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Invocation. Justin Ballew ANR Agent UGA Extension – Decatur County. Networking Breakfast. 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

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Invocation

Invocation

Justin Ballew

ANR Agent

UGA Extension – DecaturCounty


Networking breakfast

NetworkingBreakfast


Welcome

Welcome

Dr. Kent Wolfe

Director, Center for Agribusiness and Economic Development, University of Georgia College of Agricultural and Environmental Sciences


Local comments

Local Comments

Mr. Rome Ethredge

County Coordinator/ANR Agent

UGA Extension – Seminole County


Summary of the 2014 georgia agricultural agribusiness outlook

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

Animal Products and Timber Outlook

Dr. Curt Lacy

Extension Economist-Livestock


Key factors impacting livestock markets and profitability

Key Factors Impacting Livestock Markets and Profitability

  • Economy (consumer demand)

  • Crop prices

    • Feeder cattle demand

    • Sector profitability

  • Big picture items


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Livestock Marketing Information Center

Data Source: Bureau of Economic Analysis


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Livestock Marketing Information Center

Data Source: Bureau of Economic Analysis, Compiled & Analysis by LMIC


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Beef Cattle Situation & Outlook


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Data Source: USDA-AMS, Compiled by LMIC

Livestock Marketing Information Center


Beef cows that calved january 1 2013 1000 head

BEEF COWS THAT CALVEDJANUARY 1, 2013(1000 Head)

U.S. Total: 29295

Livestock Marketing Information Center

Data Source: USDA-NASS


Change in beef cows numbers january 1 2012 to january 2013 1000 head

CHANGE IN BEEF COWS NUMBERSJANUARY 1, 2012 TO JANUARY 2013(1000 Head)

U.S. Total: -862

Livestock Marketing Information Center

Data Source: USDA-NASS


Change in beef cows numbers january 1 2003 to january 2013 1000 head

CHANGE IN BEEF COWS NUMBERSJANUARY 1, 2003 TO JANUARY 2013(1000 Head)

U.S. Total: -3236

Livestock Marketing Information Center

Data Source: USDA-NASS


Meat supplies were virtually unchanged for two years in a row

Meat supplies were virtually unchanged for two years in a row

Source: USDA-WASDE, January 2014 Report


Past and projected prices

Past and Projected Prices

Source: USDA, LMIC and UGA


Projected beef cattle profits in 2014

Projected Beef Cattle Profits in 2014

  • Cow-calf

  • Stockers

  • Finishing

Graphics source: CattleFax: Long-term Outlook. www.cattlefax.com


Beef cattle summary

Beef Cattle Summary

  • For 2013 expect lower production

  • Higher prices

  • Higher profits

  • More heifer retention


Dairy situation and outlook

Dairy situation and outlook


What will drive prices in 2014

What will drive prices in 2014?

  • Declining cow numbers

  • Strong demand for dairy exports

  • Favorable feed prices

  • Production abroad rebounds


Georgia milk production since 2000

Georgia Milk Production Since 2000

During this time, milk production per cow increased from 16,500 to 19,200.


Georgia milk mailbox prices 2001 2014 est

Georgia Milk Mailbox Prices 2001-2014 (est.)

2014: $21.50 - $23.50


Other considerations

Other Considerations

  • 2014 Farm Bill

  • Margin insurance

  • Tied to production controls??

  • Still being debated in Congress


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Livestock Marketing Information Center

Data Source: Iowa State University


Big story in pork production

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

Pork Summary

  • Expect slightly more production

  • Stable prices

  • Improved profits


Lower feed cost and 2013 s reduced broiler production leads to expansion

Lower Feed Cost and 2013’s Reduced Broiler Production Leads to Expansion

Livestock Marketing Information Center

Data Source: USDA-NASS


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Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Analysis by LMIC


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Livestock Marketing Information Center

Data Source: USDA-NASS, Compiled & Analysis by LMIC


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Livestock Marketing Information Center

Data Source: USDA-AMS


Big picture items

Big Picture Items

  • Antibiotics

  • GMOs

  • Humane treatment of animals


Honey reports 2013

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

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

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

Georgia Row CropsSituation 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

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 – Mixed Year For Yields

* New Record set in 2013


Corn market factors

Corn Market Factors

  • Record 2013 production.

