Got a chance to sit in on the Farm Futures Business Summit earlier this month and listened to Dwight Raab from the Illinois Farm Business Farm Management Association discuss a range of management and cash flow strategies. There was one slide, however, that caught my eye. And it's one that could have as much of an impact on your iron buying in the next few years as the price of corn.
In that presentation he showed the history of the Internal Revenue Service Section 179 Expense Election from start to today. See the table below and read on:
That's a pretty big change from last year to this. Farmers, as a group, are often driven by the idea of saving on taxes and Section 179 did a lot to help that; and it bolstered capital investments in farms during a time when record high crop prices strengthened farm incomes. While every ag economist and business management specialist I've ever heard speak recommends not running your business with a "don't pay taxes" approach, which can distort decision making, that $500,000 expense election was nothing to sneeze at.
Congress, however, knows that it should be looking at new tax packages. However this is not a "get it done Congress." In fact, there is a strong sentiment that many don't want to give out more tax breaks, even for friendly industries. The economy also appears to be healing, though we'll need to see more evidence of this recovery to be sure. The main point is that counting on Congress to help out now may not be a solid bet.
Today, the $25,000 election will change some decisions. Combine that with lower corn prices and will farmers stop investing? I doubt it. It may slow some choices, but you know that to succeed today you'll need to push the envelope and you can't do that from the back of a 15-year-old tractor pulling a 20-year-old planter. Too much is happening with engineering and technology.
Looking ahead, farmers will look at ways to maximize their investment and that's a good move in any season - in fact it's usually better to do that in the fat times so you're ready for the leaner times. As 2014 gets rolling chances are you're looking at your costs and investments more closely than ever before.
For livestock producers, higher prices will help rebuild bank accounts and offer the chance for capital purchases as needed - though you'll be doing it for now without much Section 179 help.
I'm not advocating big tax breaks for agriculture, it's just that lack of action by Congress sure seems to be pointed in our direction. First, no farm bill now for two years (limping by on extensions but that's little consolation, and offers little security in planning). And second, loss of this expense election, which made it less painful to update equipment and tech around the farm.
Farmer and ranchers are a hardy lot and you'll move forward no matter what the climate. What those in Congress don't understand is that this is really a life choice. But sometimes you're soldiering on against tougher conditions than necessary.