Disruptions of corn trade with China is having an impact on Grain and DDGS prices. Also learn about succession planning for country elevators, T&D tax credis and used equipment.

1. Copyright © 2015, Sikich. All Rights Reserved. www.sikich.com
DisruptionsofCornTradewithChina,
the Impact on Grain and DDGS Prices
and Related Lawsuits Against Syngenta
By Scott Roberts, Partner and Dan Bukovac, Partner; Stinson Leonard Street LLP
U.S. corn exports were suddenly disrupted in November 2013 when China began to reject U.S.
shipments after testing detected a bio-engineered genetic trait that China had not approved.
The USDA reported that corn exports to China before the rejections had reached 4.0 million
tons in the early months of the 2013-2014 marketing year (September 2013 through August
2014) and projected U.S. corn exports to China to reach 7.0 million tons for the marketing year.
But the U.S. corn exports to China all but stopped after December 2013, and those exports
have never recovered. According to a March 2015 Reuters article, Chinese buyers have shown
little interest in U.S. corn so far in 2014-2015 but booked more than 600,000 tons of corn from
Ukraine, which became China’s largest corn exporter in January 2015. As of mid-April 2015,
the U.S. Grains Council reported a decrease of more than 95 percent in exports of U.S. corn to
China from 2013-2014 to 2014-2015. With the loss of a major export market, demand for U.S.
corn has weakened. And U.S. corn prices have been at four-year lows, as noted in the Sikich
Agribusiness Update last fall.
What has caused the continued disruption of the corn export market? And what can businesses
do if they have suffered from decreased demand and lower prices for U.S. corn?
GMOs and U.S. Grain Exports
First, some background on these issues may be helpful. Before seeds and crops with bio-
engineered genetic traits (commonly referred to as GMOs) can be commercialized in the U.S.,
the USDA/APHIS must provide regulatory approval, making a determination of “nonregulated
status” under GMO regulations after conducting environmental impact assessments.
However, deregulation by APHIS does not result in automatic approval of GMOs in other
countries that have their own regulatory approval procedures. Additionally, certain importing
countries, including China, have “zero-tolerance” policies for unapproved GMOs and will reject
imports of U.S. grain if even trace amounts of unapproved GMOs are detected after testing.
Commercialization of GMOs in the U.S. after U.S. approval but before approval by countries
that are major export markets poses risks to grains approved for export resulting from the
potential for traces of the unapproved GMOs finding their way into U.S. grain supplies.
In This Issue
Syngenta Update.................... 1
Succession Planning for
Country Elevators................... 3
R&D Tax Credit.......................... 4
Used Equipment...................... 5
CLIENT SPOTLIGHT:
Jenner Sales
Learn how Sikich has
helped Jenner Sales, an
agricultural equipment sales
company, with accounting-
related challenges,
particularly when the IRS
selected Jenner for an
unplanned audit.
Watch the video at
sikich.com/jenner-sales
Agribusiness Update
Thought Leadership Experts
Spring/Summer 2015
...certain importing countries, including China, have “zero-tolerance” policies for
unapproved GMOs and will reject imports of U.S. grain if even trace amounts of unapproved
GMOs are detected after testing.
continued...

2. Agribusiness Update – Spring/Summer 2015
Copyright © 2015, Sikich. All Rights Reserved. www.sikich.com
Syngenta MIR 162
The latest disruption of exports to China demonstrates
that the risk is real. On April 12, 2010, APHIS deregulated
Syngenta’s Agrisure Viptera™ MIR 162 (“MIR 162”). Syngenta
commercialized MIR 162 for the 2011 U.S. growing season
before having regulatory approval from China necessary for
exports to that country. In November 2013, enforcing its zero-
tolerance policy, China tested for the presence of MIR 162 in
corn imports from the U.S., and MIR 162 was soon detected
in U.S shipments of corn. As a result, U.S. corn was almost
completely shut out of China’s corn import market by early
January 2014. By July 2014, MIR 162 had also been detected in
nearly 1,000 batches of imports from the U.S. of Dried Distillers
Grains with Solubles (DDGS), totaling 425,600 tons, according
to a notification from Chinese authorities to the USDA. The result
was the U.S. corn export disruptions mentioned above. Not
until December 2014 did Chinese authorities finally grant import
approval for MIR 162 covering both corn and DDGS. But even
after the Chinese approval of MIR 162, U.S. corn exports to
China have not recovered, as discussed above.
