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Showing posts from 2015

Ag Tax Update Available

By Gary Hachfeld, Extension Educator

“Ag Tax Update for Farm Families” is now available on the University of Minnesota Agricultural Business Management website at www.extension.umn.edu/agriculture/business under Farm Tax and Legal Issues in the center of the web page.

The document includes descriptions of several ag tax issues of importance to farm families. Of particular note are the tax laws that were signed into law by President Obama on Friday, December 18, 2015. Most notable of those are the changes in depreciation which extends numerous provisions. The tax act permanently sets Code Section 179 depreciation expensing limit at $500,000 with a $2 million dollar overall investment limit before phase out. Both amounts will be indexed for inflation beginning in 2016. The amounts apply to the 2015 tax year. In addition, bonus depreciation for new or first use equipment has been reinstated under a phase down schedule. This first year depreciation schedule is 50% for 2015 through 2017, 40…

Thoughts and Updates on Year-End Tax Planning

Written by Rob Holcomb, EA
Extension Educator, Ag. Business Management
University of Minnesota Extension

There is a great deal of late-breaking tax information for 2015.  This post addresses the following topics:

Avoiding a Net Operating Loss (NOL)
Carry-over Section 179 and bonus depreciation on the State of Minnesota Return
Deferred Tax Liability
Passage of Extender’s Bill
Changes to the Repair Regulations
Prepaid expenses

NOTE: This information piece offers educational information only and is not intended to be tax, legal or financial advice. For questions specific to your farm business or individual situation, please consult with your tax professional.

Tax planning for farmers in 2015 is going to be a bit of a challenge.  Commodity prices combined with the current cost structure is going to raise the potential for the producer having a net operating loss (NOL) for 2015.  On the other side of the coin, some producers may have a great deal of deferred income rolling into 2015 from the prev…

Intensive Marketing Workshop Scheduled for Grain Producers

By Gary Hachfeld, Extension Educator

The Minnesota Master Marketer Program, six days of intensive marketing training for grain producers, is returning to Mankato in January, February and March of 2016.

The years 2007-2014 were an extended period of prosperity for many grain and soybean producers. This golden era has passed and with prices below production costs, the time is right for an educational program that gets back to the fundamentals of price risk management. The Master Marketer Program focuses on the basics of marketing plan development and profitable pricing decisions.

Sponsored by MN Soybean, the program is spread over three, two-day segments; January 13 & 14, February 10 & 11, and March 9 & 10, 2016. Sessions will be held at Country Inn & Suites Hotel & Conference Center, 1900 Premier Drive, Mankato, MN. Registered producers who cannot attend all six days can send a family member or business partner in their place.

An outstanding line-up of guest present…

Making the Difficult Rent Decisions

By: Pauline Van Nurden, Extension Educator

Farmers have begun pushing the pencil on profitability expectations for the upcoming year. And the outlook is challenging – especially on rented acres. Expenses look to be the same and revenue is down considerably (26% or more for corn, soybeans, and wheat). There will be no easy answer when planning for the 2016 crop year.

As producers make crop input decisions and work on land rent negotiations for the coming year, many options may come to mind to help their bottom line. A natural goal is to decrease expenses. But, these expense cuts cannot jeopardize the yield potential of the crop. Therefore, it is likely difficult to trim much off of seed, fertilizer, or chemical expenses.

The other major crop expense is land rent. According to the FINBIN Database, land rent has been increasing at an average rate of 9% per year over the last 10 years on both corn and soybean acres across all of Minnesota. This may be an area where expenses ca…

Where Can Farmers Lower Cost?

By David Bau, Extension Educator

Average 2016 corn and soybean budgets for cash rented farmland look unprofitable at projected input costs and current market prices available.  In 2007 prices were similar to what is available in 2016 for corn and soybeans. The table below compares actual figures for 2007 and 2014 from the FINBIN database for southern Minnesota and compares them to trends for 2016.

