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Showing posts from 2014

Cellulosic Ethanol: Will Technical Success Bring Commercial Success?

By Douglas G. Tiffany, U of M Extension Educator, Agricultural Business Management

For the last fifteen years or so, speakers at biofuels conferences would often say that production of cellulosic ethanol would be a commercial reality in just "five more years." Issues cited for the delays ranged from needed enzyme breakthroughs leading to lower costs, the need for tougher fermenting organisms, high capital costs, and then the issues of biomass infrastructure and markets were noted. The "five years away" statement was repeated so often, it was treated as a joke. As a production economist and biofuels researcher, it is interesting and rewarding to see how this once futuristic idea is being developed.

No longer a joke, much needed R & D has occurred following federal loan guarantees that supported plant construction for the commercial production of cellulosic ethanol, which is now upon us in the Midwest. Harvest of corn stover and cobs for the 2014-15 processin…

Managing Farm Finances in Challenging Times - Strengthen Your Cash Position

By Don Nitchie, U of M Extension Educator, Agricultural Business Management

Many business management experts agree having a strong liquidity position is very important in times of tight profit margins or to survive (hopefully short) periods of negative profit margins. What is financial liquidity? It is the ability of a business to meet current (typically within the next year) liabilities with current assets on hand. Not all current assets are the same though.

An old saying in the investment world is "cash is king". This implies the value of cash on hand in your bank account is a known amount, its price will not change tomorrow, and you can use it immediately to pay a bill, make a loan payment or as a down payment without any further action. Grain and livestock in inventory, if at market weight or market ready, are current assets and could be on your balance sheet at one price but worth something far different a few days or weeks later. So, during lean times it can be very adva…

2014 Rent Workshops: What Is a Fair Farmland Rental Agreement?

By David Bau, Extension Educator

Negotiating a fair rental agreement that satisfies the land owner and the farmer is a challenge. In these Rent Workshops, Extension Educator David Bau will provide examples, fact sheets and worksheets to determine a fair farm land rental rate for both parties.

The workshop will cover:

Farmland rental rate trends
Land values
Increasing input costs
Landlord worksheet
Tenant worksheet
Fair rent program
A rental rate that works
Flexible leases
Rental lease examples
What is a fair rental agreement?

Who should attend?

Landlords and farm land owners
Farmers and tenants
Agri-businesses
Ag professionals
Rent Workshop Schedule

11/5/14North Mankato9:30 amSouth Central College Conference Center
1920 Lee Blvd, North Mankato 5600311/5/14St. Peter

2:00 pmCommunity Center

600 S. 5th street, St. Peter, MN 56082 11/6/14Cologne9:30 amCarver County Public Works Building
11360 Us Hwy 212, Cologne, MN  5532211/6/14Shakopee2:00 pmScott County Law Enforcement Center
301 Fuller St. S., Shak…

Farmland Rental Rates for 2015 that Work for Both Parties

By David Bau, Extension Educator

I have completed two of 44 farmland rental workshops with most scheduled for November and December. The budgets for 2015 are ugly using current 2015 forward contract prices offered with both corn and soybean budgets in the red. Corn is negative by more than the average rent paid in 2014 and the farmer receiving no labor and management payment. The 2013 average rents in Southern Minnesota were $243 in the FINBIN database and the data provided by the Minnesota Agricultural Statistic Service in September listed the average rents as $227 per acre in 2013 and $237 in 2014.

Today's 2015 forward contract corn price is $3.27 and soybean price is $8.84. The record corn and soybean prices of recent years have significantly impacted land rents. Crop production expenses, farm profits and cropland rental rates all increased during the recent golden era of farming. Projected average input costs for 2015 based on adult farm management numbers for Southern Min…

Record Corn and Soybean Prices Gone, Now What?

By David Bau, Extension Educator

The record corn and soybean prices of recent years now look like a memory with much lower current prices and future market prices. Crop production expenses, farm profits and cropland rental rates all increased during this golden era of farming. Since the beginning of 2014, forward contracting prices for corn and soybeans have averaged $3.98 and $10.86 respectively. On the table below, you can see these prices are well below the last few years but above the 12 year average. The first two columns indicate the average price for corn and soybeans starting with forward contract price at beginning of year and going through September 30th of the following year a 21 month period. The next two columns list the cash prices starting at harvest (October) in calendar year and going the September 30th of the following year, 12 months. The next column lists the average rate for southern Minnesota cropland rental. The last column lists the average price as a percen…

Extension launches 2014 Farm Bill dairy education seminars

University of Minnesota Extension and the Farm Service Agency of the U.S. Department of Agriculture begin a series of free dairy education seminars this month to help farmers make decisions brought about by the 2014 Farm Bill.

