Top 10 Ag News Stories of 2018: 7, 6, 5

Tax Reform, a New Farm Bill, and Harsh Weather Conditions for Farmers

(DTN photo illustration by Nick Scalise)

OMAHA (DTN) -- Each year, DTN publishes our choices for the top 10 ag news stories of the year, as selected by DTN analysts, editors and reporters. We continue counting down with No. 7 being how tax reform led to a "grain glitch" with unintended consequences, No. 6 highlighting the long work of Congress leading to a new farm bill signed by President Donald Trump just before Christmas, and No. 5 summarizing how challenging a year it was weather-wise for farmers in 2018.

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No. 7: Tax Reform Became a "Grain Glitch"

The Section 199A provision in the 2017 tax law soon was dubbed the "grain glitch" and led trade associations representing non-cooperative agricultural buyers to plead with Congress for a correction.

By Chris Clayton

DTN Ag Policy Editor

OMAHA (DTN) -- Farmers, cooperatives and their accountants thought they had hit the tax-reform jackpot in early 2018 when they dove into the details of the new tax cuts passed at the end of 2017 and read a small clause in the massive tax bill that basically gave farmers a 20% tax deduction on all sales to a farmer cooperative.

It was there, in plain English, as overzealous lawmakers, trying to provide a tax break for dividends from farmer cooperatives, included not only patronage dividends, but also any "per unit retain allocation" from the farmer to the cooperative. That translated into any amount paid to patrons for products sold for them. The language also broadened out further into any revenue from a farmer cooperative "that is includible in gross income." The tax break amounted to 20% of all income that comes from those dividends or sales from a farmer cooperative.

The Section 199A provision soon was dubbed the "grain glitch" and led trade associations and non-cooperative agricultural buyers to plead with Congress for a correction. Meanwhile, farmers started increasingly delivering commodities to cooperatives, and private companies started looking for ways to register at least part of their businesses as cooperatives.

By mid-February, leading members of Congress were recognizing the "unintended consequences" of the grain glitch. "It is pretty simple that Congress would not pass a law that would put some segments of our economy out of business and that's why it needs to be changed," said Sen. Charles Grassley, R-Iowa.

Within a month, nearly 80 larger private businesses, including Archer Daniels Midlands Co., Bunge North America, Cargill Inc., Tyson Foods and even Anheuser-Busch, had written Congress demanding a fix.

The National Council of Farmer Cooperatives and National Grain and Feed Association came up with an equation for farmer cooperatives that solved the problem but violated one of original tenets of the 2017 tax law, which was to make taxes less complex. The fix provides cooperatives with a deduction similar to the prior law, which is 9% of qualified income subject to cooperative sales up to 50% of wages paid by the cooperative to employees. The cooperative can either keep all or part of the deduction or pass it along through to cooperative members. Then the farmer would add back any pass-through benefits from the cooperative on new Section 199 language.

Farmers selling to the cooperative then calculated their own 20% income deduction that is reduced by the lesser of 9% of qualified income allocable to such sales, or 50% of wages allocable to such sales. Depending on the cooperative's wage base and how the cooperative chooses to retain or disburse the deduction, a farmer could end up with either more or less than the 20% income deduction.

The Section 199A fix was retroactive to Jan. 1, 2018.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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No. 6: Farm Bill Finishes on Strength of its Merits

Near the end of the year, bipartisanship helped pass a new farm bill by a surprising margin.

By Chris Clayton

DTN Ag Policy Editor

OMAHA (DTN) -- The pathway of the Agriculture Improvement Act of 2018, also known as the farm bill, showed bipartisanship can win big, especially in a lame-duck session after one chamber has flipped its majority.

President Donald Trump signed the bill into law Dec. 20, starting another chapter in tweaks to commodity, conservation and other programs with a farm bill that appears to be an improvement over its 2014 predecessor.

The farm economy rolled into 2018 taking roughly a 50% hit in net farm income over the past five years. Farm groups spent most of their time telling lawmakers over, and over, and over that their biggest farm-bill priority was to protect crop insurance. The big priority for House Republican leaders, however, was to use the farm bill as a vehicle to begin reforming the social safety net.

From the GOP view, it had just gotten too easy for able-bodied adults without dependents to stay on food stamps -- the Supplemental Nutrition Assistance Program. It had gotten too easy for states to bump up income eligibility for SNAP. The 40.3 million people on SNAP in 2018 was still too high, and the farm bill needed more ways to wean people off the program.

The plan created a partisan divide in the House that would remain most of the year. The farm bill at first failed on the floor because every Democrat voted against it, and a block of conservative Republicans also wanted to stand up to their leadership and demand a vote on an unrelated immigration bill. After that battle ended, the farm bill squeaked past the House by two votes.

