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Monday, July 18, 2016

Corn and Soybean Input Costs Benchmark Median, Top 10%, Bottom 10% and Difference

By David Bau, Extension Educator

In 2014 and 2015 average total inputs costs divided by yields were higher than the average market price received by farmers in Minnesota who are part of the Adult Farm Management program. Farmers are not able to control market prices but are able to set up a marketing plan to take advantage of when favorable prices are available. Farmers are able to have control of input costs. The two charts in this article are figures from FINBIN data base in a benchmark reports for soybean and corn.

Chart 1 lists 2015 Soybean Input costs by Median value, average of the bottom 10% compared to average of top 10% and then lists the difference between the top and bottom 10%.

Chart 1. 2015 Top Verses Bottom 10% of Soybean Input Costs

Thursday, July 7, 2016

Homestead Classification Rules Change for Business Entities

By Gary Hachfeld, Extension Educator

When doing personal estate planning, one needs to take advantage of any and all estate tax exclusions at their disposal. One important exclusion is the Minnesota Qualified Small Business Property Qualified Farm Business Property estate tax exclusion. For 2016 the exclusion is worth $3,400,000. It will be reduced by $200,000 per year until 2018 when the exclusion will be fixed at $3,000,000. This is in addition to the $2,000,000 per person exclusion all MN residents will have in 2018.

The MN qualified property exclusion applies to a farm business owner’s estate upon their death providing they have followed several rules prior to death. The exclusion rules are as follows: the property must be a part of the decedent’s estate, the decedent had to own the property for 3 continuous years prior to death, the property must have met the requirements of the MN Corporate Farm Law, the property had to have been classified as 2a property and the decedent must have had homestead classification on the property at the time of death. In addition, the qualified family heir must follow some rules to keep the exclusion in place after the decedent’s death. Not complying with any of these rules would result in not being able to use the exclusion to reduce MN estate tax.

