Find out what's new in agribusiness for 2012 and beyond, and how it could affect your agriculture business.

1. 2012 Agribusiness Update
December 6, 2012

2. Agenda
10:45 a.m. – 11:00 a.m. Welcome Time & Registration
11:00 a.m. – 11:05 a.m. Sikich LLP
• Introduction
11:05 a.m. – 11:35 a.m. Chuck Spencer, Director of Government Affairs, GROWMARK, Inc.
• Farm Bill and Legislative Developments in Agriculture
11:35 a.m. – 11:50 a.m. Break – Box Lunches
11:50 a.m. – 12:20 p.m. James Hedges, Vice President Row Crops Eastern/Coastal
Region, Monsanto
• Opportunities in a Complex Marketplace
12:20 p.m. – 12:50 p.m. Dale Aupperle, President, Heartland Ag Group, Ltd.
• Land Values and the 2012 Crop Year
12:50 p.m. – 1:20 p.m. Bob Disbrow, Partner, Sikich LLP and Tom Bayer, Partner, Sikich LLP
• Perspectives in Agriculture – 2012 Trends and Developments
1:20 p.m. – 1:30 p.m. Q&A

4. Legislative Update
• State
• Regulatory
• National

5. State Update
• Budget 2012 – IA, IN, WI, IL
• Election – Veto Proof Majorities
– House 71 D 47 R 2010 64 D 54 R
– Senate 40 D 19 R 2010 35 D 24 R
• Deal watch – Pensions, Gaming, Revenue

6. State Update
• KIC 2025 – Keep it for the Crops
– http://www.kic2025.org/
• KIC by 2025” establishes goals for
reducing nutrient losses from agriculture
through adoption of the 4R’s of Nutrient
Use: Right Source, Right Rate, Right
Time, Right Place.

8. State Update
• NPDES Permit for Pesticide Application
• CAFO’s Water Quality
• Mississippi River Basin Initiative

9. Obama 332 Romney 206

11. President County By County
2008

12. President County by County
2012

13. Congressional Districts 2012

14. Elections Matter
• Illinois Election Results: Republicans
Win Big In Usually Blue Illinois
• Huffington Post 11/2010
• Expert: Redistricting A Big Factor in
Democrats Wins in Illinois
• CBS Chicago Channel 2 2012
• 2012 - 12 D 6 R 2010 - 8 D 11R

15. Elections Matter
• White House, Senate, House – Same
• 6 Billion total on all U.S. Elections
• Taxes, Immigration, Environment, Climate
Change, Supreme Court, Appellate Court

16. Regulations
• Green House Gas Emissions
• Ozone Rule
• Hydraulic Fracturing
• EPA Waters of the State Guidance
• Storm Water Regulations
• New Gasoline Formulation

17. Regulations
• Clean Water Act NPDES Permits
• Pesticide Application restrictions - West
• Spray Drift
• Chesapeake Bay
• Florida Water Quality Standards
• MRBI
• Application testing and training

18. Success Update
• Hours of Service Waiver
• Dodd Frank Rules and Cooperatives
• Clean Water Act Permits for Pesticides
• PRIA

19. Biofuels

20. National Policy Update
• President supports biofuels development
and the RFS.
• RFS Waiver Denied
• 195 House Members and 25 Senators
signed a letter supporting a waiver.

21. Farm Bill

22. Fiscal Cliff
• Payroll Tax Rate – 4.2% to 6.2%
• Capital Gains – 15% to 20%
• Dividends taxed at ordinary income 39.6%
• Marriage Tax – 167% of two individuals
instead of equal to individual deduction
• Personal exemption phase out for higher
incomes
• Estate Tax – 5.12 Million 35% to 1 M 55%

23. Low Water in Mississippi
• Fertilizer for Spring Impacted Now
• $20-$40 per Ton Added Cost Over River
• Grain Bids Impacted
• 7 Million Tons of Ag Products – $2.3 Billion
• Senator Durbin is taking a lead on this
issue. 15 Senators, 62
Congressmen, 2 Governors

24. Stewardship
• Farmer/Landowner/Tenant Relations
• CCA and Agronomic Specialists
• Watershed Commitments
• On Farm Discovery
• 4 R Program – Source, Rate, Place, Time

