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Arthur Capper Cooperative Center

ACCC Fact Sheet Series

The goal of this fact sheet series is to distribute relevant research and information to the cooperative community.

Fact Sheet - *UPDATE*  Special Edition - Collaborative Research OSU/KSU: Impact of Revised Section 199A on Grain Producers (PDF)

On March 23rd, 2018, President Trump signed into law the Omnibus Spending Bill, which included a revision to Section 199A. The revised Section 199A language provides a deduction at the cooperative level that can either be retained or passed through to patrons. And a deduction for producers, except those farming as a C-corporation, that equals 20 percent. But this producer level deduction could be reduced when farmers conduct qualifying business with a cooperative. In particular, this potential reduction is significantly impacted by the W2 wages paid by a farmer.

In this fact sheet, Dr. Phil Kenkel and Dr. Brian Briggeman analyze the implications of the revised Section 199A for farmers delivering grain to a cooperative. The fact sheet also examines the implications of the W2 wage limit that could reduce the patron’s deduction. Based on a set of assumptions for a wheat cooperative and USDA data on a wheat farmer, this particular wheat cooperative must pass through 75 percent of its deduction in order to offset the W2 wage reduction. Or stated another way, the cooperative must pass through a deduction equivalent to $0.055 per bushel so the wheat farmer would still receive their full 20 percent deduction. Kansas Farm Management Association (KFMA) data are used to examine those farmers that are most likely to have their deduction reduced when marketing their grain with a cooperative. In the fact, these individuals are called, “high” wage farmers, and they tend to be large, non-corporate operations.

Fact Sheet - *UPDATE*  Special Edition - Collaborative Research KSU/OSU: Impact of Tax Reform on Agricultural Cooperatives (PDF)

Since the Tax Cuts and Jobs Act of 2017 was passed into law, new information has become available about the impact of tax reform on cooperatives. The focus of the earlier fact sheet was on (1) the elimination of DPAD or Section 199; (2) lower corporate tax rates; and (3) lower member taxes on qualified distributions from a cooperative. Now, there is a fourth component that must be considered; (4) a new tax deduction called Section 199A. In this revised fact sheet, an updated analysis is presented that considers this new information.

December 18, 2017: The purpose of this fact sheet is to examine the implications of the proposed tax reform plan for agricultural cooperatives. Under the proposed tax plan, there are three key changes for cooperatives – (1) elimination of the domestic production activities deduction or Section 199; (2) lower corporate tax rates; and (3) lower member taxes on qualified patronage distributions. Based on the analysis completed in the fact sheet, these proposed changes affects the optimal structure of distributing profits to members. Cooperatives that use Section 199 to retain funds as unallocated retained earnings will have an incentive to retain funds under tax reform as allocated equity. There is however a slight advantage of distributing equity in patronage in a nonqualified form. Cooperatives that did not use or could not use Section 199 will benefit from this tax reform plan. 

It should be noted that as of the date of writing this fact sheet, the tax reform plan has not been passed into law. The analysis starts a discussion on how tax reform could impact a cooperative’s distribution of member profits. Individual cooperative directors and managers should consider their own situation before altering their distribution decisions.

Fact Sheet - Special Edition - Collaborative Research KSU/OSU: Impact of Tax Reform on Agricultural Cooperatives (PDF)

The purpose of this fact sheet is to examine the implications of the proposed tax reform plan for agricultural cooperatives. Under the proposed tax plan, there are three key changes for cooperatives – (1) elimination of the domestic production activities deduction or Section 199; (2) lower corporate tax rates; and (3) lower member taxes on qualified patronage distributions. Based on the analysis completed in the fact sheet, these proposed changes affects the optimal structure of distributing profits to members. Cooperatives that use Section 199 to retain funds as unallocated retained earnings will have an incentive to retain funds under tax reform as allocated equity. There is however a slight advantage of distributing equity in patronage in a nonqualified form. Cooperatives that did not use or could not use Section 199 will benefit from this tax reform plan. 

