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Tuesday, May 17, 2016

FINBIN Database Useful Tool

By David Bau, Extension Educator

Farm production records for 2015 have been added to FINBIN website.  Farmers who participate in Adult Farm Management programs across Minnesota production records are combined online at the FINBIN website.  The FINBIN website found at: http://www.finbin.umn.edu is full of great reference information going back to 1993. At the FINBIN website, producers can examine what has been taking place with their peers or examine costs for different crops.

At the FINBIN website, you are able to generate summary reports, benchmark reports and compare your farm financial results to peer group farms. Under the summary section, you are able to generate reports summarizing whole farm results for financial standards, income statements, profitability measures, liquidity measures, balance sheets, statement of cash flow, crop production and marketing summary, household and personal expenses operator and labor information, nonfarm summary and detailed income statement. There are also statewide reports on several different crops and livestock enterprises. You can also generate any of these reports by county or regions if there are enough farmers to produce report where the individual farmer’s data can remain anonymous. You can examine the data even further selecting tillage systems, irrigated land and organic production, sometimes on a larger region or for whole state to generate a report.

There is significant information for farmers and landlords to examine at this website. You can examine farmland rental rates by county and looking at fourteen counties in SW Minnesota there was a 5.9 percent decrease from 2014 to 2015 from an average cash rent on corn of $250.89 in 2014 to an average rent of $236.08 per acre in 2015. The FINBIN data allows the public to examine the various inputs costs like seed, fertilizer, chemical, etc. for various crops including corn, soybeans, hay, wheat, oats, sweet corn, peas, sunflowers, sugar beets and many more. You can also examine cost of production for many livestock operations.

Benchmark reports are the next section on FINBIN website.  You can look at whole farm, crop or livestock enterprise by whole state, region or county.  You can select a crop and region and generate a report listing the expenses for 2015 or prior years.  If you select corn for all of Minnesota, you will see a benchmark report that lists all expenses and incomes for corn on cash rented land across the state broken down into every 10 percent groups.  The benchmark report allows farmers to examine individual input cost like fertilizer and list all the costs for 2218 farms across Minnesota from the highest to lowest for expense or lowest to highest for income items.

For fertilizer the median cost is $137.07 per acre for all Minnesota corn farms on cash rented land in 2015 down from $151.36 in 2014.  The report then groups all the fertilizer cost per acre listing the average for the highest 10% of the fertilizer costs per acre of $215.17 and then the next 10% in the 20% column at $187.59 all the way up to the lowest fertilizer cost of $54.86 per acre in the 100% column.  These farms are all across the state and the fertilizer recommendations vary by expected yield per acre, but this line indicates a wide range in costs from the most expensive at $215 to the lowest at $55.  Farmers can benchmark their own fertilizer costs per acre to see how they compare.  They can choose a county and closer region to see how their input costs compare to other farmers in the local area.

The third section allows for farmers to enter their own financial standard ratios and once again compare their figures to farmers across Minnesota or select a smaller closer region or county.  Once again a farmer would be able to determine their own farm’s financial health compared to peers.

The FINBIN website is a great resource where farmers and landlords can look at production cost for previous years and compare how their own operation compare to county, regional and statewide data.

Thursday, May 12, 2016

Women in Agriculture Quarterly Seminar

By: Pauline Van Nurden, Extension Educator

University of Minnesota Extension and USDA Farm Service Agency are hosting a Women in Agriculture Seminar on June 1, 2016 at the Willmar Regional Extension Office (located on the MinnWest Technology Campus, 1802 18th St NE, Willmar, MN 56201).  The focus of this quarter’s seminar is farm transfer and estate planning.  The day will give attendees the opportunity to learn and network with other women in agriculture in the region.  Registration begins at 9:30 am, with the seminar convening from 10:00 am to 3:00 pm.

Monday, May 9, 2016

2015 FINBIN Report on Minnesota Farm Finances



Despite record crop yields, the incomes for Minnesota farms continued to decline in 2015, reaching their lowest point in inflation-adjusted dollars in the twenty year history of the FINBIN database. 


The 2015 FINBIN Report on Minnesota Farm Finances provides a quick look at the financial situation for the 2200 Minnesota farms included in the FINBIN database.