Dairy producers have until Nov. 28 to enroll in the Dairy Margin Protection Program. Newly created by the farm bill, the program aims to reduce producers' exposure to catastrophic losses through risk management. The program is voluntary and pays producers when the difference between the national price of milk and the average cost of feed falls below a level selected by the producers.

"The farm bill creates a new opportunity for dairy producers to manage risk. These training sessions will go through various scenarios to help dairy producers make the most appropriate decisions for their operations," said Kevin Klair, University of Minnesota Extension economist and program leader at the university's Center for Farm Financial Management. "This i…

Farm Bill base acre correction deadline fast approaching

In July, farm landowners received a base acre and yield commodity crop history summary letter from their Farm Service Agency (FSA) office. The summary letter lists the landowner's FSA farm planted acres for 2008 through 2012. Landowners have 60 days from the time they received the summary letter to contact the FSA office if there are any discrepancies in the data listed. This information is essential to being able to sign up for the new 2014 Farm Bill programs.

There have been instances in which the summary lists no data or the data is incorrect. If the data is missing or the data listed in the summary letter is incorrect, the landowner should contact the FSA office in the county where the land is located. If the landowner rents the land to a tenant, the tenant can contact the FSA office on the landowner's behalf. Once contacted, the FSA office staff can research and correct the base acre information for the specific FSA farm.

The 60-day deadline is required only if there are er…

Limiting Losses can be an Important Grain Marketing Decision

By Don Nitchie, U of M Ag Business Management Extension Educator

We have probably all listened to stories from a neighbor who laments about having sold grain or livestock at a modest profit when a more profitable market price was available earlier or later than their selling date. We probably put on our understanding face and consoled them with some comment like; "we have all been there", "hind-sight is always 20/20" or "at least it was profitable".

Too many folks may have forgotten over the last 7-8 years of strong grain prices especially, that limiting losses in more lean times can prove to be a sound part of your marketing plans. One of the most important lessons learned from experienced, long-time professional commodity traders is that eliminating losing positions before they get worse can be as important as when to price in a increasingly profitable market. If you can do this with good self discipline you may help sustain your capital base and be th…

CFFM releases a new, improved web version of FairRent

Land rent negotiations are going to be very challenging this year. At current commodity prices it is going to be very important for producers to know their costs and look at options to limit downside risk. The Center for Farm Financial Management, University of Minnesota has just released a tool to help producers and landlords evaluate alternative land rental arrangements. FairRent for the Web is a new and improved web version of the FairRent desktop software that CFFM has distributed for over 20 years.

The new web version of FairRent includes the option to evaluate seven different flex lease options as well as traditional cash rent and share rental returns. Another improvement is the inclusion of crop insurance in the analysis to show how insurance limits downside risk.

FairRent is free to use. Just sign up at https://fairrent.umn.edu/ and begin creating rental plans. Also, check out FINBIN, a great source of information of crop production costs for your rental plans.


Aglease 101.org is a great website for landlords and farmers for lease information

By David Bau, Extension Educator

Ag Lease 101 helps both land owners and land operators learn about alternative lease arrangements and includes sample written lease agreements for several alternatives. Ag Lease 101 was created by and is maintained by the North Central Farm Management Extension Committee. More than half the cropland in the North Central Region of the United States is rented. Rental rate and leasing information is highly sought by both land owners and land operators.

AgLease101.org includes multi-state materials which help land owners and land operators discuss and resolve issues to avoid legal risk. The website also guides both land owners and land operators towards informed and equitable decisions.

Ag Lease 101 was created by a team of economists and attorneys.