It should be noted that as of the date of writing this fact sheet, the tax reform plan has not been passed into law. The analysis starts a discussion on how tax reform could impact a cooperative’s distribution of member profits. Individual cooperative directors and managers should consider their own situation before altering their distribution decisions. 

Fact Sheet 11: Sustainable Growth Rates (PDF)

Strategic planning sessions and meetings often center around the topic of growth. Any cooperative having this strategic discussion must ensure the growth strategy add value back to the membership whether it is through a merger, an acquisition, a fixed asset investment or joint venture. An integral part of this discussion is how growth affects the cooperative’s financial position. The decision to grow will be impacted by changes in the economic and financial landscape. For cooperative directors and managers, monitoring and assessing how the cooperative should best fund this growth is beneficial.

In this ACCC Fact Sheet, the sustainable growth rate (SGR) model is examined and applied to Kansas farmer cooperatives. The SGR model is a financial metric used by many businesses to monitor and address potential growth problems. The model uses four key and interdependent financial ratios. Understanding this model provides directors and managers a deeper understanding of how to react to challenging economic times as well as ways to seize growth opportunities.

Fact Sheet 10: Influence of Shuttle Loaders on Grain Markets in Kansas and Montana (PDF)

Agribusinesses and cooperatives have strong incentives to invest in shuttle train-loading facilities because they lower the variable costs of handling grain. Yet, what are the benefits for farmers who have access to these shuttle-loaders? In this ACCC Fact Sheet, Drs. Bekkerman and Taylor use a unique data set to identify that companies and farmers both benefit from shuttle-loading investments. Furthermore, the authors find that there are some unique differences between Kansas and Montana grain markets. These differences are highlighted in a map of the two states, which provides key insights for cooperative directors and managers who are considering investing in a shuttle train-loader.

Fact Sheet 9: Monitoring the Evolving Kansas Cooperative Landscape: Mapping Grain Locations in Kansas (PDF)

The cooperative landscape in Kansas is changing rapidly. Infrastructure is being built, competition is rising, new innovations are being developed, and all of this has contributed to fewer grain marketing and farm supply cooperatives in Kansas. In fact, there were 86 Kansas co-ops in September 2015, and by September 2016, that number had fallen to 77. To help Kansas cooperative leaders better understand this evolving landscape, the Arthur Capper Cooperative Center has constructed a set of interactive maps of all cooperatives and non-cooperatives’ grain locations in Kansas. In addition, these maps and fact sheet really highlight the value the cooperative system bring to Kansas farmers. There are more than double the number of cooperative grain locations than non-cooperative grain locations! For more information, please read this fact sheet to learn about the details, need, use, and accessibility of these maps.  

Fact Sheet 8: Cooperative Earns, Turns and Leverage: The DuPont Profitability Model (PDF)
DuPont Analysis Worksheet (Excel Spreadsheet)

Leading and directing a cooperative requires a solid understanding of the co-op’s financial position. In this ACCC Fact Sheet, the DuPont Profitability Model is presented and applied to a set of data that will help cooperative managers and directors understand their co-op’s financial position during periods of financial stress and prosperity. The DuPont Model is straightforward because it breaks down return on equity into its key components. The model shows how margins or “Earns,” efficient use of assets or “Turns,” the “Spread” above cost of debt, and the debt capital structure or “Leverage” impact Kansas grain and farm supply co-ops. In addition, an Excel spreadsheet of the DuPont Profitability Model is provided so you can conduct your own analysis of your cooperative’s financial position. 

