Pasture rents are on rise in S.D.

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Pasture rents are on rise in S.D.
www.DakotaFarmer.com - June 2008
23
Farm and Ranch Management
Pasture rents are on rise in S.D.
By LON TONNESON
P
ASTURELAND values and rents
are up across South Dakota.
According to a South Dakota
Agricultural Statistics Service survey
conducted in January and only recently
released, average pastureland values
in South Dakota ranged from $216 in
Shannon County to more than $2,098 in
Minneahaha County.
The 2006-2008 average value of
pastureland was $194 per acre in
Shannon County and $1,568 per acre in
Minnehaha County.
The average rental rates in the 2008
survey ranged from $7.10 per acre in
Shannon County to $49 per acre in
Minnehaha County.
Moody County actually had the
highest average rent per acre at $49.40
against an average value of $1,674 per
acre.
The South Dakota Field Office of
USDA’s National Agricultural Statistics
Service conducted the survey by telephone during January and February.
Positive data was received from
almost 3,500 farm/ranch operators. All
values relate to Jan. 1 and are for privately owned, nonirrigated agricultural
land. Exercise caution when evaluating
data for an individual year, the field
office advises. The three-year average
is a more appropriate measure.
Online report
For a copy of the complete report, see
“South Dakota 2008 Land Values and
Rents” in the “Web Exclusive” section
of the Dakota Farmer Web site, www.
DakotaFarmer.com.
Pastureland cash rent and
value, South Dakota, 2008
Average rental
Average value
rate (per acre)
(per acre)
Northwest
Butte
Corson
Dewey
Harding
Perkins
Ziebach
North Central
Brown
Campbell
Edmunds
Faulk
McPherson
Potter
Spink
Walworth
Northeast
Clark
Codington
Day
Deuel
Grant
Hamlin
Marshall
Roberts
West Central
Haakon
Jackson
Lawrence
Meade
Pennington
Stanley
Central
Aurora
Beadle
Brule
Buffalo
Hand
Hughes
Hyde
Jerauld
Sully
East Central
Brookings
Davison
Hanson
Kingsbury
Lake
McCook
Miner
Minnehaha
Moody
Sanborn
Southwest
Bennett
Custer
Fall River
Shannon
South Central
Gregory
Jones
Lyman
Mellette
Todd
Tripp
Southeast
Bon Homme
Charles Mix
Clay
Douglas
Hutchinson
Lincoln
Turner
Union
Yankton
$9.50
$10.20
$10.30
$9.90
$11.30
$9.70
$332
$289
$267
$257
$319
$229
$36.00
$18.90
$28.80
$30.30
$27.40
$24.00
$34.30
$20.00
$904
$491
$710
$751
$586
$577
$991
$484
$33.50
$40.70
$31.80
$42.20
$35.80
$42.90
$33.10
$31.10
$972
$1,019
$769
$1,160
$1,020
$1,225
$848
$868
$12.30
$10.80
$14.90
$11.20
$12.10
$12.40
$350
$323
$573
$361
$461
$349
$34.70
$35.80
$26.90
$22.50
$28.40
$22.20
$23.80
$30.90
$20.80
$1,068
$1,004
$944
$665
$889
$626
$654
$938
$646
$47.30
$42.60
$44.70
$42.00
$48.70
$43.20
$43.80
$49.00
$49.40
$38.00
$1,313
$1,427
$1,350
$1,436
$1,610
$1,451
$1,443
$2,098
$1,674
$1,122
$13.80
$10.10
$7.60
$7.10
$297
$520
$395
$216
$23.70
$12.70
$17.60
$15.50
$16.60
$25.90
$676
$366
$515
$348
$374
$594
$40.40
$34.30
$50.80
$38.20
$43.10
$52.80
$45.20
$58.40
$37.50
$1,117
$856
$1,338
$1,066
$1,168
$1,581
$1,261
$1,613
$1,096
SOURCE: USDA-NASS, SOUTH DAKOTA FIELD OFFICE
Correction on value
I
N last month’s cropland value
report for North Dakota, the figure
for the average rent rate should have
read $40.60 per acre.
www.DakotaFarmer.com - June 2008
23
Farm and Ranch Management
Drought sales
get special tax
By TIM PETRY
Key Points
IVESTOCK producers who are
forced to sell livestock due to
drought conditions may receive
special consideration for federal income
tax reporting purposes.
Income tax reporting for forced sales
of livestock because of drought or other
weather-related conditions may be handled in two different ways, according to
Internal Revenue Service guidelines.
■ IRS provides special tax reporting for
drought-forced sales.
■ You can postpone reporting income from
early sales.
■ Capital gain taxes can be avoided if you
buy back breeding stock.
L
Postpone reporting
The first provision applies to all types
of livestock and allows postponement
for reporting income from forced sales
for one year. For example, the normal
business practice for a beef cattle producer may be to background calves
after fall weaning and market them
the next February. If, due to drought
conditions and lack of feed supplies,
the calves are marketed at weaning in
October, the income may be postponed
until the next year. Only sales in excess
of normal (normal usually is defined as
the average number sold in the past
three years) qualify for the deferral.
