Rich Pottorff, Doane chief economist & Washington analyst   |   Updated: July 30, 2012

Time is running out for the House of Representatives to debate and vote on the farm bill before the August recess that begins next week. House Speaker John Boehner, R-Ohio, said last week that crop insurance should be sufficient to cover farmers’ needs this year and suggested that the House would take no action on the farm bill before Aug. 4. However, this week there is talk that the House may push through a disaster-aid package designed to help livestock producers deal with the effects of the drought. (The bills passed by the Senate and the House Agriculture Committees reinstate several livestock programs that would provide support for 2012.)

If farmers and ranchers are forced to take actions outside of “normal” activities, there are several provisions in the tax code that may be useful in deferring taxes until 2013 (or even later if producers are forced to sell dairy or breeding animals). You may have up to four years to replace breeding stock and defer the gain from the forced sale. Crop insurance benefits may also be deferred under certain conditions. Contact your tax preparer to discuss your options and the implications of certain decisions.

The American Farm Bureau Federation is intervening in a lawsuit filed by a farmer against the EPA. The lawsuit claims the EPA unlawfully required the farm to obtain a Clean Water Act permit, even though there was no evidence that the farm had ever emitted pollution into streams or rivers. EPA threatened to fine the farm $37,500 per day for storm water that may come in contact with dust, feathers or dander deposited on the ground outside of a poultry house. The farm owner, Lois Alt, has won awards for the environmental stewardship she practices on her farm. Courts have ruled against EPA on this issue in two recent cases.

Crop insurance is going to be a very important source of money for farmers across much of the U.S. this year. There is some debate about how much money will be paid out under the crop insurance program this year, with some estimates now at $40 billion. That would be about four times as much as the $10.8 billion disbursed for last year’s severe drought. USDA’s Chief Economist Joe Glauber has put the cost at about $20 billion. According to Bruce Babcock of Iowa State University, about 50% to 80% of the money will come from taxpayers; the rest from premiums paid by farmers. At this point, USDA’s Risk Management Agency has not compiled data on how much crop land is insured and at what level of coverage.

Producers are reminded to check with their crop insurance agent before taking any action to destroy their crop or divert the crop to feed or hay. According to a fact sheet from the Risk Management Agency producers should notify their crop insurance agent if their crop has been damaged. The producer needs to continue to care for the crop and protect it from further damage if possible and get permission before destroying or putting any of the crop to an alternative use. The insurance company needs to appraise the crop and assess the loss. So in essentially all cases, the first step is to contact your crop insurance agent.

A new crop insurance program for cotton called STAX is included in both the House Agriculture Committee bill and the Senate-passed farm bill. Changes in cotton policies are needed to satisfy the WTO ruling in a case brought by Brazil contending that existing U.S. policy violated world trade rules. But to say that STAX doesn’t satisfy Brazil is an understatement. A spokesman for Brazil said “The U.S. is essentially moving away from less-distortive Green Box subsidies into much more trade-distorting programs!” Brazil is still threatening to reinstate tariffs and other sanctions authorized by the WTO if STAX becomes law.