Current Edition

current edition

By Wyoming Governor Matt Mead

I have often shared my grandfather’s advice, “Where you find a blade of grass leave two.” These words, to me, embody the farmer, the rancher – all those engaged in ag. Ag producers value the land, animals – wild and domestic – crops and open space. Wyoming is a place where for generations we have worked to leave two blades of grass for one. Cowboys, cowgirls and the Code of the West were born in ag and today represent Wyoming values in all industries. Ag has been integral to Wyoming since before statehood and, more than 125 years later, is Wyoming’s third largest industry. It is a main supporter of the number one and two industries – energy and tourism. Wyoming ag is standing strong as Wyoming is strong.  Here I will address a few of the many things important to ag and all of Wyoming. 

Wyoming has established itself as a leader of the nation. We have earned Standard and Poor’s highest credit rating, AAA, four years running. We are the state with the Best Return on Investment for Taxpayers (2014), the Lowest State and Local Tax Burden in the Country (2014) and the Second Highest Increase in Gross Domestic Product (2013), among other accolades. I talk about these things, not to brag, but because they mean things are going well and people in Wyoming are doing well. These are indicators of our success historically and today. We are in a good place. There are challenges, to be sure, and we continue to be vigilant and to lead the way as we work on them. 

Last year the EPA proposed new rules defining Waters of the United States. These proposed rules have sweeping negative implications for Wyoming and for ag. Wyoming has taken the lead in challenging these rules and in educating the public and policy makers on their excessive reach. We saw success when the EPA withdrew the interpretive rule redefining agricultural exemptions. The balance of the rule proposal contains onerous provisions and extends the authority of the federal government into areas of state primacy.  

Wyoming, after nearly three decades, successfully delisted the wolf. Wyoming’s plan provided for 10 breeding pairs and 100 individual wolves in the state and an additional five breeding pairs and 50 individual wolves in Yellowstone National Park. The plan worked. The wolf continued to be recovered, and reasonable controls – Wyoming controls – were in place. When the delisting was challenged in court, the judge found the wolf was recovered and that Wyoming’s management was effective but still overturned the delisting. We are fighting this decision on multiple fronts, but it is clear that the Endangered Species Act is broken. We need to work on the Act, as we continue to work on delisting grizzly bears and ensure that there is no need to list the sage grouse. We should recognize that these species thrive in great part because of ag and, without ag, the challenge would be a greater one – perhaps insurmountable. Wyoming’s fight against federal overreach will not stop.

This year I introduced my water strategy. Something like this – a state water strategy – had not been done before. Water is tied to everything we do in this state. It’s tied to everything we have done, and it’s tied to everything we are going to do in the future. The strategy was developed over the last year, with wide public input. It is a good strategy and has 10 initiatives including a "10 in 10" proposal – 10 small reservoir projects in 10 years. The time to protect Wyoming water is now. The proposed budget contains more than $46 million for water construction and rehab projects. Water development is an ongoing effort.There are also other infrastructure projects in my supplemental budget. I believe my budget recommendations, many of which are in the budget that is before the Legislature as I write this, are conservative. The supplemental budget will keep operating costs relatively flat and most appropriations are not recurring. 

These are exciting times, and this is just a glimpse of issues and topics of interest to ag producers. But every essay has its end, and I end by reiterating that Wyoming is strong. I wish you green grass, healthy calves, abundant crops and good prices in 2015.

The United States country of origin labeling (COOL) for beef was implemented in 2009.  While opponents to such consumer transparency issues have claimed that COOL was supported by those U.S. cattle producers wishing to restrict trade, I can tell you that was never the intent and the facts simply don’t support this propagandist tactic.

From 2005-09 the Canadian cowherd declined by 18 percent, from around 5.4 million cows to 4.3 million cows. Interestingly, from 2010-14, after COOL implementation, there has only been a minimal contraction of one to two percent annually. 

While I’m not saying COOL had anything to do with these herd stabilizations, what an interesting coincidence

What has been really impressive is to look at the volume of live cattle and beef imports from Canada as a percentage of the Canadian cowherd. One would have thought that as the Canadian cowherd was shrinking, the percent of product for export after domestic use in Canada would have dropped. However, it appears the U.S. is taking a larger and larger share of Canadian production – both cattle and beef – as a percentage of their cowherd, with 2013 and 2014 representing the highest at somewhere around 55 to 57 percent and that’s figuring a 100 percent calf crop.

When you look at Mexico, it is basically the same. The Mexican cowherd began a steep decline in 1994 when Mexico had about 13 million beef cows. The cowherd shrank to 10 million in 2002 and 6.7 million in 2007. Interestingly, about the time COOL was implemented in 2008-09, those numbers started leveling off, and in 2011-12 reached 7 million head. Numbers then fell again to 6.7 million in 2013 and 6.8 million in 2014 following a severe drought.  