25. Participate & Use Our Voice Wisely

26. Riding the Wave of
Illinois Farmland Values!!!
December 6, 2012
By:
Dale E. Aupperle, AFM, ARA
President- Heartland Ag Group Ltd.
1401 Koester Drive, Suite 100
Forsyth, IL 62535
******
Phone: (217) 876-7700
Fax: (217) 876-7724
E-mail: dale@heartlandaggroup.com
Web: www.heartlandaggroup.com
Sikich LLP & Heartland Ag Group Ltd. - in Springfield and Decatur

28. Agriculture is the most
basic industry to our Nation
 Produces over 15% of GNP
 Employs 20% of national work force
 Has well over $1 trillion in assets
 75% of agriculture’s assets (real estate)
 55% of U. S. land is owned by people
whose chief occupation is not farming!
 Approximately 1% of the population are
farmers

29. Current Ag Trends
Note some of the following general observations regarding
agricultural conditions throughout our respective agricultural
areas:
 High and Volatile Grain Prices  Low Interest Rates
 Rising Farming Expenses  Outside Capital Coming In
 Exploding Farmland Values  Uncertain Global Demand
 Ongoing Weather Concerns  More Absentee Ownership
 Leasing Shifts to Cash Rent  Threats of Inflation/Deflation
 Uncertain Farm Bill Safety Net  Fear of the Future
 Increasing Sensitivity to Farming Risk

30. The Latest Farming Equipment
New tractors run on GPS guidance and auto-steer.

31. The Latest Farming Equipment
Planters range from 16 rows to 48 rows!

32. The Latest Farming Equipment
Nitrogen applicators for growing corn crops.

33. The Latest Farming Equipment
The new combines are monsters!

34. Tile Drainage Systems
(are becoming prevalent)

36. The Great Drought of 2012!!
(Tracking corn yields on top quality Illinois farmland.)
Corn
Timeframe Yield Note
5-year Average 195 Common on good farms
Spring 2012 (est.) 210 Follows two off years
May 2012 (est.) 225 Early planting optimism
June 2012 (est.) 210 Dry and dry forecast
July 2012 (est.) 190 Dry too long
July 13, 2012 (est.) 130 Week of excessive heat
August 2012 (est.) 100 – 120 Zero rain and no forecast

37. Thoughts on a Sunday Evening
All of us gather our thoughts - - and keep our eye
on the ball in different ways. Here is a collection
of charts I look at every Sunday evening - - the big
picture is wonderful!

39. Long term uptrend
in tact?

40. This uptrend is
the gold standard!

41. Which direction
next!

42. Be careful of an
uptrend.

43. Historically high
prices!

44. Understand the Big Picture
Here is what’s happening in the world around us:
 U.S. Dollar – Most economist predict a declining dollar for the foreseeable
future.
 Worldwide Economic Growth – Middle class growth in developing nations
will lead to more food imports.
 Trade Policies – Trade liberalization will increase as will trade worldwide.
 Energy Costs – Agriculture is energy intensive so our cost of production will
be rising.
 Biotechnology – The sound science behind biotechnology research
will lead to higher yields and wider global acceptance.
 Global Farmland – Drought tolerant corn could lead to
significant acreage increases. Watch Africa, Latin America and
other spots on the globe.

45.  Supply and Demand – We have a very tight balance between world crop
production and overall usage. Crop production problems could cause serious
problems.
 The China Factor – An enormous and growing food and feed demand will
continue for the expanding population.
 Soviet Union Countries – Have rising grain production and export capabilities.
 Water Availability – Agricultural production worldwide will be threatened as
population pressures reduce water availability.
 Meat Consumption – World meat consumption is rising rapidly driving rising
export demand for feed grain and protein meal.
Summing it up - - This translates into a bullish outlook for the next
couple of years for agriculture. Pressure for expanded acreage or
enhanced yields will continue. Weather is critical!

46. Comparing Farmland to other
Financial Assets
Here is a quick comparison of how farmland compares in its overall return - -
it’s the best!
1970 – 2010 1990 – 2010
Average Average
Asset/Index Annual Return Annual Return
Farmland 10.77% 10.80%
Mtg./REITS 9.09% 9.49%
Aaa (Bonds) 8.24% 6.85%
10 yr Treasury 7.20% 5.45%
Dow Jones 6.52% 6.84%
S & P 500 6.24% 5.75%
CPI 4.29% 2.63%
PPI 4.03% 2.47%
CRB Spot Index 3.25% 2.40%
Note – From Bruce J. Sherrick, PhD at the University of Illinois.