Thursday, June 30, 2016

Understanding income and expenses to proactively manage finances

by Betty Berning, Extension Educator

Money. For many people, it’s a topic they’d rather avoid. Often times, money is something they’d like to have more of – especially in this farm economy. Crops, dairy, and livestock operators are all in the midst of tight margins. Data from FinBin, a database of farm-level financial and operation data, support this.
For beef finishing operations in Minnesota, the average net return* per head from 2011-2015 was $82.99. The average number of cattle sold out was 223 head. In other words, the return for a farmer’s cattle feeding operation was ~$18,500/year. That’s not a bad return, particularly if there were additional sources of income such as crops, other livestock, or off-farm income. A positive return over a five-year period would make most people happy.
Digging deeper into the data, though, reveals a different story. The return per head has varied dramatically by year. (See Table 1)
In fact there have been four years with positive returns and only one negative year. Let’s dig deeper. 2015 was the negative year and it was ugly. It eroded away at a significant portion of the returns earned in the previous four years.
In fact, if we remove 2015 from the analysis in the previous paragraph, the average return per head from 2011-2014 almost doubles to $158/head or $35,200/year. 2015 was rough.
Table 1: Net return/head
mn beef team chart
In 2015, the average number of cattle sold off the farm was 228 head. Using this number and the -$289.36/head loss, we can calculate that the average FinBin beef finishing operation lost close to $66,000. To reiterate, it was a tough year. Certainly the positive returns in previous years may have helped to absorb the 2015 loss, but it is never easy to have such a large loss at once. Often times the gains from previous years have already been invested back into the operation by the time a loss year hits.
2016 is shaping up similarly, unfortunately. While feed prices remain low, USDA data indicate that finished steer prices are not close to the high prices of 2014. The most recent data (April 2016) show that finished steer prices are down from both year ago and month ago prices.
Often times it feels like there isn’t much that can be done when prices are low. To a certain extent, that is true. A farmer can’t raise prices. Prices are determined by supply and demand.
What a farmer CAN do is look at income and expenses to determine if there are operational changes that can be made. In addition, farmers CAN utilize risk management strategies to proactively manage finances.
Let’s start with income and expenses. If you haven’t already looked at your income and expenses, now is a good time to do so. Are there any expenses that you can cut? Be careful not to cut items that might also decrease your income. Look for the “nice to have” expenses – those are good ones to cut back. Ask yourself if there are there any ways to earn supplemental income.
By understanding income and expenses, you will get a better understanding of the price needed to break-even. Make it a practice to regularly examine these items. This allows you to proactively make decisions, rather than react to declining market conditions.
FinBin (www.finbin.umn.edu) is a great data resource for you to compare your income and expenses to other cattle operations in Minnesota. You might be surprised to see how your farm stacks up against others and you might get some ideas on different ways to manage your finances.
Risk management techniques can also be utilized as a proactive way to manage margins. Do you see any opportunities to contract your cattle at a higher price in the future? Consider contracting a portion of the lot at the time of purchase.
In other words, when you buy your cattle, lock in a margin (profit) on part of them. You can do this by contracting with a buyer or utilizing futures. While there may not be many opportunities available to you, try to look for them. Futures contracts are quite large, though, and are not heavily traded, so this is not an option for many beef producers.
You can also consider contracting your feed costs when you bring cattle into the lot. By locking in both a price for the cattle and the feed, you will have a very good idea of what your margin will be when the cattle leave the farm. Ideally you will be able to lock in a positive margin.
Do you have other enterprises besides cattle? Do this same analysis for those. Understand your costs and income. Identify areas to decrease costs or increase income. Look for opportunities to contract when it allows you to make a profit that works for your operation.
Finally, it’s also wise to talk to your banker if you haven’t already. Your banker will want to know what the next year looks like and try to help you make a plan so that you’re successful. Often times your banker can help you identify areas where you can improve, too. Remember the old adage – two heads are better than one. Having a conversation early allows you to stay ahead of the problem, so that your lender can help you before things get too serious. Often times debt can be restructured or payments adjusted.
Money. It can be challenging to think and talk about it, but if we can dig into how we earn and spend it, we can greatly improve our chances of success!
(*Net return consists of cattle sales, direct expenses, and overhead expenses. Operator’s salary is not deducted from net return.)

Tuesday, June 14, 2016

Prevented Planting Rules for Corn and Soybeans

By David Bau, Extension Educator

It has been another wet spring in 2016 and many farmers might have not been able to get all of their farmland planted on time, or by final planting dates for crop insurance of May 31st for Corn and June 10th for Soybeans, for most of Minnesota.  Producers have three choices when they are unable to plant the originally planned crop on time.

  1. Plant the original crop with lower yields expected
  2. Plant an alternative crop 
  3. Abandon the acres and plant a cover crop.
There were some areas that received a late frost on emerged crops.  Farmers have several options here:
  • Leave the damaged crop as is
  • Replant the same crop
  • Plant a different crop
  • Abandon the acres and plant a cover crop.
Multi-Peril Crop Insurance policies include a 25 day late planting period.

In Minnesota this period begins after the final planting date which is May 31st for corn and June 10th for soybeans, with June 1 - 25th as the late planting period for corn and June 11th - July 5th as the late planting period for soybeans.

There are later dates for Northern Minnesota which includes: final planting date of May 25th for corn and June 10th for soybeans. The late planting period runs from May 26th - June 19th for corn and June 11th - July 5th for soybeans. These northern counties include: Aitkin, Carlton, Cass, Itasca, St Louis counties.

Final Plant Dates for Iowa are May 31st for Corn and June 15th for Soybeans, for South Dakota May 25th for Corn in north and May 31st for rest of state and June 10th for Soybeans, for Wisconsin May 25th for Corn in Ashland, Sawyer, Bayfield, Douglas, Iron counties and May 31st for rest of state and June 10th for Soybeans in north and June 15th for balance of state.