  • Leveling off of corn-starch ethanol industry.

  • Growing domestic use.

  • Increase in world production and use (South America shifting back to soybeans).


U s corn supply and demand

U.S. Corn Supply and Demand

Record high crop in 2013/14

Reversal of trend to, now increased stocks


Change in pattern for corn use

Change in Pattern for Corn Use?

Ethanol use flattening out

Feed use to rebound

Million bushels


Corn price outlook

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

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

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

World Soybean Supply and UseMillion Metric Tons

Source: Janauary 10, 2014 WASDE


Soybean price outlook

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

Peanut Market Factors

  • Better crop than expected in 2013 leads to large carryover.

  • Exports down

  • Domestic Use up

  • Overall Use down


Peanut disappearance by use

Peanut Disappearance by Use


Peanut projections

Peanut Projections

2014/14


Peanut price outlook

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.


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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)


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79.67


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Ending Stocks, China and Rest of the World (ROW)

China has built massive stocks

But, ROW has actually declined


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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


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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

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.


Georgia major row crops acres planted 1 000 acres

Georgia Major Row Crops Acres Planted*1,000 Acres

* Tobacco is acres harvested. 2013 are authors projections except wheat.


2014 net returns comparison non irrigated

2014 Net Returns ComparisonNon-Irrigated


2014 net returns comparison irrigated

2014 Net Returns ComparisonIrrigated


Keynote

Keynote

Mr. Will Thompson

Associate

James, Bates, Brannan, Groover LLP


Successful succession

Successful Succession

“By failing to plan, you are planning to fail.”

-Winston Churchill

Willard D. Thompson, J.D., LL.M.


What we will cover

What We Will Cover

Tax Law Update

Critical Questions

Techniques


Tax law update

Tax Law Update

“The hardest thing in the world to understand is the income tax.”

-Albert Einstein


2014 tax rates

2014 Tax Rates

Ordinary Income – highest marginal rate 39.6%

Capital Gains and Dividends – 20%

Estate Taxes – 40%

Medicare Investment Surtax – 3.8%

Additional Medicare Payroll Tax – 0.9%


Federal transfer tax changes

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

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

Business Succession

“Plans are nothing; planning is everything.”

-Dwight D. Eisenhower


Succession is a process

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

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

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

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

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 questions1

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?


Who is going to be you

WHO IS GOING TO BE YOU?


Find your successor and train him her now

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

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

How to Avoid These Problems?

You need to start planning!

“A good plan today is better than a perfect plan tomorrow.”

- George S. Patton


Techniques

Techniques


Planning techniques

Planning Techniques

Doing nothing (approximately 80% of Americans)

Joint Ownership with spouse

Giving away assets during lifetime

Beneficiary Transfers

Wills

Irrevocable Trusts

LLCs (Limited Liability Companies)

FLPs (Family Limited Partnerships)

Buy-Sell Agreements


Doing nothing

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

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


The next husband

The Next Husband


Giving away assets

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

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

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

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 trust1

What is a Trust?

A Trust is a contract between two parties for the benefit of a third party

Grantor

Trustee

Beneficiary


Wills and trusts enable sophisticated estate planning

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

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

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

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

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

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

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

Conclusion

There is no better time than the present


Warning

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

Questions

Dr. Kent Wolfe

Director

Center for Agribusiness & Economic Development

The University of Georgia College of Agricultural and Environmental Sciences


Comments from event sponsors

Comments from Event Sponsors

Mr. Jeff Nunnery

9thDistrict Field Representative

Georgia Farm Bureau


Comments from event sponsors1

Comments from Event Sponsors

Mr. Jack Spruill

Marketing Director

Georgia Department of Agriculture


Closing remarks

Closing Remarks

Dr. Kent Wolfe

Director

Center for Agribusiness & Economic Development

The University of Georgia College of Agricultural and Environmental Sciences


Thank you for attending

Thank you for Attending!


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