Corn and Soybean Input costs comparison between 2007, 2014 and 2016 



The figures for 2014 and 2016 indicate losses on both corn and soybeans even with crop insurance and government payments.  As you examine the fourth line from the bottom: Total direct expense per bushel you will see that in 2007 Southern Minnesota needed $2.37 per bushel of corn to cover the direct costs and $5.12 per bushel for soybeans.  Comparing these to the trend figures for 2016 of $3.91 for corn and $9.23 for soybeans, this represent a 65% increase for corn costs and 80% increase for soybean costs while prices are the…

Disappearing Profits in 2015 and 2016

By David Bau, Extension Educator

Average 2016 corn and soybean budgets for cash rented farmland look unprofitable at projected input costs and current market prices available.  National net farm income was estimated at $124 billion in 2013, $91.1 billion in 2014 and current forecast is $58.3 billion in 2015 down 36 percent from 2014.  In Southern Minnesota, corn and soybean are the main crops and the average cash prices in Worthington for 2013 were $6.04 for corn and $13.99 for soybeans. For 2014 the average cash corn price was $3.85 and $12.25 for soybeans.  In 2015 through September, the average cash corn price is $3.52 for corn and $9.32 for soybeans.

This declining trend in corn and bean prices and increasing input cost have put the farmers in a tight situation. Using an average rent of $210 per acre in the 2015 budgets, input costs would total $849 for corn and $516 for soybeans.  Even with good yields averaging 200 bushels per acre for corn at current cash price of $3.50, includ…

Crunching Corn and Soybean Budgets 2016

By David Bau, Extension Educator

The 2016 corn and soybean budgets look unprofitable at projected input costs and current market prices available.  For the past 10 years corn input costs have been increasing at rate of 9.8% per year while soybean input costs have been increasing at 8.5%.  From 2013 to 2014 input costs actually declined slightly from $755.44 in 2013 to $732.92 in 2014 for corn.  While soybeans increased from $451.38 in 2014 to $456.18 in 2014.  If you take 2014 figures and apply the 10 year trend of 9.8% increase for corn the 2014 numbers would increase to $804.75 in 2015 and $883.61 in 2016.   For soybeans applying 8.5% it would imply $494.95 in direct cost in 2015 and $537.03 in 2016.  Using 180 bushels corn and 50 bushels for soybeans, the price necessary to cover direct cost would be $4.91 for corn and $10.74 for soybeans.

Forward contract bids for 2016 corn and soybeans are under $3.60 and $8.80 respectively.  Farmer breakeven prices necessary to cover input costs…

Sequestration and the Effect on Farm Program Payments

Sequestration will likely affect farm program payments that are to be received by producers this fall. At this time, an ARC-CO payment, on corn base acres, will be $50 or more across Minnesota counties, for eligible producers. ARC-CO payments on soybean base acres are much more variable. Payments on these base acres will range from $0 to approximately $45, depending on the Minnesota County where a producer farms. But, all of these payments will likely be reduced due to sequestration.

Many producers are currently asking what sequestration is. Sequestration is a piece of 2011 legislation passed by Congress that is aimed at reducing the Federal budget deficit. Most Federal programs are affected by this reduction and USDA farm programs are no different. (Federal Crop Insurance and Conservation Reserve Payments are both exempt from sequestration though.)

The Federal Office of Management and Budget (OMB) administers sequestration and determines the annual level of reduction. It is e…

Farm Program Enrollment - One Last Step

Many commodity producers thought they were done with their Farm Program signup tasks this past spring. At that time, farm operators elected either ARC or PLC for their farm commodity program on eligible farm acres. This program election process selected which program farmland was placed in for the entire 5 years of current Farm Bill.

There is one more important step that needs to be completed though by producers! Producers must enroll farmland acres in the originally elected program by September 30, 2015. This enrollment is for both the 2014 and 2015 crop years. This final step includes signing the ARC/PLC contract form, which is CCC-861 or CCC-862 at the FSA office. If this last step is not completed, then farm program payments for both of these years will not be made on affected acres – even if program payments have been earned. (Each crop year going forward, the same election process will need to be completed.)

At this time it is very important for producers to contact their …

Set your strategy for 2016 Margin Protection Program

by Betty Berning, Extension Educator It's that time of year. State Fair? Well, yes, but not what I was thinking. Haying? Again, yes, but not what I was thinking! It is time to enroll in the Margin Protection Program (MPP) for 2016. The enrollment period for the 2016 MPP began on July 1, 2015 and will end on September 30, 2015. If you recall when you enrolled in MPP at the end of 2014, you signed up to participate in MPP until 2018 and need to pay a $100 administrative fee each year. You're not just paying a fee, though; this also nets you the "catastrophic" coverage of a $4.00/cwt margin. Producers who have previously enrolled will receive a 2.61% "bump" on their production history. If you haven't enrolled previously, now is an excellent time to consider if this program is a good risk management tool for your operation. What, exactly, is MPP? MPP was part of the 2014 Farm Bill and is an "insurance-like" program. The intent of MPP is to provide…

Liquidity is Strength when Profits are Scarce, How Should it be Measured?

by Don Nitchie, Extension Educator

Liquidity has certainly become a hot topic that many people are monitoring in Agriculture with more than two years of significantly lower grain prices.  While livestock operations enjoyed strong returns in 2014 many crop only farms experienced negative returns.  Lower prices also impact the value of grain inventories held as current assets on balance sheets.  In some cases, current liabilities may have also increased as operating loans expanded after decreasing over past years of higher grain prices.