Interestingly, even though Mexican cow numbers had dropped, three of the five top cattle import years since 2005 came after COOL was implemented. And yes, they had a drought, but one of those years was 2014. Amazingly all this has happened at a time when the Mexican government initiated programs to add more USDA-approved packing plants and rapidly worked to expand cattle feeding in Mexico to capture more value for the economy.  

Under these programs, beef exports have increased to the U.S. now making Mexico the fourth largest exporter of beef to the U.S. In fact, we saw live animal equivalents of Mexican beef imports rise from 60,000 in 2008 to about 400,000 in 2014. When you add it all up, five of the top six years of cattle and beef equivalent have come since COOL was implemented. 

If Canada and Mexico were truly being discriminated against, as determined by the WTO panel ruling, we should be taking less of their production, not more. However, a common theme through their market reports is that a strong U.S. market has been driving these exports to the U.S.  2014 will be the second highest year for cattle imports from Mexico and Canada into the U.S. and with the smallest cowherds on record.  That’s pretty amazing and certainly does not support claims of discrimination.

On another note, with increased liberalization of U.S. health protocols on bovine spongiform encephalopathy (BSE) and foot-and-mouth disease (FMD) to South American countries and the European Union and increased free trade agreements on the horizon, one can only expect increased imports into the U.S. 

This only makes it more important that U.S. producers have the tools necessary to move from commodity markets to more value-based markets with consumers, and COOL will be critical in allowing both U.S. cattle producers and U.S. consumers to differentiate their beef, as we have already done in many foreign markets. As one looks out on the horizon, one of the highest values consumers will be placing on the food they purchase in the future is “how and where it is produced.”

Leo McDonnell ranches in Columbus, Mont. and Rhame, N.D. He also sits on various industry association boards

Sometimes people complain that all they ever read or hear in the news is bad. They may blame the messenger. “Why can’t they tell us about all the good things that happened today?”

The news people are just doing their job. Things are supposed to go right, so it is only news when they go awry. If no news is good news, it is also largely true that good news is no news. 

An old setup line for jokes is, “I’ve got good news and bad news. Which do you want first?” Real-life research, like most of the jokes, has it that people want bad news first. Unlike the jokes, bad news is not usually followed by a funny punch line.

Psychologists have studied how young people react to news of good or bad consequences for actions and found that we tend to disbelieve the bad until learning from experience as we mature. All age groups believe the good consequences.

Other research says our brains are wired to recall and react more strongly to bad news because at the dawn of time the most important things to remember were dangers. Of course, we learn early on that fire always burns, just like cattle learn the electric fence is to be avoided.

Moving to a practical model, psychologists have noted a typical pattern response to bad news, represented by the acronym SARA – shock or surprise, followed by anger or anxiety, then rejection or rationalization and finally acceptance.

We vary in how long we spend in step three and whether we simply accept it or try to change the situation. 

Good and bad news are common in every business, including cattle enterprises. Bad news is much more important than good, and again, it has much more impact. Since things are supposed to be going right, you want the bad news first and as soon as possible – not so that you can come to accept it, but so you can make changes.

When selling cattle in a market that has evolved to expect better-than-average performance, you can be sure of a quick shock of bad news if your cattle even look subpar. Bad news grows if they go on to disappoint in feedyard performance and grade, and that news more than likely comes back to your doorstep like a slow-burning fuse.

Buyers, feeders and packers keep good records, marking down gold stars or red marks by source. A bad experience means they will try to avoid your cattle, and you can only hope to learn why so you can adjust.

The final arbiter in this market is the consumer, however, who cannot usually exert direct influence on your cattle price. 

A bad eating experience stays with them, however, and they exert an influence further down the beef supply chain. A rule of thumb in the restaurant business is that people may tell somebody if they had a great steak, but they will tell 10 if they were disappointed.

Those who sell beef at today’s prices have increasingly adopted a strategy that few predicted a decade ago.  Creativity in making better use of new cuts and grinds was to be expected. But the surprise – and a good one if you produce high-quality beef – is that the beef marketers are turning toward premium brands that cost even more.

They are doing so to minimize the chance of diners spreading bad news about their food, and to build repeat customers who just want to share the good news with their taste buds.

Whatever link you call home in the beef supply chain, be thankful for bad news. Be proactive in looking for it and take corrective action when and where you can. Then, join with other consumers in celebrating your success with a flavorful, juicy steak.

Next time in Black Ink® Miranda Reiman will compare market share and demand.  Questions? Call 330-465-0820 or e-mail This email address is being protected from spambots. You need JavaScript enabled to view it..

