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Wednesday, June 24, 2015

Outlook for 2015 and Beyond

By David Bau, Extension Educator

Good early season planting enabled much of the crop to get in the ground early across Minnesota. The weather scare of a possible drought has been relieved by spring rains so at this point the yield potential is good for the 2015 crop.  Ending stocks for the 2014 crops are larger for both corn and soybeans than the previous year and the potential for these to grow at the end of 2015 is possible with the right growing conditions.

Iowa State publishes balance sheet projections for both corn and soybeans and will update these again after the June 30th crop report is released. Current projections for corn with national yield of 165 bushels would have ending carryover declining from 1,835 million bushels at end of 2014-15 crop year to 1,540 million bushels with 89.2 million acres of planted corn. This projects a $4.20 national weighted average price and $4.15 December futures price at harvest, with at 50 cents basis this would translate to $3.65 cash corn at harvest. If national yields are 159 bushels per acre, projections are for $4.85 December futures at harvest or $4.35 cash and if yields are 170 bushels, December Futures would average $3.85 or $3.35 cash. With a 165 bushel national yield ending carryover would be at 5.8 weeks compared to 7.0 weeks for 2014-15 crop year and at low of 3.8 weeks for the 2012-13 crop year.

For soybeans with an average national yield of 44 bushels per acre, on 84.6 million planted acres, the national weighted average price is projected at $8.50. With November futures at harvest of $8.50 with a local 60 cent basis this would be $7.90 cash price. With a national yield of 41 bushels per acre, November futures would be $10.70 or $10.10 cash and if yield is 46 bushels per acre November futures would be $8.25 or $7.65.  Carryover at 44 bushels is projected at 5.1 week supply, with 41 bushels 2.3 weeks and with 46 bushels 7.2 weeks.  These compare to a low of 1.4 weeks for the 2013-14 crop year.  These balance sheets can be found at: for corn and at for soybeans.

With these projected prices, it is hard for farmers to put marketing plans together at target prices that will cover their cost of production, which range between $4.50 to $5.00 for corn and $11.00 to $12.00 for soybeans.  Forward contract bids for 2015 corn and soybeans are under $3.50 and $9.00 respectively.  If prices do not improve, many farmers will experience losses in 2015. The price outlook for 2016 is not much better.  October 2015 cash prices are $3.41 for corn and $8.60 for soybeans, while October 2016 cash prices are $3.55 for corn and $8.67 for soybeans.

Lower yields might raise national prices, but will also lower the gross income per acre.  The current lower prices could create stronger demand and if the dollar weakens, this could increase export demand, the other option is a weather scare and the drought area has shrunk.  With the current outlook farmers will need to look for ways to lower their cost of production for 2016 if current prices continue.

Tuesday, June 23, 2015

Update: Frequently Asked Questions about Avian Influenza

By: Pauline Van Nurden, Extension Educator                                               Updated:  6/22/2015
Avian Influenza is affecting poultry
producers and the rural economy of Minnesota.

Highly pathogenic avian influenza (HPAI) has devastated not only the Minnesota poultry industry, but also farms throughout the Midwest and across the country. The following are current answers to frequently asked questions regarding this disease and the impacts of it. Fortunately, there have been no new infections of HPAI in Minnesota since June 5, 2015. Therefore, the information included here is an update from the original May 2015 publication.

Wednesday, June 10, 2015

Managing Farm Profit Margins Small Improvements Add Up

By Don Nitchie, Extension Educator

At today’s much lower grain prices, some producers may rightly ask, “What Profit Margins”? Regardless, there are always opportunities to improve profit margins or in the worst case, minimize losses.  This is true for a given year or across several years. The record high prices of the past several years has probably masked some less than best management practices of the past becoming a habit in some cases.

The Southwest Minnesota Farm Business Management Association and the Center for Farm Financial Management, both University of Minnesota Extension programs have examined the difference that small margin management decisions can make.  Don Nitchie, UMN Extension Educator in Ag. & Business Management indicates that they looked at the impact on the average association farm, that a 5% increase in gross income or revenue, through improved selling prices, yields or both-combined with a 5% decrease in costs.  This decrease in costs could be from negotiating lower purchase prices for inputs, more effective use of inputs applied or a combination of both.

It was found that if the average association farm could improve gross revenues by 5% and lowers operating costs by 5% over 2014 for 2015, these small changes result in Net Farm Income almost doubling, Return on Assets more than doubles from 2% in 2014 to 5% in 2015 and Net Worth grows by 9%.  Debt Repayment Capacity also almost doubles.  This is a significant improvement across several key financial measures.  Small changes have a big impact on your bottom line.

Is it possible to achieve a 5% improvement in gross revenue?  Probably.  Doing a little better than average on selling prices, yields or a little of both.  Is it possible to lower costs by 5%?  Probably.  Here is where it is true that successful managers do a lot of little things just a little better rather than doing one thing really well.  Being more effective with expenditures on inputs is the key.  Get the most revenue possible for each dollar spent on herbicides, pesticides, seed, fertilizer, rent, equipment investments and feed etc.  Sharpen your production management skills.  Know where your costs are relative to competitors.  It pays off when profits are scarce!