In this changing environment, we know that liquidity, or the ability of the farm business to meet its current financial obligations in the coming year is very important.  Strong liquidity also provides a business the ability to withstand short-term shocks and the flexibility to capitalize on opportunities.  But, what is the best measure of liquidity?  Frequently, the current ratio; current assets divided by current liabilities may have been used in the p…

Relationship between Corn and Bean Prices verses Land Values and Rents

By David Bau, Extension Educator

I receive many questions daily about land rents and land values and what direction they are going in the near future and long term.  Corn and soybean prices have fallen from record highs in recent years to a level that presents a challenge for farmers to generate a profit. I thought I would try to put together a chart that correlates the relationship between these three items.

I put together a list of average farmland values in Southwestern Minnesota from 1994 thru 2014 average Southern Minnesota cropland cash rental rates and average prices received by farmers for corn and soybeans sold each year.  Next I took the percentage yearly change for each and compared the results to each other in Table 1 below. The average change in land values is indicated by diamonds, the average change in Farmland Rental Rates is indicated by squares and the average change in corn and soybean prices is indicated by triangles.

Table 1.






















From 1994 to 1995 all three had increas…

Farmland Sales Decline Slightly in Minnesota in 2014

By David Bau, Extension Educator

Minnesota farmland sales for 2014 are available at Land Economics website thanks to University of Minnesota Professor Steve Taff who updated the information before his recent retirement.   Minnesota average sale price was $5,109 in 2014 down 1 percent from an average sale price of $5,165 in 2013.  The average sales price was $4,222 in 2012.  The Minnesota average for prior years was: $3,667 in 2011, $3,517 in 2010 and $3,420 in 2009.  The upward trend was broken slightly in 2014 the first decline in recent years.

Record corn and soybean prices and corresponding profits in recent years can explain the rapid rise in farmland sale prices.  Now much lower corn and soybean prices can explain the falling farmland sale prices as farmer profits have declined.  Since the June 30th crop report corn and soybean prices have moved higher but are still below the level for many farmers to reach their breakeven prices.

If you want to see what farmland sales took place…

Repeal of Country of Origin Labeling – it’s messy

By Betty Berning, Extension Educator

In May, the World Trade Organization (WTO) found the United States’ County of Origin Labeling, or COOL, discriminated against imported animal products from Canada and Mexico. Canada and Mexico have received permission from the WTO to impose retaliatory tariffs on U.S. products. Industries impacted include meat, wine, chocolate, furniture, and jewelry, along with others. The total amount of tariffs varies, but has been estimated as high as $3.7 billion. For those not familiar with COOL, it is a United States program that requires all fresh beef, pork, chicken, goat, and lamb to be labeled with its country of origin. It sounds simple, but it gets messy. Processed and foodservice meat are exempt from COOL. COOL was part of the 2002 Farm Bill and modifications were made in 2008 and 2013. So, for example, if a steer was born in Mexico, finished in the U.S., and processed in the U.S., COOL requires that it is labeled as being a product of Mexico and the U.S…

Challenging Times & the Need for Financial Planning

By: Pauline Van Nurden, Extension Educator

Minnesota poultry producers are currently experiencing the impacts of the most devastating outbreak of avian influenza on record. To date, millions of turkeys and chickens across the state of Minnesota have been lost to the disease. Producers are dealing with many challenges at the current time – euthanizing birds; cleaning and disinfecting their premises; and all the other physical and emotional challenges related to starting production again on their farm.

It is easy to get wrapped up in the daily management of all of these tasks. And, it is difficult to begin considering the financial planning implications of this disease on the farming operation. Yet, it is important for producers to assess their current financial position, look at scenarios for the future, and assess the best path for the future success of their operation.

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…

Update: Frequently Asked Questions about Avian Influenza

By: Pauline Van Nurden, Extension Educator                                               Updated:  6/22/2015

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.

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 negotia…

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.

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.

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…

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. 

2014 FINBIN Report on Minnesota Farm Finances