Syngenta Event 5307
The disruption in the U.S. corn export market appears to have
continued because of another Syngenta GMO. On April 12, 2010,
APHIS deregulated Syngenta’s Agrisure Duracade™ Event 5307
(“Event 5307”), and Syngenta commercialized Event 5307 for
the 2014 U.S. growing season before having regulatory approval
from China necessary for exports to that country, as it had
MIR 162. But unlike MIR 162, Event 5307 has not yet received
approval from Chinese authorities. The March 2015 Reuters
article, mentioned above, suggests that Event 5307 is the reason
that Chinese buyers have continued to avoid U.S. corn imports,
even though the price of U.S. corn is more competitive than the
price of corn from other sources, such as Ukraine. The Reuters
article reports that U.S. suppliers have revised their contract
terms to place the risk of future rejections by Chinese authorities
on the Chinese buyers, and those buyers, apparently unwilling to
accept that risk, are looking to alternative sources.
Estimated Impact on U.S. Corn Prices
On April 16, 2014, the National Grain and Feed Association
(NGFA) and the North American Export Grain Association
(NAEGA) published their joint analysis assessing the economic
impact of China’s rejection of U.S. corn and DDGS shipments
containing MIR 162. The NGFA/NAEGA analysis estimated that
the total economic damage to U.S. sellers of corn, DDGS and
soybeans from Syngenta’s commercialization of MIR 162 before
Chinese import approval—and the trade disruptions that ensued
after China detected MIR 162 and rejected shipments under its
zero-tolerance policy—ranged from $1 billion to $2.9 billion for
the 2013/14 marketing year. Using a conservative mathematical
model that forecasts the national average corn price based
on U.S. corn ending stocks, the NGFA/NAEGA analysis also
estimated that the trade disruption depressed U.S. corn, DDGS
and soybean prices. A second NGFA/NAEGA analysis, also
published in April 2014, predicted that U.S. growers, grain
handlers and exporters could sustain a similar economic impact
during the current marketing year (that began in September
2014), given Syngenta’s decision to commercialize 5307 before
the earliest regulatory-approval timelines in key U.S. corn export
markets (including China). The Reuters article and U.S. Grains
Council reports (showing a 95 percent decrease in corn exports
to China) indicate that the NGFA/NAEGA prediction has
come true.
In August 2014, NGFA/NAEGA announced that their analyses had
been updated to provide an assessment of China’s feed grain
import decisions in the months following the rejections of U.S.
corn shipments containing MIR 162. The NGFA/NAEGA update
concluded that contrary to some speculation, China’s rejections
of U.S. corn imports were not motivated by either adequate or
surplus Chinese domestic feed grain supplies or a motivation to
obtain prices lower than the negotiated U.S. corn contract prices.
Rather, Chinese importers actually purchased higher-priced
alternative feed grains and corn, including Australian barley and
wheat, U.S. grain sorghum and Canadian barley. China’s reliance
on alternative sources has continued into the current marketing
year as evidenced by the purchases of corn from Ukraine,
mentioned above.
Lawsuits Against Syngenta
Responding to these trade disruptions, farmers and large
agribusiness companies alike have filed individual actions and
class actions against Syngenta for damages that they allege
have been caused by Syngenta’s conduct, including the early
commercialization of MIR 162 and Event 5307. Most of those
lawsuits have been filed by farmers and farm entities that
never planted Syngenta seed corn but allege that they suffered
damages from the impact on corn prices. The lawsuits have
been filed in state and federal courts across the United States.
Syngenta has been “removing” the state court lawsuits to federal
court based on federal statutory provisions that Syngenta argues
authorize such removals. All of the federal court lawsuits (and the
state court lawsuits after removal) are being transferred to Judge
John W. Lungstrum in the United States District Court for the
Copyright © 2015, Sikich. All Rights Reserved. www.sikich.com
Disruptions of Corn Trade with China, continued...
continued...

3. Copyright © 2015, Sikich. All Rights Reserved. www.sikich.com
District of Kansas in Kansas City, Kansas. Judge Lungstrum has
been assigned to preside over federal “multidistrict” proceedings,
a common procedure in such circumstances.
Steps for Businesses Potentially Impacted by
Export Market Disruptions
If you believe that your business suffered damages from the corn
trade/export disruptions that began in November 2013 (including
declining corn prices), there are some steps that you should
consider taking to protect your potential claims.
� Consult with your accountant to determine whether your
business has been impacted and what damages you may have
suffered from the corn trade disruptions.