Wednesday, May 20, 2015

Frequently Asked Questions about Avian Influenza

By: Pauline Van Nurden, Extension Educator

Highly pathogenic avian influenza (HPAI) has devastated not only the Minnesota poultry industry, but also farms throughout the Midwest and across the country. The following are current answers to frequently asked questions regarding this disease and the impacts of it. Unfortunately, in recent days, the virus has continued to spread and impact additional producers. Therefore, the information included within is a current estimate only.

Thursday, May 14, 2015

Financial Planning Resources Available to MN Poultry Producers

by:  Pauline Van Nurden, Extension Educator

As Minnesota responds to the devastating Highly Pathogenic Avian Influenza outbreak, poultry producers have financial planning resources available for their needs. A team of experienced financial planners is offering assistance to poultry producers during this difficult time, as they begin to navigate their path to recovery. This team will aid producers as they work through the next steps of the business planning for their operation, including cash flow projection development; capital planning needs; and long range planning and goal setting. This team includes farm financial planners with University of Minnesota Extension; Adult Farm Business Management program of Minnesota State Colleges and Universities (MnSCU), and Minnesota Department of Agriculture’s Farmer Assistance Network (MFAN). Access to contact and more detailed information can be found here.

Monday, April 20, 2015

Flexible Farmland Rental Agreements Shares Risk between Landlord and Farmer

by David Bau, Extension Educator

The vast majority of farmland rental agreements are cash rental agreements where landlord receives a cash amount in spring or half payment in spring and fall or payment in fall.  With cash rental agreements, the landlord knows how much income they will receive and the farmer has the risk to grow a crop sufficient to generate enough income to cover input costs, the rental payment and hopefully have some left for profit. Current 2015 forward contract prices available are $3.50 for corn and $9.00 for soybeans, and that poses a problem for farmers with breakeven prices about $4.50 per bushel for corn and $9.00 for soybeans to cover the cost of production.  With a cash rental agreement, the farmer bears all the risk of prices not reaching the breakeven prices during the year, this is when a flexible rental agreement would work better.

With a flexible agreement landlords can still have a minimum rental payment in spring and then have an additional payment in the fall if criteria of the lease agreement are met.  I completed over 46 talks this fall and winter on rents and outlook for 2015 and used $3.50 corn price and $10.00 soybean price and average input costs to determine farmer profits and farmland rental rates.  I used yields of 180 bushels per acre and 50 bushels for soybeans. I used a cash rental rate of $250 per acre and the farmer would receive $60 per acre for their labor. Using these prices, farmers would lose $304 per acre for corn and $101 per acre on soybeans before government payments.  There will probably be some farm payments on the 2015 crops, using 460 per acre on corn and $30 per acre for soybeans the loss would still be $244 for corn and $71 per acre for soybeans. These numbers would suggest the base rent should be less than $250 based on current 2015 commodity prices.

Most Flexible Rental Agreements have a base rent component that assures the landlord this income and will allow the tenants to cover expenses even after a bad year with good crop insurance coverage.  Base rents vary by area but for Southern Minnesota the range for base rents could be from $100 to $200.  Then a flexible component is added, either based on price, yields, gross revenue or some combination of these components.  There are many ways to set up a flexible land rental agreement.  The farmer and landlord should determine what both are looking for.  The higher the base rent the more risk the farmer has, the lower the base rent the landlord is increasing their share of the risk with no crop insurance to protect their revenue.

Here are some short definitions of different types of flexible rental agreements:

  • Flexible Rents based on gross revenue: Rental payments are based on gross revenue of the farmland. It can include a base payment in the crop year and a final payment after the actual yield and price are determined.   Prices can be set once a year, twice, three, four or more times and then averaged.
  • Base rents plus a bonus: A base rent is paid and then a bonus may or may not be paid determined if yields exceed a base goal.  Then these additional bushels would be shared between landlord and tenant.  The bonus can also be determined by yield and price together or price alone.
  • Flexible rent based on yield only: The landlord receives a set base number of bushels with additional bushels if yields are higher than was determined for the base payment.  This can also be done with a cash payment based on yield and then price at an elevator or averaging multiple pricing dates. 
  • Flexible rent based on price only: The rental payment is based on crop prices.  Often it is an average price of the previous twelve months or a quarterly price which is multiplied times the bushels agreed to.  Rental payments can be made at the quarterly price setting times or half and half or after harvest.
  • Profit sharing flexible rent agreements: The landlord and the tenant share the profit from the farmland.  This agreement is similar to a 50-50 crop share lease where they share crop yields 50% to landlord and 50% to the tenant and some of the expenses are paid by each party.

Flexible rental agreements can be a good way to share yield and price risks between the landlord and the farmer.  If prices and yields are low, the landlord receives only the base payment, but if yields and or prices improve the landlord will receive a higher payment in fall sharing the extra income with the farmer.

Wednesday, April 15, 2015

Profitability of Dairy Farms in Minnesota

A recent analysis of the profitability and viability of dairy farms in Minnesota indicates that total family income on these operations is greater than US median Income.  FinBin data, supported by the Center for Farm Financial Management, was utilized in this analysis. 

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