Monday, June 13, 2016

Minnesota Corn and Soybean Economics

By David Bau, Extension Educator

In Minnesota, corn and soybeans are major crops grown, with the largest acres planted and the highest sales values. Based on USDA/NASS data, the 2015 corn and soybean production values were $4.86 billion and $3.25 billion, respectively. In 2015, the planted acres for corn and soybeans were 8.1 and 7.6 million acres respectively out of a total of 25 million acres in Minnesota.  With over half the crop acres in corn and soybeans the profitability of these two crops drives the rural economy.

Figure 1 below indicates the corn and soybean average input costs per bushel, compared to average sales price received by the farmers in the FINBIN database from southern Minnesota.  The top two lines represent soybeans with the triangle line indicating the average price and diamond indicates the average input costs per bushel.  Farmers want to always see the average price line above the average input cost.  From 2007 through 2013 this was true and the gap between these lines represented profits for farmers.  Then in 2014 and 2015, the price fell below the input costs representing a lost for average farmer.  The bottom two lines are for corn with the price line indicated by X and the input costs indicated by squares. Corn losses occurred in three years.  This was from 2013 through 2015, while profits occurred from 2007 through 2012.

Figure 1. Corn and Soybean Average Input Costs per bushel compared to Average Sales Price

Minnesota Land Rental Rates Document Now Available

By Gary A. Hachfeld, Extension Educator

The Land Rental Rates for Minnesota Counties document is now available on the Agricultural Business Management website at www.extension.umn.edu/agriculture/business. The document includes historical land rental data from farmers who are enrolled in the MnSCU Farm Business Management program and the Southwest Minnesota Farm Business Management Program.

Land rental rates are listed by county and by Minnesota Department of Agriculture regions. Average land rents for years 2011 through 2014 are listed. In addition, land rental rates for 2015 are listed including the average, the median and the 10th and 90th percentiles. The percentiles are a guide as to the range in land rental rates for that year.

Next to the column of 2015 rental rates are listed the 2014 USDA/NASS rental rates. These numbers will be updated later in 2016 and will be added to the document. They act as a comparison to the other rental data.

On the last page of the document is included a table showing land rental rate changes for the period 2011-2015 and 2014-2015 in percentages. This can be a comparison of how land rental rates have changed over time. For the 2014-2015 time period most rental rates decreased on average of 5 percent. However, one region showed a 15 percent increase which was due to several new acres of land being rented in that region in 2015 making the percentage increase rather than decrease.

Information in the document explains where the numbers originate from and how they are to be used. The rent data is not meant to be used to establish, set or fix land rental rates but rather as a beginning point from which to begin negotiating a fair rental rate between landowner and operator.

Tuesday, June 7, 2016

How Do Farm Financial Decisions Impact Your Financial Strength?

By Don Nitchie, Extension Educator

It is a good time to evaluate your financial and profitability goals for 2016 and beyond.  Your balance sheet for your operation measures your financial strength, ability to bear business risks when opportunity knocks and your financial progress over time. Changes in your balance sheet directly occur as a result of your overall profitability and where you choose to invest or spend those profits. Profitability and the choices you make are the major drivers of these financial measures. While the financial measures discussed here for many Minnesota farms remain strong, they have also been declining since 2012 for most farms.

Goal--Improve your Liquidity.  Liquidity is the ability of your business to pay all current liabilities/obligations with only the current assets, (grain & market livestock), that are on the books at a point in time.  It is commonly measured by the current ratio = current assets/current liabilities with a ratio of 1.7 or 2.0 or above as strong and 1.3 or below as weak. Much concern has been expressed about the decrease in liquidity for some producers over the last few years with lower crop prices. So, if your liquidity has declined to a level that  is less than you feel is desirable -- what actions will work to improve this ratio and therefore your comfort margin in your ability to pay your operating loan and other annual loan payments?  Increasing this ratio is desirable and decreasing it usually is not.  See the table below.

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