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Extension > Agricultural Business Management News > October 2016

Monday, October 24, 2016

USDA Average County Rents Published in September

By David Bau, Extension Educator

The National Agricultural Statistic Service with the USDA released the county farmland rental rate estimates for 2016.  After increasing continuously since 2007, statewide average rents went down for the second year in a row. The state average cropland rental rates declined from $185 in 2014 to $180 in 2015 to $170 in 2016 as indicated in Chart 1 below. This represented a 5.5% decrease from 2015 to 2016 and 2.7% decrease from 2014 to 2015.  Previously rental rates had a 4.5% increase from 2013 to 2014, 18% from 2012 to 2013 and 11.1% from 2011 to 2012. Statewide Irrigated rental rates declined from $210 in 2015 to $185 in 2016 almost a 12% drop. Pasture rent average increased from $26 per acre in 2014 to $28 per acre in 2015 to $30 in 2016 or an increase of 7.1%.
Table 1 below lists the actual farmland rental rates by county from Adult Farm Management Records. Since farmers and landlords are starting to negotiate 2017 farmland rental rates and the last actual numbers available are for 2015, I have listed estimated rental figures for 2016 and 2017.  For 2016 I heard many times, that rents were down $20 to $25 per acre, although some rents went up and some remained the same.  In Table 1 below, I estimated a 10% decline in 2016 from 2015. What direction should 2017 farmland rental rates go? In the table is an estimated 7% decline in rental rates from 2016 to 2017 due the continued decline in corn prices.

The column third from the right in bold is the latest 2016 USDA county estimate.  Property taxes continue to increase while profits are being squeezed by low commodity prices. It will be a very challenging year for both the landlord and farmer to determine where the 2017 farmland rental rate should be? Up? Down? or Constant?




What is a Fair Farm Rental Agreement?

By David Bau, Extension Educator

Landlords, Farmers, Agri-Business Professionals should make plans to attend one of the informative meetings being held across Central and Southern Minnesota. These free meetings are being provided by the University of Minnesota Extension.  Farm land rental rates have never been higher and determining a fair profitable farm rental agreement is a challenge in today’s economy with recent record corn and soybean prices and record farm land values and current significantly lower price for 2014, 2015, 2016 and 2017.

Negotiating a fair rental agreement that satisfies the land owner and the farmer is a challenge.  David Bau, Extension Educator in Ag Business Management, will provide several ways; by examples, factsheets and worksheets to determine a fair farm land rental rate for both parties.

Topics covered at the meetings will include local historic and projected farmland rental rate trends, current farm land values and sales, a worksheet that will help determine a fair rental agreement. Input costs for 2017 will be presented along with current 2017 corn and soybean prices. Worksheets will examine 2017 costs and what is affordable rent that a farmer will be able to pay in 2017, the rate of return to the landlord at current market values and examine flexible rental agreements.

Make plans to attend one of these meetings now.  Attendees will receive several informative worksheets and factsheets that will help to determine what is a fair 2017 farm land rental rate is.

The meetings will be held in Ada, Albert Lea, Alexandria, Albert Lea, Benson, Blue Earth,   Buffalo, Caledonia, Chaska, Cologne, Elko New Market, Faribault, Farmington, Foley, Gaylord, Hutchinson, Jordan, Le Center, Litchfield, Little Falls, Long Prairie, Madison, Mankato, Melrose, Moorhead, Morris, Newfolden, Olivia, Owatonna, Park Rapids, Pipestone, Preston, Red Lake Falls, Rochester, St. Charles, St. Peter, Slayton, Sleepy Eye, Waseca, Wheaton, Willmar, and Worthington starting in Slayton on November 7, 2016 and ending in St. Peter on December 14, 2016.  Check out the Agricultural Business Management calendar on web at: www.extension.umn.edu/agriculture/business/ for specific times and locations.

What is a Fair Farm Rental Agreement? (SW Minnesota)

by David Bau, Extension Educator

Landlords, Farmers, Agri-Business Professionals should make plans to attend one of the informative meetings being held across Central and Southern Minnesota.  These free meetings are being provided by the University of Minnesota Extension.  Farm land rental rates have never been higher and determining a fair farm rental agreement is a challenge in today’s economy with recent record corn and soybean prices and record farm land values and significantly lower prices since 2014.

Negotiating a fair rental agreement that satisfies the land owner and the farmer is a challenge.  David Bau, Extension Educator in Agricultural Business Management, will provide several ways; by examples, factsheets and worksheets to determine a fair farm land rental rate for both parties.

Topics covered at the meetings will include local historic and projected farmland rental rate trends, current farm land values and sales, a worksheet that will help determine a fair and profitable rental agreement.  Input costs for 2017 will be presented along with current 2017 corn and soybean prices.  Worksheets will examine 2017 costs and what is affordable rent that a farmer will be able to pay in 2017, the rate of return to the landlord at current market values and examine flexible rental agreements.

Make plans to attend one of these meetings now.  Attendees will receive several informative worksheets and factsheets that will help to determine what is a fair 2017 farm land rental rate is.

The meetings held in Southwest Minnesota include:

November 7, 2016 at 9:00 am 
Murray County Fairgrounds 4-H Building, 3048 S. Broadway Ave., Slayton, MN 56172

December 2, 2016 at 9:30 am
Emergency Service Building, 811 5th St., Pipestone, MN 56164

December 7, 2016 at 9:30 am
Extension Regional Office, 1527 Prairie Drive, Worthington, MN  56187

Make plans to attend a farmland rental workshop this fall for current numbers.  Check out the Agricultural Business Management calendar for schedule of the all 45 rental workshops at across the state at: www.extension.umn.edu/agriculture/business/ for specific times and locations.