The Senate responded in short order. Recognizing any bill of such magnitude needs a bipartisan mix of 60 senators to back it, Senate Republicans chose not to push their states much harder on SNAP reform, but did add some accountability measures to the program. That got 86 votes initially in the Senate, which gave senators major leverage in any conference talks. It also helped that Senate Majority Leader Mitch McConnell, R-Ky., fixated on legalizing hemp as a crop, also included himself on a conference committee.

Talks went nowhere until after the election, when House Agriculture Committee Chairman Michael Conaway, R-Texas, noted he lost all leverage as the House flipped from red to blue. In the meantime, trade disputes had hurt markets and prices even further, making the farm bill an even bigger priority for farmers staring at lower crop prices and livestock prices, and dairy producers who were increasingly going out of business.

Determined to get a bill done under his watch, Conaway set aside stricter work and job-training requirements for some SNAP recipients. In return, Conaway got a stronger-than-expected commodity title that benefits not just his Texas producers but also most crop and dairy farmers, as well as better disease protections for livestock producers.

Running up against the clock of a lame-duck session, House and Senate negotiators delivered big in December. The Senate jumped in line and got 87 votes for the conference report. A House bill that had barely scratched by got 369 votes on final passage, split nearly evenly with strong support from both parties, a coup for Conaway who noted afterward he was even surprised by the margin of the vote -- a record margin in the House for a farm bill.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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No. 5: Challenging Weather Leads to Struggles During Planting, Harvest

Bouts with extreme storms, heavy rain, drought and hurricanes challenged producers in 2018. New record yields were posted for corn and soybeans in 2018, and wheat production was again ample. However, harsh weather conditions forced many producers to struggle during both planting and harvest.

By Bryce Anderson

DTN Senior Ag Meteorologist

OMAHA (DTN) -- Productive, but difficult to navigate with numerous extreme weather events and storms, summarizes the 2018 crop weather scene. It did not matter if an operation was in the Midwest, the Delta, the Plains, Southeast, or the Canadian Prairies -- in one way or another, 2018 was a tough, stormy year for farming.

The season began with a very cold month of April, which set records in much of the western Midwest and Northern Plains. Fieldwork and planting were disrupted; the cold caused extensive damage to produce crops; and early-planted corn growth was stunted by the cold.

A cold start was then compounded by heavy spring rains, which delayed planting and taxed producer and equipment capability. Corn planting went deep into May, and even early June. A very hot spell in late May, marked by the earliest-noted occurrence of 100 degree Fahrenheit temperatures, led to some questions about whether the drought year of 2012 would be revisited.

Most crop areas had favorable temperatures and precipitation during the summer time frame; however, several strong windstorms and hailstorms badly damaged fields, notably in the Western Corn Belt. Meanwhile, pervasive dryness in Kansas and Missouri hurt production, especially in corn.

Autumn will be remembered well for a prolonged bout of heavy rain, which bookended the year and led to the most prolonged harvest in almost 10 years, dating back to 2009. Harvest ran well into December for many producers due to the heavy fall rains. Harvest was further confounded by low temperatures in October and November. The delayed harvest means that much fieldwork for the 2019 season did not get done; this adds another task for producers next spring.

Hurricanes and harsh wildfires also caused extensive damage. Hurricane Florence in September and Hurricane Michael in October destroyed crops in the Southeast due to high winds and flooding. Hurricane Florence was the wettest tropical cyclone on record in the Carolinas, and Hurricane Michael was the strongest storm in terms of maximum sustained wind speed to strike the contiguous United States since Andrew in 1992. In California, another round of catastrophic wildfires developed, due in part to extensive dryness favoring the fire outbreaks.

The market's bottom line, of course, is whether these conditions made for an appreciable reduction in crop size. From that standpoint, strictly speaking, the answer is no. The 2018 crop year continued a run of row-crop production seasons with yields at or above trend line. Wheat production was also large, although yields were lower in the Southern Plains compared with average due to dry conditions in winter and spring.

The year concluded with the late-November release of the Fourth National Climate Assessment report from the U.S. government's Global Change Research Program. In a statement on the report, Dan Lashof, U.S. director of the World Resources Institute said, "... Climate change is loading the dice for more extreme events that devastate people, homes and the economy." The report predicts that the 2019 crop year is likely to again be marked with extreme weather happenings that will challenge producers' ability and adaptability.

Bryce Anderson can be reached at bryce.anderson@dtn.com

Follow him on Twitter: @BAndersonDTN

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Editor's Note: You can find Numbers 4, 3 and 2 in DTN's top 10 list on Dec. 28.

(ES/AG/CZ)