Several Lease Publications are available including: Fixed and Flexible Cash Rental Arrangements For Your Farm, Crop Share Rental Arrangements For Your Farm, Pasture Rental Arrangements For Your Farm, Rental Ag…

FINBIN Database Useful Tool

By David Bau, Extension Educator

Farm production records for 2013 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: 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…

Retirement Issues for Farmers

By David Bau, Extension Educator

The average farmer's age continues to increase and many farmers continue to farm well into their retirement years, others semi-retire and others fully retire. How does a farmer reaching retirement age know if they are ready for retirement?

When a farmer is thinking about retiring they should focus on what their goals are. Do they want to stay involved in farming operation, turn over control to next generation or become a landlord? They should also consider what lifestyle they and their spouse want to live in retirement? Do they want to be snowbirds and escape Minnesota winters, or do they want to stay close to farm and family to watch and participate in family activities.

Some basic retirement questions are:

Are you financially ready? Financial planners say you should have at least 8 times your pre-retirement income saved to help increase the odds that you won't outlive your savings during 25 years in retirement. For example, by age 35, it is s…

Look Past Averages When Making Farm Financial Comparisons

By Don Nitchie, U of M Extension Educator, Agricultural Business Management

Most recommended farm financial benchmarks measure financial or profitability relationships. Income as it relates to expenses for instance or assets as related to liabilities. The average of a group of farms is very good at showing a trend of that group of farms in general over time. However, comparing your benchmarks relative to other producers at your stage of career and size or type of operation, maybe even more important. Although financial standards might indicate that a certain benchmark should ideally be a certain number, you may need to stretch the acceptable range for that benchmark depending on if you are earlier in your farming career or later, or possibly by the type of your operation. Below, we look at the Current Ratio measuring Liquidity from the Balance Sheet and the Net Farm Income Ratio measuring Financial Efficiency-as two examples.

Liquidity as measured by your Current Ratio. Liquidity…

Returns to Corn Farming and Ethanol Processing

by Doug Tiffany, U of M Extension Educator, Agricultural Business Management

As corn farmers fine-tune their equipment and head to the fields, many have concerns about the costs of production and prospects for profitable price levels. Through the winter many have crunched the numbers to determine their corn production costs, including fuels, fertilizer, herbicides, seed, depreciation, anticipated repairs on equipment and land rent. The 2013 crop season was one fraught with production uncertainty in the form of meager soil moisture and continuation of adverse weather conditions; but in the end, a huge crop of corn with price-depressing effects was produced. Over the past long winter, there have been a series of demand-supply reports that have shown increasing levels of corn exports and greater use for ethanol production, offering some increases in prices. For tenants, corn prices still hover close to costs of production, depending on land rent.

Corn markets in the winter months are t…

Improve Your Farm Profitability in 2014 and Beyond

By Don Nitchie, U of M Extension Educator, Agricultural Business Management

The decline in median Minnesota Net Farm Incomes for 2013 from 2012 was 78% according to the Center for Farm Financial Management at the University of Minnesota. By enterprise, crop production enterprises decreased most significantly where earnings were 80% lower than in 2012. This was due to much lower inventory values of stored grain and costs that have steadily increased over the last several years. Livestock enterprises also declined significantly.

Crop prices that remained at record levels for several years while costs of production were lower but steadily increasing made for several years of record profits in crop production. Some experts would argue that a period such as we have just gone through can lead to some managers becoming too casual about managing profit margins and preparing for changing times. So, are there profits to be made when the average farm's breakeven costs are at the average ma…

Extension releases info series on 2014 farm bill

Kent Olson, Extension Economist

MINNEAPOLIS/ST. PAUL (April 14, 2014)--A series of fact sheets on the Agricultural Act of 2014 - the farm bill - is available to help the agricultural community prepare for changes introduced by the recently passed federal legislation.

University of Minnesota Extension economist Kent Olson prepared the six-part series, which emphasizes changes in programs and rules affecting crop commodities.

"Passage of the farm bill removes uncertainty about what farm programs will be for the next five years," Olson said. "Farmers will have to make choices, but the rules are different compared to the old farm bill."

Gone are the Average Crop Revenue (ACRE) and Counter-Cyclical Program (CCP). In their place, farmers must decide between new programs: the Price Loss Coverage (PLC) or the county- or individual-based Agriculture Revenue Coverage (ARC).