� Consult with a lawyer to determine whether you have a claim
and whether you need or want to file a separate lawsuit to
preserve your claim.
� Preserve all of your records that relate to your operations that
you believe have been adversely affected by the recent export/
trade disruptions.
Scott Roberts and Dan Bukovac, partners in the law firm of
Stinson Leonard Street LLP (www.stinsonleonard.com), are
currently representing clients with claims against Syngenta.
Before joining the firm in 2012, Scott served as in-house
counsel to one of the world’s largest ag companies. Scott is in
the firm’s Decatur office and co-chairs the firm’s agribusiness
industry group. In litigation and regulatory proceedings, Dan
has represented a variety of agribusiness clients, including
seed producers, animal feeding and production companies,
animal health companies, grain, feed and ingredient suppliers,
manufacturers of farm and processing equipment and farm and
farm cooperative businesses. He has been representing clients in
lawsuits related to various GMOs since 2000. Dan is in the firm’s
Kansas City office.
A 2014 Business Enterprise Institute survey of U.S. business
owners found that 69 percent of business owners expect to
exit their business in the next 10 years. This is a reflection of
the demographic shift we are experiencing, as many business
owners and leaders are nearing retirement. This reality exists in
agribusinesses as well.
One of the business succession planning questions many country
elevators ask is related to enterprise value. As many of us know,
there are many rules of thumb circulating related to the value of
country elevators. There are many factors that impact value:
1. Profitability of elevator operation: Profitability is a reflection of
the customer’s willingness to deliver grain at a fair price, pay
service fees for drying, storage and cleaning services. It is a
further reflection of the people and processes that exist in that
operation that create that customer experience. Lastly, it is a
reflection of the elevator’s ability merchandise and deliver a
quality product at a price that allows them to generate a profit
on that sale. An elevator that has been profitable is also an
elevator that has had the resources to reinvest in the facility,
which improves the customer experience and enhances its
market share.
2. Market opportunities: The market refers to the amount of
supply of grain in a market territory as well as the market that
exists to sell that grain, driven by proximity to a customer or
to efficient means of delivery, such as rail or river barge. The
existence of a rail siding or a barge loading facility allows an
elevator access to additional markets that drives higher
pricing opportunities.
3. Storage capacity: Storage capacity is a driver of value. It is
a reflection of the revenue potential as well as the amount
of invested capital in tangible assets. Construction type of
facilities, whether it is steel bins, concrete bins or flat storage,
also impacts value, because of the life and utility of each
of these. Elevators with higher inventory turns can further
enhance their value, including elevators that have an aspect
of direct shipping from the farm to the market.
4. People: It would be easier to describe this as the key
management team or the board of directors but there are
many key people who touch customers or provide a service
to a country elevator that need to be considered. Trained
people perform a service to a country elevator. They maintain
relationships with customers. If a company has a succession
plan for each key position, the value will increase.
5. Logistical capacities: The efficiency of an elevator to
receive grain at harvest is an increasingly important factor
to value. Are its facilities located strategically so the farmers
can efficiently truck their grain? Is the leg capacity adequate
to handle receipt of grain to avoid long wait times
during the busiest harvest days? Does the elevator have
adequate drying capacity to handle wet grain? Is the traffic
flow convenient?
6. Additional retail operations: If the elevator has other retail
operations such as fertilizer and chemical sales, seed sales or
fuel sales, these can be viewed as separate businesses that
would add value to the country elevator.
Country Elevators: Planning for Business Succession
By Tom Bayer, CPA, CSPM, CExP; Partner, Sikich
Disruptions of Corn Trade with China, continued...
continued...

4. Copyright © 2015, Sikich. All Rights Reserved. www.sikich.com
The other question that often arises is how to retain key
employees. Retirement of the general manager or a merger
with another elevator or cooperative is a major event and a
major change. With any major change, there is risk. To plan for
that risk, protecting key assets, including key employees, is
crucial. Boards must ensure they offer competitive compensation
and benefit packages, along with a workplace culture that
attracts employees with the right attitude and work ethic. Many
times we take these factors for granted, leading to turnover.
Other strategies that can be explored for key employees are
stay bonuses or deferred compensation plans. Stay bonuses are
designed to incentivize certain employees to continue
employment through the transition period. The compensation
is deferred for a period of time to force the employee to be
employed as of a certain date to receive the bonus. Deferred
compensation plans can be in the form of equity or other cash.
A vesting schedule designed for each key employee requires him
or her to meet certain employment goals or be employed for a
specific time to receive the additional compensation.