50. Current Illinois Farmland Sales
Here are several representative top quality land sales that have
occurred since August 2012 across the central part of Illinois:
Price Per
County Date Acres Acre
Christian Aug 2012 162.92 $15,600
Macoupin Oct 2012 116.00 $14,100
Moultrie Oct 2012 157.76 $12,000
Macon Nov 2012 80.00 $12,750
McLean Nov 2012 81.21 $12,550
Piatt Nov 2012 160.00 $13,000
Macon Nov 2012 123.19 $14,400

51. Doubling Illinois Land Values
These specific four years show the powerful long-term increase in
Illinois farmland values.
Prime Land
Year Value
1972 $850 Doubled
1976 $1,725 Doubled
1980 $3,300 Doubled
2007 $6,000 Doubled
2012 $12,500 Doubled Again!!
Illinois farmland has increased 1235% overall in the last
thirty-nine years. It’s a growth stock - - the compound annual
increase was 6.5% per year. At that rate - - land will be at
$28,000 per acre in 20 years!

52. Heartland Outlook
November 2012
Agriculture is experiencing incredible forces from every angle. At Heartland
Ag Group Ltd., we are watching the following key areas:
 Commodity Prices – We are using $6.00 corn and $13.00 soybeans as a
focal point for our 2013 income projections. We will have volatile
trading ranges.
 Bushels Per Acre – Expect positive yield increases when weather
conditions return to normal cycles.
 Interest Rates – Are at historic lows - - attractive for farmland
mortgages. Farmland returns are attractive to alternate investments.
However - - interest rates will rise to combat inflation in future
years.

53.  National Politics – A presidential election year has passed - - we
survived!. The deficit spending, and Federal Reserve monetary policy
will be very inflationary long term.
 World Population – There are a lot of mouths to feed. The growth trend
is slowing but global numbers will pass the 9 billion people mark by
2050 (up from 6 billion today).
 Weather Trends – Weather has become crucial as we have minimal
global stocks of grain available to all of us. Have we left the good
weather behind?
 United States Economy – This big guy could either help us - - or take us
down! Our national lack of financial discipline has been
alarming - - it’s threatening.
 Sovereign Debt Crisis – Apparently everyone on the planet is
spending more than they are taking in. How do you stop this
nonsense?

54.  U.S. Tax Policy – There will be a giant sucking sound from Washington
D.C. as politicians search for money to fill deficits. Income, capital
gains, and estate taxes will be threatening.
 Inflation – Farmland is a wonderful hedge against inflation and perhaps
our rapid rise is signaling inflation coming. China has raised interest
rates five times this year to offset inflation.
 Investor Demand – Agriculture is experiencing an acceleration of
money moving from soft assets (financial investments) to hard assets
(farm real estate). That will become global in scope.
 Net Farm Income – We see a solid future for net profits from farmland
that will drive farmland values upward into the future.

55. Don’t Forget
 Farmland is a growth stock!
 Farmland is what it earns!
 Farmland is a hedge against inflation!
2013 will be a very profitable year - - and the U.S.A. is
going to continue the role of feeding and fueling the
world with renewable resources. Land values will be
stable to rising.
Save your money - - Buy a Farm!

56. One Last Thought:
“If you eat - - then you
are a part of
Agriculture.”
Leland Glazebrook
Farm Broadcaster
WDZQ Radio

57. Perspectives in Agriculture –
2012 Trends and
Developments

58. Farmer – GAAP?
As Farmers and other Agribusinesses continue to
grow, stakeholders of those entities enjoy the benefits of their growth
through increased demand for goods and services, but they also
accept more risk. One of the ways that this risk is managed is
through improved financial reporting – or financial information that is
presented in accordance with Generally Accepted Accounting
Principles, also referred to as GAAP. Many times, a CPA firm is
engaged to provide this level of reporting, giving additional
assurance to the stakeholder.

59. Farmer – GAAP?
Major differences in current financial reporting that is common in
agriculture, which is generally on a cash basis, tax basis, market basis,
or some combination of these methods, are as follows:
• Recognition of tax liabilities related to appreciated assets, or accelerated
deductions that are recognized on the tax return, but not reflected in the
financial statement.
• Valuation methods for inventory assets, equipment, prepaid expenses and
production costs incurred for future crops. Also, recognition of market gains
or losses on hedging activities.
• Disclosure of commitments, contingencies related to operating leases, or
open purchase contracts or sales contracts for inventory to be delivered.
Also, disclosure of risks such as concentration or dependency on specific
customers or vendors may be required under GAAP.

60. Farmer – GAAP?
Summary on Farmer GAAP
• Recognition of tax liabilities related to appreciated assets, or
accelerated deductions that are recognized on the tax
return, but not reflected in the financial statement.