A common dilemma among agricultural families is how to be fair to both on- and off-farm children. Because the assets of a farm or ranch typically represent the vast majority of an agricultural family’s net worth, there are typically few assets to leave to off-farm kids. As a way to equalize inheritance, parents can purchase life insurance for the benefit of their off-farm children. 

Parents often pass the farm or ranch equally to all of their children, leaving them to “figure things out for themselves.”  This is often a recipe for disaster because the off-farm children often want their value of the farm or ranch after their parents are gone. Because the on-farm child usually can’t afford to buy out their siblings share of the farm or ranch, he or she will be forced to sell. This often results in bitter feelings among the siblings. 

In the example below, we will examine a common scenario among agricultural families and show three solutions of how life insurance can be used to help the family achieve their financial goals.  

Example

John and Mary own a ranch valued at $8 million in central Montana.  They are both age 65 and have three children – Steve, Mark and Sue. Besides the ranch assets, they have savings and investments of $200,000. 

John and Mary’s son Steve has lived and worked on the ranch his entire life.  They pay Steve an annual salary of $30,000.  Mark and Sue have other careers and are not interested in coming back to the ranch.  

John and Mary would like to pass the ranch to Steve and provide a “fair” inheritance to Mark and Sue. Their goal is to leave Mark and Sue an inheritance equal to half of the current value of the ranch divided equally between them.  John and Mary meet with their advisory team to explore their options for providing Mark and Sue each with $2 million.

Exploring options

The first option that John and Mary have is to save money.

The family estimates John and Mary’s joint life expectancy to be 20 years. Assuming they could earn an average annual return of six percent on an investment, they calculate they would need to save over $110,000 per year for 20 years to come up with $4 million to leave Mark and Sue.  

Option one won’t work.

Their second option is to borrow the money.

They call their local banker and Farm Credit Services representative to see how much it would cost for Steve to borrow $4 million. Using a fixed interest rate of six percent and a term of 20 years, Steve’s monthly payment would be $26,398.23.  

Over 20 years, his payments would total $6,335,575.  

Option two also won’t work.

Insurance option

Their third, and final, option is to utilize insurance to provide Mark and Sue with an inheritance equal to $4 million.

The family obtains quotes on a $4 million Survivorship Life insurance policy on John and Mary’s life.  Based on standard ratings, the annual premium would be $60,000. 

The family concludes that using life insurance to equalize the estate is the best option.  

Solutions

Three potential solutions are presented involving life insurance. 

The first solution is thatJohn and Mary establish an Irrevocable Life Insurance Trust (ILIT) and purchase a $4,000,000 Survivorship Life insurance policy with the ILIT as owner and beneficiary of the life insurance policy.  

John and Mary name their two off-farm children, Mark and Sue as beneficiaries of the ILIT.  When John and Mary pass on, Steve inherits the ranch and Mark and Sue split the $4 million life insurance proceeds 50/50.  

Their second option is to provide for each of the children in a will or living trust.John and Mary could provide for a distribution of a one-half interest in the ranch to Steve and a one-quarter interest each to Mark and Sue.  

During their lifetimes, they have Steve, Mark and Sue execute a binding cross-purchase agreement whereby Steve agrees to buy-out, at fair market value, the one-quarter interests – $1 million each – that will be distributed to Mark and Sue.  

Steve then purchases a $2 million Survivorship Life insurance policy on John and Mary. If he needs additional funds to pay the premiums on the policy, the ranch may be in a position to increase his salary or bonus additional money to him on an annual basis.  

Upon the second to die of John and Mary, Steve uses the death benefit to acquire their interest, per the cross-purchase agreement.   

A third solution in purchasing life insurance also exists. 

The family determines they cannot afford the $60,000 annual life insurance premium. To come up with the money to pay the annual premium, they decide to sell a lesser productive portion of their land valued at $1 million through a Charitable Remainder Trust (CRT) and use the annual income from the CRT to pay the annual life insurance premium. 

Because the CRT is a tax-exempt entity, it will not have to pay capital gains tax on the sale. Assuming they net $1 million from the sale of land and select a six percent payout in the CRT, they will receive approximately $60,000 per year from the CRT. They will use this income to pay the annual life insurance premiums. 

Benefits of life insurance

Life insurance can be an effective tool for an agricultural family. There are many types of life insurance polices and many ways of structuring policies for achieving one’s goals.  

There are also serious tax ramifications associated with the ownership of life insurance.  

It is important to work with an experienced independent agent and to involve the assistance of an estate planning attorney.  

For more information, request Wealth Guide titled: Life Insurance: An Effective Estate Planning Tool for the Agricultural Family.

Chris Nolt is the owner of Solid Rock Wealth Management and Solid Rock Realty Advisors, LLC, sister companies dedicated to working with families selling a farm or ranch and transitioning into retirement. For more information, call 406-582-1264 or visit solidrockwealth.com and solidrockproperty.com.