Fact Sheet 7: Effects of Collective Action Water Policy on Kansas Farmers' Irrigation Decisions: The Case of the Sheridan County 6 LEMA (PDF)

In this ACCC Fact Sheet, Krystal Drysdale, PhD student and CoBank Research Fellow, and Dr. Nathan Hendricks, Assistant Professor in Agricultural Economics, explore the impact of a Local Enhanced Management Area (LEMA) on farmers and crop input suppliers. They estimate the LEMA’s impact on total water use, cropping pattern changes, as well as crop nutrient and seed purchases. Results show that farmers within the LEMA significantly reduce their irrigated water usage and plant fewer total irrigated crop acres, especially corn acres. With fewer corn acres, grain and farm supply cooperatives could be challenged by having fewer bushels coming into the elevator as well as a decline in seed, chemical, and crop nutrient sales in the near future. In the long run, cooperatives could see greater bushels and greater input sales because the reduction in current water use will extend the life of the aquifer. Read the fact sheet to discover more about the authors unique approach to arriving at these results as well as the percentage declines they estimated for water usage, crop acres, and crop inputs used.

Fact Sheet 6: Financial Trends and Needs of Cooperatives and Implications of Consolidation in the Farm Credit System (PDF)

In early 2014, the Farm Credit Administration (FCA) held a symposium titled, "Consolidation in the Farm Credit System: The Factors Influencing Consolidation and the Potential Impact on Mission." The purpose of the symposium was to consider the effects consolidation may have—both positive and negative—on the System's safety and soundness and its ability to fulfill its mission. The symposium was held at the FCA headquarters office in McLean, Virginia.

ACCC Director, Dr. Brian Briggeman, was invited by the FCA board of directors to prepare a report and present the cooperative’s perspective on consolidation during the symposium. The attached ACCC fact sheet is based on his report. In this fact sheet, Dr. Briggeman explores the financial state and future financial needs of agricultural cooperatives. Furthermore, he discusses the implications of consolidation within the Farm Credit System on the cooperative industry. In short, this fact sheet illuminates the importance of a safe and sound Farm Credit System for many cooperatives, their farmer-owners and the rural communities they serve.

Fact Sheet 5: Rising and Changing Costs in Production Agriculture  (PDF)

In the latest installment to the ACCC fact sheet series, Dr. Brian Briggeman and Chuck Mickelsen explore the evolution of the costs of agricultural production. Today, the costs of agricultural production have surged to the historically high levels of the late 1970s. Comparing these elevated costs to the 1970s shows that technological costs have nearly doubled for today’s producers while land rental costs are fairly low. Looking ahead, economic conditions suggest costs may continue their rise, especially land rents.

Fact Sheet 4: Equity in Kansas Ag Co-ops  (PDF)

Equity generation and composition are important topics for any cooperative. Since 2003, Kansas co-ops’ total equity and the percentage of total equity designated as unallocated equity have both risen significantly. This fact sheet explores these trends and provides talking points for a cooperative's board of directors and management on this topic. (updated 22June2016) 

Fact Sheet 3: Sunsweet Marketing (PDF)

At the center of a solid marketing campaign typically lies an effective advertising plan. If done correctly, advertising can boost sales, but making this link can be difficult because of many competing factors that impact consumer sales. The research within this fact sheet discusses a methodology and illustrates how advertising increased sales of a new product, Sunsweet's Ones prunes brand. Other businesses marketing branded products should identify the impact of advertising on their product sales, and the methodology described in this fact sheet allows them to do just that. Authors: John Crespi (Kansas State University) and Michael Boland (University of Minnesota)

Fact Sheet 2: Comparison Land Values (PDF)

Farmland Value Data: Implications of Survey Accuracy and Reliability.” A hot button issue in agriculture is whether or not farmland values are sustainable or even forming a price bubble. While it is difficult to determine if a bubble is forming, if not impossible, publicly available data does provide insights in near-term trends of farmland values. Presented in this fact sheet are the research results of the accuracy and reliability of land value data as well as information on the recent, staggering rise in values.

Fact Sheet 1: Farm Credit Patronage (PDF)

Few studies have analyzed preferences for patronage refunds. However, one study found that Farm Credit member-borrowers’ strongly preferred cash patronage payments versus lower fixed real estate loan interest rates. In this fact sheet, these research results as well as talking points on the potential positives and negatives of using patronage as a marketing tool are discussed.

 


 

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