Monday, October 17, 2016

Cash Flow Statement- Watch Where the Money Goes

By Betty Berning, Extension Educator        


This is it- the last of the financial statement articles.  I promised I would write three:  one for each of the commonly used financial statements on farms.  I am sure some of you are breathing a sigh of relief!
If you recall, I’ve written about balance sheets- first article- and income statements- second article.  A balance sheet tracks your assets (cash, land, machinery) and liabilities (loans, mortgages, accounts payable).  An income statement looks at your profitability over time.  For example, your Schedule F from your tax return is an informal income statement because it lists where you received and spent money. 
This article will focus on cash flow statement (CFS), the third financial statement.  CFS is precisely that:  a statement that explains the flow of cash in your business.  In other words, how did money move in and out of your business?  Where did your income come from?  What kind of expenses did you have?
                Imagine that you looked at your 2015 and 2016 balance sheets. (See Figure 1)   You notice there are changes.  Your assets have increased by $107,000 and your liabilities have increased by $54,900.  What happened?  With a little analysis, you can piece some of it together.  Long-term assets and long-term liabilities increased, so it would appear that land was purchased and a portion was financed.  You can see the basics, but don’t get the in-depth view. 
What about the current assets?  There was a change of $4,000 from 2015 to 2016.  What happened there?  That’s not as obvious by just looking at the balance sheet.  That is where CFS comes in.  CFS helps tie the balance sheet and income statement together. 

Figure 1:   2015 and 2016 Balance Sheets

                There are three components to CFS:  cash from operations, cash from investing activities, and cash from financing activities.  (Figure 2) Let’s define these terms a bit further.  Cash from operations is the gross cash income and total cash expense.  These items can be found by looking at your tax statement, which lists out your income and expenses.  Cash from investing activities consists of purchases and sales of equipment, machinery, or land.  Think about what you may have purchased in the last year or may have sold.  Cash from financing activities are loan payments and withdrawals.   It also includes your nonfarm income and family living expenses.  CFS is completed for a specified time period (usually annually at the end of the year).  It will help you understand where money was spent. 

Figure 2:  Cash Flow Statement
Beginning cash balance
$3,800
Cash from operations
+113,423
Cash from investing activities
-17,023
Cash from financing activities
-83,700
Ending cash balance
$16,500

                How do you know if you have a strong CFS?  You’ll have positive cash from operations.  This means you have money for investing and financing activities.  Your money from operations can be used to buy a new piece of machinery or cover family living expenses.  Another good sign is if your ending cash balance is greater than your beginning cash balance.  This shows that you were profitable during the time period.
                Your lender will probably look at your term debt coverage ratio.  This helps determine your capacity to repay you debts.  It is calculated using the following equation:


                  Term Debt Coverage Ratio = Net Farm Income
                                                                 Debt payments

A ratio of greater than 1 indicates your operation is generating enough income to cover your debt payments.  A ratio of less than 1 indicates that there is not enough income to service debt.  Lenders like to see a term debt coverage ratio of 1.25 or greater.  In others words, for every $1.25 of income you generate, you can pay for a $1 of debt.  Don’t panic- many farms have less than desirable term debt coverage ratios right now.  If that’s you and you haven’t talked to your lender, you need to do so.  You need to develop a plan.  That could be selling an asset, generating additional income, or restructuring debt. 
                If you are feeling confused after reading all of this, that’s okay.  Re-read it and try to work through an example.  Review the cash flow statement your banker or financial software have produced for you.  What do you see happening in your business? 
                CFS is the most difficult statement to understand, but it is very important.  This is where you can identify if you have enough money to pay your bills.  Additionally, it is one of the first places where financial distress appears.  Learn how to utilize this statement and it will allow you to be a proactive financial manager.
                Times are tough right now.  Keep engaging with your lender and farm business manager instructor.  Have conversations early and know your options.  Understand your business and its finances.  If you are interested in learning more about financial statements, please consider using “Interpreting your Financial Statements and Measures”, http://ifsam.cffm.umn.edu/.  This is an on-line workshop series that will help you understand your financial statements to more effectively manage your farm.  It will go into greater depth than these articles and help you on your financial journey!
               



Thursday, October 6, 2016

MN Livestock Investment Grants Available

Funds for On-Farm Livestock Improvements 



Recently the MN Department of Agriculture (MDA) announced there are $2 million in grants available for improvement projects on MN livestock farms. These funds are available through the Agricultural Growth, Research, and Innovation (AGRI) Program.

Successful applicants are reimbursed 10 percent of the initial $500,000 of their investment. The maximum available per year for a producer is $25,000.

Applications are due by Dec. 16, 2016. Funded projects will need to be completed between Jan. 1, 2017 and June 30, 2018. Complete details of this program, including application documents, can be found on the MDA website.

Financial Help Available For Farmers Impacted By Floods


Updated Disaster Loan Program Available


The Minnesota Rural Finance Authority (RFA) has just released updated information regarding their Disaster Loan Program. Farmers who experienced losses as a result of recent flood conditions can qualify for a zero-interest loan through the RFA. This RFA loan is a participation (or essentially shared) loan with the producer's current lender. The RFA portion of the loan is limited to 45 percent of the principal balance, up to a maximum amount of $200,000. This loan can be used to "replace or repair items lost or damaged due to flooding and not covered by insurance" according to the MN Department of Agriculture News Release.

For more information, farmers should contact their local lender or the MN RFA at 651-201-6004.
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