools that hold many benefits for small business owners (including farmers and ranchers) LLCs can be thought of as a hybrid between a partnership and a corporation LLC Operating Agreements can restrict ownership in the company only to lineal descendants or trusts where the ultimate beneficiaries are lineal descendants
Family Limited Partnerships FLPs are also highly flexible and customizable tools that hold benefits for small business owners like farmers and ranchers (similar to LLCs)
Present Benefits of LLCs and FLPs Allows control to be maintained by the organizers, as opposed to gifting undivided interests Limits personal liability
Lower Estate Taxes Non-controlling and marketability adjustments can reduce the fair market value of ownership interests Gifting of ownership interests The annual exclusion is currently $14,000 for an individual (or $28,000 for a married couple) Annual gifting of LLC interests in these amounts can greatly reduce the size of your estate
Equalizing Gifts Among Heirs One way to equalize the inheritance received by children who are active in the operation of the farm or ranch with those who are not is to create two classes of ownership Another way to equalize inheritance is to prepare a Buy-Sell Agreement requiring active children to “buy out” the passive children FLPs and LLCs can also utilize Buy-Sell Agreements and other provisions that restrict the transfer of interests in these entities (e.g., only your descendants)
Other Vehicles for Succession and Estate Planning Grantor Retained Annuity Trusts (GRATs) Self-Cancelling Installment Note (SCINs) Annual Gifting using Annual Exclusion Use of lifetime exemption to move appreciated property to the next generation Dynasty Trust or Generation-Skipping Trust Irrevocable Life Insurance Trust
Conclusion There is no better time than the present
WARNING! The United States Department of Agriculture has several restrictions and limitations when using LLCs and FLPs to hold farm property, so be sure to check with your agriculture attorney to see how using an LLC or FLP will affect your farm plan before using either for estate planning purposes
Questions Dr. Kent Wolfe Director Center for Agribusiness & Economic Development The University of Georgia College of Agricultural and Environmental Sciences
Comments from Event Sponsors Mr. Jeff Nunnery 9 th District Field Representative Georgia Farm Bureau
Comments from Event Sponsors Mr. Jack Spruill Marketing Director Georgia Department of Agriculture
Closing Remarks Dr. Kent Wolfe Director Center for Agribusiness & Economic Development The University of Georgia College of Agricultural and Environmental Sciences