61. FFSC Study of Financial Reporting
100,000
75,000
50,000
25,000
0
2002
2003
2004
2005
2006
5 Year
Schedule F Income Accrual Income Average
Study and analysis from 2012 FFSC Annual Conference in Bloomington, IL, and were prepared by the University of Illinois.

62. FFSC Study of Financial Reporting
80,000
70,000
60,000
50,000 Crop Inventory Change
Livestock Inventory Change
40,000 Accts Receivable Change
Prepaid Expenses Change
30,000 Accts Payable Change
Accrued Interest Change
20,000 Difference in Depreciation
10,000
0
2003 2004 2005 2006 5 Year
Average
Study and analysis from 2012 FFSC Annual Conference in Bloomington, IL, and were prepared by the University of Illinois.

63. FFSC Study of Financial Reporting
SUMMARY
• Average annual difference 59%
• 52% when 3 or 5 year averages used
• Depreciation, crop inventory changes and prepaids
• Impacts profitability-based financial ratios
Study and analysis from 2012 FFSC Annual Conference in Bloomington, IL, and were prepared by the University of Illinois.

64. Agribusiness Risks for 2013
Understanding of risk and development of risk management strategies
is becoming increasing important because of the following:
• The amount of dollars at risk are increasing as land
values, equipment values, and inventory values grow.
• Market volatility for production inventory, input costs, feed
costs, energy costs requires more risk management.
• Operations are getting bigger and the amount of capital and debt to
run operations is expanding

65. Agribusiness Risks for 2013
Risk # 1: Operational Risk
• Value of end product - whether its grain, livestock, feed, fertilizer, or
processed oil – how do we ensure the product is at a quality grade
and standard that the market will demand?
o How do we ensure that the product will not be “out of condition”
or lose quality grade during the storage period (e.g.: aflatoxin
spread)
• Contract compliance – How do we ensure compliance with
agreements with farmers, vendors, suppliers where delivery of the
product or service is critical to our operation?
• Regulatory compliance – OSHA, DOL, USDA, IRS, Department of
Health, IL DOA, all are agencies which are monitoring our collective
activities and requiring us to comply with their specific rules

66. Agribusiness Risks for 2013
Risk # 2: Consolidation Risk
• Tenant farmers are growing and the amount of land they control is
also growing, creating fewer customers that create concentration in
Agribusiness
• “Full Circle Farming” is a new concept where the Farmer is now
creating a comprehensive approach to farming and reducing the use
of other services by bringing these services within their organization
o Agronomist and other management services
o Marketing and hedging
o Trucking
o Storage and grain quality management
o Other products and services

67. Agribusiness Risks for 2013
Risk # 3: Business Continuation and Succession Risk
• Does the current and future management team have experience and
knowledge to manage the complexities of the new “Agribusiness”?
• Does the ownership group have a succession plan in place that
minimizes estate taxes and income taxes to allow for the capital to
remain in the operation?
• Do we have the appropriate amounts and types of business
insurance to protect the operation from the risks that exist
o Performance risk from key customers or vendors
o Life insurance and disability insurance on owners and possibly
key employees
o Business risks from product liabilities

68. Questions?

69. New 2013 Medicare Tax Increases
The new health care law passed by Congress in 2010 has been
gradually phasing in health care reform measures each year since its
enactment. Two Medicare tax increases are part of these health care
reform measures that will become effective January 1, 2013. The two
Medicare tax increases that will affect farming income for higher-
income farmers are:
• A 0.9% increase in the existing Medicare tax on "earned" farming
income, such as farming wages or self-employment income from
farming, and
• A new 3.8% Medicare tax on "unearned" or "passive" farming
income.

70. New 2012 Medicare Tax Increases
The 0.9% increase represents an increase on the existing Medicare tax
that is part of the payroll tax applicable to farm and non-farm wages or
self-employment income. The 3.8% increase is novel because this is
the first time that Medicare tax will apply to "passive" types of income.
These Medicare tax increases will only affect farmers in years when
combined farming and non-farming income exceed:
• $200,000 (for individual filers) or
• $250,000 (for farmers filing jointly with spouses).

71. Update on Estate Tax Planning
As of December 31, 2012, many tax provisions will change unless
Congress and the President can agree on a new set of rules.
• Federal estate tax rates and exemption
• Amount of gifts that can be transferred without tax
• Income tax rates on capital gains, dividends, and earned income

72. Questions?