These gains don't cause pain. A capital gain is the amount of money you pocket by selling one of your investments for more than you paid for it. Technically, capital gains only count for what's called a capital asset, but that's really just anything you own for investment purposes. Stocks and bonds obviously qualify, but your house and household furnishings can also count.

For tax purposes, capital gains are classified as either long-term (held for more than one year) or short-term (held for less than one year) and there are different tax implications for how long you hold onto a capital asset. For most long-term capital gains, you're taxed no more than 15% of the value of the asset. Short-term gains get taxed as regular income, so you pay the rate for the tax bracket you're in.

Capital gains can also be realized or unrealized. When you physically sell an asset like a stock, you've realized the capital gain. When you're holding the stock, and it has a value over its purchase price, but you're not selling it, you've got an unrealized gain, and you won't realize it until you sell.

In a perfect world, we'd all have capital gains. But no one¿s that smart or lucky. When the value of an asset at sale is below what you've paid for it, it's called a capital loss. The good news is that the government lets you count that loss against any gains you've had, lowering the taxes you pay. In fact, many people who sell a stock that has risen far over their purchase price tend to sell some stinkers, too, at the same time for the tax benefit. This is known as a capital-loss offset.

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Monday, April 28, 2008

Soaring Commodity Prices Burn Tyson Foods

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Ken Sweet

FOXBusiness

Feeding chickens is getting a lot more expensive --just ask Tyson Foods.

The rising price of commodities -- most notably the price of corn -- has taken its toll on the largest U.S. grower of chickens. The company reported a quarterly loss of 2 cents a share Monday.

Tyson’s main problem is a sharp increase in the cost of corn used as chicken feed. While the price of corn has jumped 50% from six months ago, the average price of chicken is up only 11.6% during the same period, according to Tyson

“Meatpackers already work on very slim profit margins,” said Ann Gilpin, a food industry analyst with Morningstar. “I don’t have one company I watch that’s benefiting from higher commodity costs. Tyson is just another example.”

An estimated 50% of the cost to raise chickens is related to feed. The rapid increase in a bushel of corn is expected to translate into an additional $600 million in feed costs for Tyson.

Add the rising costs of oil and energy, and Tyson said it believes its total costs will be upward of $1 billion this year, up from earlier estimates of $800 million. The costs are rising so quickly that Tyson said it would stop providing earnings guidance until further notice.

Gilpin said Tyson will have trouble passing off rising commodity prices to consumers unwilling to accept higher meat prices as easily as they do with milk and eggs.

“If chicken prices increase, consumers just stop eating chicken,” Gilpin said.
To compensate for the rising costs for raising chickens, Tyson is trying to boost sales of its ready-made products. The hope is that higher-priced items like boneless buffalo chicken wings or chicken nuggets will make up some of the difference.

Gilpin said Tyson is also expected to cut back its production of chicken significantly in 2008 to help boost chicken prices.

Agriculture commodities have soared in the past year and a half on a combination of the roaring price of oil and increased international demand for wheat and corn.
However, Tyson executives had another culprit – ethanol.

In a conference call with investors, Tyson President and Chief Executive Dick Bond said the U.S. government’s blessing of the production of ethanol is pushing corn prices up.

"Diverting corn to make ethanol doesn't make sense," Bond said to investors.

Pat Westhoff, an agricultural economist with the University of Missouri, said 4 billion bushels of corn will be turned into ethanol this year. That translates into approximately 30% of the nation’s corn going into fuel, compared to 25% in 2007.

Moreover, corn acreage is expected to by down 9% compared to last year, Gilpin said, as farmers divert their land away from corn and start planting more lucrative products like soybeans and wheat.

None of this is good news, according to Tyson’s Bond, who said he expects food prices to get “much worse” as the year unfolds.