Thursday, May 5, 2016

Managing for a Reasonable Profit Margin

By Don Nitchie, Extension Educator

Psychologically adjusting their expectations to the more typical long-term profit and loss environment we seem to have returned to—remains a big challenge for many farm managers.  We know from actual on-farm data, that prior to 2006, a profit margin of $50 or more per acre for cash rented corn production was a rare situation for the average farm.  It was not uncommon to experience a $20-30 per acre loss for the average farm.  If you go back beyond 1996, except for occasional supply shocks such as drought, profit margins such as occurred during the demand expansion years of 2006-12 were never experienced for such an extended period of time. Additionally, we know from actual on-farm data that there is a wide variation in a given year from farm to farm. The High 20% of SW Minnesota Farm Business Management Association Farms averaged a net return of $77.44/acre while the low 20% averaged a loss of $145.80/acre in 2015.  This variability represents opportunities for some and challenges for others.  Since 2012 it appears we may have returned to a world where, once again, sharp management will payoff.

What is “Margin management?”  It is focusing on a “margin” not just on a selling price.  Margin is the difference between your cost to produce per bushel or unit and your selling price. A favorable selling price is only a means to an end but, it is only one part of the equation.  Cost control—or reduction—while maintaining productivity is the other side of the equation. Really all you should care about is what your profit margin is and how frequently you are attaining it.

Margin Management and Price Probabilities.  A key reality that margin management is based upon is that in competitive markets like agricultural commodities, market prices spend the majority of their time in close proximity to the average breakeven cost of the market or industry. Therefore, over the long-term it is more likely that you will have numerous opportunities to select a selling price at modest profit margins than at high profit margins.  Many experts say that 2006-2012 grain prices are a historical aberration caused by record demand expansion triggering unsustainable profits.  Costs did eventually catch-up to price levels. Making it a practice to hold out for less frequent but, very high profit-margin prices can lead to realizing lower long-term profits.

To illustrate this, consider producer A whose 5 year goal is to realize $35.00/acre per year or $.20/bu. profit after all costs and labor and management at a 175 bu. yield. Let’s say Producer A achieves this goal 4 years out of the 5 but, 1 year out of the 5 he loses $.20/bu. Now, Producer B has the 5 year goal of making $70 per acre profit per year which would be $.40/bu. at 175 bu./acre yields.  He achieves this 2 years out of the 5 but, as is highly likely because waiting too long for high prices historically increases the risk of achieving lower prices--he loses $.20/bu or $35/ac. 3 years out of the 5.

Monday, April 25, 2016

Strategies for managing your farm's profitability

By Betty Berning, Extension Educator

One of the most common questions I receive from dairy farmers is, “What is the price of milk going to do?”  A close runner-up is, “What should I do given the current milk price?”  Finally, in times like this, the question is often, “When will it get better?”

There are no easy answers to any of these questions.  I always joke that I don’t have a crystal ball and I am not omniscient.  And while the price of milk certainly matters, which is revenue, so does a farmer’s cost of production, or expenses.  

First, I’d like to address the question of “What is the price of milk going to do?”  Two things establish a price: supply and demand.  Simply put, if I supply the market with more product than it is demanding, prices fall.  If I produce less than the market demands, my price increases.  Supply and demand are dynamic, which means they can change.  For example, if dairy exports increase, this causes demand for dairy to increase.  Similarly, if there is poor weather in Ireland and feedstuffs are in short supply, milk supply may drop, and price may increase.

So what is driving the market right now?  Just like I mentioned above, supply and demand drive markets.  In 2015, China imported less dairy products and this drove markets lower.  Chinese imports have picked up in 2016 and it remains to be seen if this trend will continue for the duration of this year.  Additionally, milk supplies have been strong both domestically and internationally. With demand down and supply increasing, this causes prices to drop. You may be thinking, “Does this mean farms need to go out of business in order to regulate supply and demand?”  Not necessarily.  That’s only one side of the equation.  If China, or anywhere else for that matter, continues to consume more dairy products, then demand will balance out the supply.  And often times it is an adjustment of both supply and demand to bring prices back to equilibrium.
 
Now I’d like to turn the question of “What should I do?”  First and foremost, know your cost of production.  That is, how much money does it take for you to make a hundredweight of milk? Carefully examine your expenses.  Are there areas where you are overspending?  Are there surprises in your budget?  Do you have some “nice to have” items that you might be able to cut?  You can use FinBin data (found at www.finbin.umn.edu) to compare other farms’ costs to your own.  Sometimes comparing your operation to another can provide new ideas or opportunities.  Be sure to cut costs wisely.  Cutting feed costs or other items associated with a cow’s milk production will lead to a decrease in your income! 

Second, be sure to talk to your lender, if you have one.  Make sure you are on the same page.  Your lender can be a very important partner in managing costs.  There may be an opportunity to restructure debt or adjust payments.