The planning process is one that can never be completed
too early. Exposing opportunities to improve the business,
or mitigate risks that are discovered, can only be beneficial.
The plan needs to be revisited at least annually, and adjusted,
as the business changes.
Tom can be reached at tbayer@sikich.com or 217.862.1704.
In today’s competitive and challenging times, agriculture
businesses are constantly adapting, improving and developing
new products to bring to the marketplace. At the same time,
businesses are ever-striving to refine and improve the methods
and processes they utilize in making these products. Congress
decided to reward these efforts in the form of the research and
development tax credit (“RD credit”). Awareness of this credit
may reduce a taxpayer’s overall income tax liability, and thus
trim the cost of the overall research expenditures.
Research and development tax credits have been available to
taxpayers since 1981. Historically, taxpayers have found the RD
credit difficult to use and calculate. In recent years, however, new
tax laws and IRS regulations have broadened the availability of
RD credits by expanding the expenses allowed in computing
the credit and by simplifying the calculation of the credit (Please
note: The RD credit temporarily expired as of December 31,
2014, which has happened numerous times over the past 30+
years of the credit. It is likely, however, that the credit will be
extended retroactively back to January 1, 2015 at some point
this year).
The RD credit is not just for those in the computer and
technology industries, but can also apply to agriculture
businesses. Ag businesses have certain activities that they
consider “ordinary” functions in their operations, however,
several of these might actually qualify as RD projects.
For tax purposes, the IRS’ rules define research to include
development of new customer products, improvements on
existing customer products (2nd generation, 3rd generation,
etc.), the improvement or development of a process, software
development and many others. The new process or product
that is developed must only be new to the taxpayer, and not
to the agriculture or farming industry as a whole. Research
expenditures from both successful and failed projects can
be used to calculate the RD credit. The application of the
research could include not only new and improved equipment
used in agriculture, but also new methods to improve planting,
growing, harvesting or storing of crops and produce, and also
to livestock. Some other possible applications in the agriculture
industry could include:
� Developing new approaches in harvesting
� Developing new methods at reducing damaged or
spoiled crops
� Creating new techniques and methods to enhance crop yield
� Develop new products or crops or improve existing products
(i.e., higher quality or longer storage)
� Develop new fertilizers or techniques, as well as methods of
pest-control
� Create or discover for livestock new methods of feeding,
as well as enhanced breeding
� Many more; again, striving to identify new or improved
products or processes
Field of Tax Dreams: The RD Tax Credit
By Jim Brandenburg, CPA, MST; Partner, Sikich
Country Elevators, continued...
continued...

5. Agribusiness Update – Spring/Summer 2015
Copyright © 2015, Sikich. All Rights Reserved. www.sikich.com
To calculate the RD credit, taxpayers must identify its “qualified
research expenses” (“QREs”). QREs must contain the following
three elements to secure any RD credit:
� The first is the existence of the process of experimentation.
This is satisfied when there is uncertainty as to whether a
product or process can be produced, or uncertainty exists as
to how to accomplish the product or process. The process of
experimentation is generally a “trial and error” process.
� The second factor requires a project to be technological in
nature. This means it must involve the use of physical and
biological sciences. This eliminates research relating to social
science, humanities and economics.
� The final factor specifies that the research focus on developing
a new or improved business component. This factor is met
when working toward a new or improved product or process.
Once the research project meets the above subjective tests, the
project costs are further evaluated as only certain costs qualify
as QREs. QREs include wages of personnel involved (often
engineers, but can include some clerical support staff and even
some supervision), supplies used in the project and 65 percent
of “contract research” if certain conditions are met. Examples
of ineligible costs include market and consumer research,
advertising and promotion expenses and ordinary quality
control testing.
It is critical for taxpayers to document their QREs. An RD credit
is allowed only if the business has adequate documentation.
Without any documentation to support its research efforts
and related costs, any research credit is generally disallowed.
Documentation should describe and illustrate all the test
results, the trial-and-error process of the testing, changes
and modifications made during the process and what product
improvements or new product was developed. It is important to
document successful attempts, as well as failed attempts. Again,
documentation is essential in obtaining the RD credit.
Once the research projects are identified and QREs determined,
the next step is to calculate the RD credit, and this calculation
recently changed. The “original” formula to calculate the RD
credit requires taxpayer to gather information as far back as 1982.
It also dictates an increasing level of QREs in order to receive the
credit. While this original method is still available, many taxpayers
find the new “alternative simplified credit” (“ASC”) calculation to be
less complex. Additionally, the ASC method does not require an
increase in QREs to receive the credit.