The fact sheets are on Extension's web site at www.extension.umn.edu/agriculture/business/farm-bil…

Hedging in Times of Production Uncertainty

Bret Oelke, Regional Extension Educator, Agricultural Business Management

With the recent concern in the swine industry about Porcine Epidemic Diarrhea Virus (PEDV) and record high futures prices for lean hogs at the Chicago Mercantile Exchange (CME), discussions have occurred about how farmers can take advantage of high prices while protecting themselves in case hogs are not be available to market. This issue is not unique to the swine industry; crop producers face the same type of scenario in a drought year. While revenue based crop insurance provides some protection in the case of crop production, livestock producers don't have the luxury of a product exactly like the crop insurance products. There are however, exchange based tools that can be used to provide price risk management without obligating delivery of live hogs as a packers' forward contract would require.

If a hog producer is interested in locking in a future price on a portion of his production he would traditio…

Minnesota farm incomes drop dramatically in 2013

MINNEAPOLIS/ST. PAUL (March 27, 2014)--As corn prices declined in the fall of 2013, so did farm incomes for a majority of Minnesota farms, according to a joint analysis conducted by Minnesota State Colleges and Universities (MnSCU) and University of Minnesota Extension.

Overall, net farm income was $41,899 for the median farm. That compares to $189,679 in 2012, a 78 percent decrease. While crop farm incomes plummeted due to declining commodity prices, livestock farms did not fare much better as incomes for dairy, hog and beef farms also declined.

The analysis used data from 2,063 participants in MnSCU farm business management education programs, 111 members of the Southwest Minnesota Farm Business Management Association and 41 participants working with private consultants.

"A decline from 2012 levels should not come as a big surprise. We have to remember where we came from," said Dale Nordquist, Extension economist in the University of Minnesota Center for Farm Financial Ma…

Outlook for 2014 and beyond

By David Bau, Extension Educator
University of Minnesota Extension Service

Each year I complete an Operator's Cash Rent Worksheet. This examines what a farm operator can afford to pay the landlord for rent after covering the production costs and labor. For the 2014 crop, examples on the worksheet indicate production costs of $656 per acre of corn and $353 for soybeans. Compared with corn yields of 175 bushels of corn priced at $4.50 per bushel and 46 bushels of soybeans at $11.50 per bushel, a farmer would have $154 left to pay toward land costs in a 50-50 corn soybean crop rotation. Currently the 2014 new crop cash corn prices are at $4.19 for corn and $11.14 for soybeans in Worthington, applying these prices in worksheet, the rent would calculate at $118 per acre.

For farmers to pay rents above $200 per acre as is happening across much of Southern Minnesota, they will need the corresponding yields and price remain at these high levels. There are much higher rents being paid f…

When profit margins are tight it is time to evaluate crop input costs

By Don Nitchie, University of Minnesota Extension Educator, Ag and Business Management, March 2014.

It is important to continually evaluate production costs for crop and livestock production. With recent lower crop prices than we have seen in several years and historically high input costs, this will be much more important than ever. If you have available data to benchmark your major input costs to your peer farms, you will realize there are significant opportunities to improve your profit margin based on the variability of primary input costs from farm to farm.

Three major direct costs that have grown to make up major portions of current corn production budgets should be scrutinized if crop profit margins remain slim or negative in the next few years. There is enough variability among producers and field to field, that there are opportunities to be capitalized on. Yes, there may be a few cases were the cost data is skewed by some unique arrangement for sharing costs or not all pai…

An Initial Assessment of the Impact of the New Farm Bill on Crop Farmers' Decisions

Kent Olson, Extension Economist

The "Agricultural Act of 2014," commonly called the farm bill, changes many programs and rules for farmers. Farmers need to make a crucial one-time, irrevocable election under the crop commodity programs. Farmers also have an opportunity to update their base acres and their base yields.

In the sections below, I summarize the new programs and the impending decisions for Minnesota farmers based on my reading of the bill in February. However, please note that the final rules and interpretations will come from the USDA, and these may differ from my current interpretation.

What's gone!

Several previous programs are dropped in the new farm bill. Direct payments are gone (except for a declining amount for cotton growers). The ACRE and DCP programs are repealed. While the new programs may look similar to these, the rules are different: simpler in some ways, more complicated in other ways.

Choices for crop commodity programs

Under the new farm bill,…