Third, look for ways to maximize your assets.  Are you breeding cows back quickly?  Do you have equipment that you could rent out or share with another producers?  What are you doing to ensure optimal cow health?

Finally, create a risk management plan.  There may not be much you can do about today’s milk price, but risk management is a way for you to proactively manage your future milk price.  If you know your cost of production, you can determine your “break even” milk price.  This becomes your price floor or minimum price you’ll accept for your milk. You can create a plan for how you will market your milk in future months based on this “break even” price.   Additionally, you can go a step further and also lock in prices for your feed and energy inputs.  Risk management is NOT about beating the markets.  It IS about creating a plan that allows you to escape some of the volatility that exists in the dairy markets.  Furthermore, it allows you to establish a margin level that works on your farm, so you can ensure profitability.

To answer my last question, “when will it get better?”, I will say it’s hard to know.  It comes down to- you guessed it- supply and demand.  A drought and hot temperatures in the US could cause milk supply to decline and push prices back up.  Likewise, continued renewed buying from Asian markets could cause demand to surge.  Conversely, strong European production or a decline in demand from overseas markets could cause low prices to stay longer.  It is important to take a little time each day or week to read up on market factors and understand what is driving supply and demand for dairy.  


Times of low prices are not easy for any dairy farmer.  Take it one day at a time.  Do your best to proactively manage your finances.  It won’t change the milk price, but it will give you some control and hopefully options to help you survive in difficult times.

Friday, April 8, 2016

Trends in Farmland Rental Rates

By David Bau, Extension Educator

Recently I attended a meeting discussing the results of Southwest Minnesota Adult Farm Management in 2015. The numbers indicated the declining profits even with excellent yields in 2015. The group of farmers average rents declined by 6.7% from 2014 to 2015. Rents declined from an average of $239 in 2014 to an average of $223 in 2015. The compares to USDA rent figures published in September 2015 by the Minnesota Agricultural Statistic Service stating Minnesota statewide average rent declined by 2.7 percent from $185 in 2014 to $180 in 2015.

So what will happen with rents in 2016? The trend should again be down with both corn and soybean prices continuing to be lower than the previous year as indicated on chart below. Average prices for corn and soybean in Worthington, Minnesota for 2006 through 2015 are listed along with the first three months for 2016. This compared to the average rents for 14 counties in SW Minnesota including Brown, Cottonwood, Jackson, Lincoln, Lyon, Martin, Murray, Nicollet, Nobles, Pipestone, Redwood, Rock, Sibley and Watonwan.


The table shows the dramatic increase in corn and soybean prices from 2006 through 2013 and then declines every year since. Starting at left of table column two lists average cash price for corn, column three lists the percent of the price compared to 2007, column 4 is the yearly average soybean price, column 5 is price as percent of 2007 price. Column 6 is the average rent in 14 SW Minnesota counties, column 7 is the percent compared to 2007 rents, and column 8 listed the average of the corn and soybean price percentages.

Examining columns 7 and 8, average cash prices for corn and soybeans as a percent of 2007 peaked in 2012 and has been declining since while rents have followed the price trends with a two year lag before they started declining in 2015. Column 9 indicates what average rents would be using 2007 corn and soybean prices as a benchmark and applying the percent change to 2007 to determine an average rental rate.  As you can see, rents would be much lower than current projected rents for 2016 and rents since 2007 with only 2011 rents estimated higher than actual average rents in column 6.

There are several factors that determine rental rates beyond corn and soybean prices such as contract length, property taxes, market place competition, and previous year’s profitability. With corn and soybeans as the major crops grown in Minnesota, as these commodity prices change has a direct and dramatic effect on profits, rate of return to land and rents. 

Monday, March 7, 2016

Trends in Farmland Sales, Rental Rates and Net Farm Incomes

By David Bau, Extension Educator

Recently I was asked to compare trends in Southwestern Minnesota Land Sales to average Farmland Rental Rates and SW Adult Farm Management average Net Farm Income for corn and soybeans. I was able to go back to 1993 for all three trends. The average farmland sales price is from nine counties in SW Minnesota including: Cottonwood, Jackson, Lincoln, Martin, Murray, Nobles, Pipestone, Rock and Watonwan Counties. The average rental rates come from average rents paid by farmers in the SW Adult Farm Management program. The average net income for corn and beans included government payments and was also from SW Minnesota Adult Farm Management program. Chart 1 below show the trends for Farmland Sales, Rental Rates and Net Farm Income for corn and soybeans from 1993 through 2014.

Chart 1. Comparison of SW Minnesota Average Farmland Sale Price verses Rents and Net Income


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