The RD credit using the new ASC method is calculated as
follows: 14 percent of the excess of current year QREs over
50 percent of the average QREs for the previous three years.
For example, assume XYZ Company incurs QREs of $400,000
in 2014. Further, XYZ averages QREs of $400,000 in the years
2011-2013. The RD credit in this situation using the ASC
would be $28,000 [14% x ($400,000 - (400,000 x 50%))]. Thus,
with the ASC method, an RD credit of $28,000 is allowed
even though the QREs did not increase.
Taxpayers with no QREs in the previous three years are
still allowed an RD credit if they incur QREs in the current
year. The calculation of the research credit in this case is
equal to 6 percent of its QREs for the current year. Using
the previous example with XYZ Company with $400,000
QREs in 2014 (and assuming no prior years’ QREs), the
credit would be $24,000 ($400,000 x 6%), slightly less than
the $28,000 credit.
With the variety of activities qualifying for the RD credit and
with the simplification of the credit calculation, the RD credit is
more attractive to taxpayers than in the past. In addition, many
states also offer their own RD tax credits (some Midwestern
states with RD incentives are Wisconsin, Illinois, Indiana, Iowa,
Missouri and Minnesota). Ag businesses should analyze their
operations to identify RD projects and the costs associated with
these projects to determine the possible tax saving opportunities.
Jim can be reached at jbrandenburg@sikich.com or
262.754.9400 x261.
As commodities prices have fallen over the last two-and-a-half
years, so too have used equipment prices.
Commodities prices reached recent peaks in the fall of 2012
when corn was around $8, wheat was $9 and soybeans were
$17.50. As of publication time, corn was at $3.58 (down 55
percent), wheat at $4.76 (down 47 percent) and soybeans at
$9.83 (down 44 percent). The silver lining, for some, is that
used equipment prices have also been declining. According to
Machinery Pete, auction data shows prices for large, late-model
used equipment have decreased nearly 25 to 30 percent over
the last two years. While commodity prices are generally not
expected to recover in 2015, it may still be a good time to find a
deal on used equipment.
Agricultural machinery has seen significant technological
advances in recent years with equipment guidance and automatic
steering, variable rate application, optical crop sensing and
telematics, to name a few. But as the machinery has been built to
increase capacity and efficiency, there has also been added size
It’saGoodTime to Be an Equipment Buyer
By Greg Fiedler, CPA; Manager, Sikich
Field of Tax Dreams, continued...
continued...

6. and weight. The strong commodities prices leading up to early
2013, coupled with significant technological advances, caused
many farmers to trade in late-model equipment and upgrade to
equipment able to cover more acres, improve yield and mitigate
soil compaction.
The increased sales of new equipment led to a growing supply
of quality late-model used equipment. Equipment dealers are
adjusting prices of used equipment down to reflect market
conditions and take advantage of tax benefits of writing
inventories down to market values. Dealers with significant
service operations also have incentives to turn over used
equipment inventory to keep demand for parts and repairs. To
maintain high-quality used inventory and consumer confidence,
the agriculture equipment industry is beginning to adopt the
certified pre-owned concept the automotive industry has
been using for years. While certified equipment will carry a
price premium, buyers will be assured equipment experiences
thorough inspections and receives necessary repairs or
refurbishments. In many cases, certified equipment may also
come with a warranty.
Some farmers see the down equipment market as an opportunity.
While budgets may be tight for many over the next few years,
farmers may save $20,000 or more, depending on their needs,
by buying equipment this
year rather than waiting
for commodity prices to
turn around. Farmers may
also see cost savings
through reduced input
costs for seed, fertilizer,
etc., as well as improved
yields that the newer, more
technologically advanced
equipment will bring.
Machinery Pete has identified the third quarter as the time
that typically sees the weakest auction prices. Now is the time
to assess equipment needs, evaluate current market pricing
and start looking for deals. We may not see the bottom of the
agriculture equipment market in 2015, but waiting for another
drop could cause farmers to miss out on other savings and yield
enhancements now.
It’s a good time to be a buyer, but we’ll keep our fingers crossed
that Congress sweetens the pot by retroactively increasing the
Section 179 limit for 2015.
Greg can be reached at gfiedler@sikich.com or 217.862.1861.
1415W.DiehlRoad,Suite400
Naperville,Illinois60563
It’s a Good Time to Be a Buyer, continued...