The drought must have caused an
area to be designated as eligible for
assistance by the federal government.
However, the livestock do not have to
be raised or sold in the exact designated drought area, such as a particular
county, but only in proximity.
To qualify, the livestock owner’s
principal business must be farming or
ranching, and the cash method of accounting must be used.
cull ewes each year, but in a drought
year is forced to sell 50 head. Only the
additional 25 head that will be replaced
later are eligible for the involuntary
conversion.
Typically, the replacement period for
involuntary conversion ends two years
after the close of the tax year of when
the gain occurs. However, when livestock are sold due to drought conditions
in an area eligible for federal assistance,
producers have four years to replace
the livestock. The IRS may extend the
replacement period on a regional basis
if drought conditions continue for a
longer period. Each year, the IRS publishes a list of eligible counties where
the replacement period is extended.
More information on the procedure
for extending the replacement period
and the list of counties eligible for extension through 2007 is available at
www.irs.gov/pub/irs-drop/n-07-80.pdf.
Also, if it is “not practical” for the
producer to reinvest in the same class
of livestock, other classes of livestock
or property (except real property) used
for farming or ranching may qualify as
replacement property.
Other strategies
Involuntary conversion
The other IRS provision applies to the
forced sale of draft, breeding and dairy
animals, but excludes poultry. If these
animals are sold due to drought, the
sale may be treated as an involuntary
conversion.
Producers can choose to postpone
reporting the capital gain from forced
sales as long as similar animals are repurchased in the future. For example,
a sheep producer normally markets 25
The IRS tax code is complex, so livestock producers considering marketing
livestock at abnormal times due to dry
conditions should consult with their tax
adviser. Other tax management tools,
such as income averaging, also may be
considered.
Petry is an North Dakota State
University Extension livestock marketing
economist.
Source: NDSU Agriculture Communication
Know pros and cons
of buying an annuity
On the
Money
By JOHN OTTE
S
UPPOSE your mother has most of
her retirement assets in land and
bank certificates of deposit. She’ll
face sticker shock when her CDs come
up for renewal.
Washington’s efforts to shore up the
banking system in the wake of the subprime mortgage debacle have slashed
CD earnings. A CD your mother bought
two years ago paying 5% may renew at
2.5%.
Insurance agents and some investment people at banks are pushing annuities. An annuity might offer:
■ guaranteed minimum rate of 3%
■ first-year bonus of 1.25%, which
boosts first-year rate to 4.25%
■ ability to withdraw 10% of annuity
value annually without penalty
■ 2% surrender charge on withdrawals exceeding 10%
■ six- or eight-year term
In year one, the annuity would beat a
2.5% CD by 1.75%. That’s the bait.
However, don’t assume annuities
normally pay higher rates than CDs. A
more realistic assumption is that, after
the first year, the annuity will pay the
minimum rate for the remainder of the
term. That’s the switch.
Why rates are slow to rise
“While it is always the hope of the
Key Points
■ Annuities may look like a competitive
investment when interest rates are low.
■ Structure of investments means earnings
can’t rise much over life of annuity.
■ If inflation resurges, do you want to own a
fixed-rate investment?
client, agent and company that interest
rates will rise in order for us to provide a competitive rate to our clients,
renewal rates are set based on several
factors, including the path of interest
rates,” says Trudy Waltman, Lincoln
Benefit Life, an Allstate Insurance Co.,
Lincoln, Neb. “But the main factor is the
yield on our investment portfolio when
we received the funds to invest.
“Since we invest in fixed-income
assets to cover the surrender charge
period, the yield on these assets does
not rise as current rates move up,” she
adds. “When rates move up, we receive
a small benefit as our coupon or interest payments on these investments
are reinvested. Over time, these small
changes may provide a small enhancement to our earnings that can be passed
on to our contract holders.”
If Mom is willing to settle for the
guaranteed minimum for five to seven
years, the annuity may make sense.
Alternatively she may believe inflation will resurge. The Federal Reserve
will shift from stimulating the economy
by cutting interest rates to fighting inflation. The first salvo in the fight against
inflation would almost certainly bring
higher interest rates.
Hedge a bet with CD investments
A
N aging acquaintance was reviewing his and his bride’s retirement investments with their broker. The brokerage house offered a conventional certificate of deposit at a fixed rate of 3.8% for 18 months or a CD that would pay
interest monthly based on the percent change in the CPI from the same month
a year earlier plus 1%. This CD went out through 2012.
“I chose the CD based on the change in the CPI plus 1%,” he says. “I think
inflation will pick up. If it does, I’ll look like a genius. Otherwise I’ll be the laughingstock of the world.”
I counseled my acquaintance that he’d done all right. “You could have done
something really stupid, like buying into an annuity that locks you into a fixed 3%
rate until 2016,” I said. “Sure, the annuity peddler will tell you that if interest rates
rise, the rate they pay will also rise. What they don’t tell you is that interest rates
have to rise a lot before the pay rate on the annuity will rise a little.”

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