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Extension > Agricultural Business Management News > 2017

Tuesday, October 31, 2017

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 2017.  After increasing continuously since 2007, statewide average rents went down for the third year in a row. The state average cropland rental rates declined from $185 in 2014 to $180 in 2015 to $170 in 2016 to $166 in 2017, as indicated in Chart 1 below.  This represented a 2.4% decrease from 2016 to 2017 and 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 2017 almost a 12% drop.

Pasture rent average increased from $26 per acre in 2014 to $28 per acre in 2015 to $30 in 2016 and 2017 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 2018 farmland rental rates and the last actual numbers available are for 2016, I have listed estimated rental figures for 2017 and 2018.  For 2017 I heard many times, that rents were down $10 to $20 per acre, although some rents went up and some remained the same.  In Table 1 below, I estimated a 2.5% decline in 2017 from 2016. What direction should 2018 farmland rental rates go?  In the table is an estimated 2.5% decline in rental rates from 2017 to 2018 due the continued decline in corn prices.

The column third from the right in bold is the latest 2017 USDA county estimate.  Property taxes increase although assessed values are starting to decrease and the Minnesota legislature passed a subsidy to offset some school referendum costs. Profits continue being squeezed by low commodity prices that do not cover all of their costs.

It will be a very challenging year for both the landlord and farmer to determine where the 2018 farmland rental rate should be? Up? Down? or Constant?
 


Friday, October 13, 2017

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.  Farmer profits are low or negative and farm land rental rates declined slightly while commodity prices have decreased significantly. 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 as recently as 2012 but commodity prices continued to decline since then.

Negotiating a fair rental agreement that satisfies the land owner and the farmer is a challenge.  David Bau and Nathan Hulinsky, Extension Educators 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 2018 will be presented along with current 2018 corn and soybean prices.  Worksheets will examine 2018 costs and what is affordable rent that a farmer will be able to pay in 2018, the rate of return to the landlord at current market values and examine flexible rental agreements.

Make plans to attend one of these forty-two meetings now.  Attendees will receive several informative worksheets and factsheets that will help to determine what is a fair 2018 farm land rental rate is.

The meetings will be held in Ada, Albert Lea, Alexandria, Albert Lea, Benson, Blue Earth,   Buffalo, Caledonia, Chaska, Clearbrook, Cold Springs, Cologne, Crookston, Elko New Market, Faribault, Farmington, Foley, Gaylord, Hutchinson, Jordan, Le Center, Litchfield, Little Falls, Long Prairie, Madison, Mankato, Grygla, Olivia, Owatonna, Pipestone, Preston, Red Lake Falls, Rochester, St. Charles, St. Peter, Slayton, Sleepy Eye, Waseca, Willmar, and Worthington starting in Slayton on November 3, 2017 and ending in Pipestone on December 19, 2017.  Check out the Agricultural Business Management calendar on web at: www.extension.umn.edu/agriculture/business/ for specific times and locations.

Wednesday, October 11, 2017

What Direction will 2018 Farmland Rent Go? Stay the Same? Up? or Down?

By David Bau, Extension Educator

Each year I put together tables listing actual farmland rental rates by county from Adult Farm Management Records.  Unfortunately farmers and landlords are starting to negotiate 2018 farmland rental rates and the last actual numbers available are for 2016 so I am forced to estimate figures for 2017 and 2018.  When I did this last year I used an estimate of a 10% decline and the actual figure came in at 2.5% decline statewide.  For 2017 I heard many times that rents were down, although some rents went up and some remained the same, in table 1 below I estimated a 2.5% decline in 2017 from 2016.

But what direction should 2018 farmland rental rates go?  How do I determine an estimate for 2018 farmland rental rates?

Should they stay the same? 
Landlord property taxes continue to increase. While the state legislature help with some of the school referendum costs they still increase taxes.  If rents stay the same, a landlord’s income will go down if taxes increase and if taxes are not increasing the revenue to the landlord will remain constant, when they have grown accustomed to significant increases since 2007.

Should they go up?
Landlord expenses increase as property taxes increase and they want to pass this cost increase onto the farmer and increase the rental rate.  Another example might be where there has been a long term lease in place where the rental rate has not changed for many years and this rate might be considered low today and due for an increase.

Should they go down?
Farmers have experienced decreasing corn and soybean prices since record high prices in
2012 for corn and 2013 for soybeans and current prices offered for 2018 corn and beans are below what farmers sold their grain for in 2007, when rents were $125 per acre.  Average production budgets for 2018 indicate losses for farmers if rents are above $122 per acre.

With the average rents in Table 1 in 2016 averaging $212 per acre, to go down to $122 per acre would be over 42% reduction in average rents.  The average Southwestern Minnesota corn farmer has lost money for three consecutive years and soybeans lost money in 2014 and 2015 and made money in 2016.  The results for 2017 corn and soybeans look to be negative again.

So you could make an argument for all three scenarios, but looking at the economics for corn and soybean production in 2018 using 180 bushels per acre, yield and $3.25 price per bushel, for corn and 50 bushel yield and $9.00 price for soybeans, income would be $585 for corn per acre and $450 for soybeans. With average cost projected to be $511 for corn and $281 for soybeans before rent and labor, this would leave $74 per acre for corn and $169 per acre for soybeans to be shared between the landlord as rent and the farmer and income. This would be an average of $122 per acre to be shared.

So I projected a 2.5% decline in rental rates from 2017 to 2018 for figures listed in Table 1.

But from earlier examples 2018 farmland rates could go down by over 42% or increase from 2016 rates depending on the individual situations.  It will be a very challenging year for both the landlord and farmer to determine where the 2018 farmland rental rate should be.


2016 ARC-CO Payments for Minnesota

By Curtis Mahnken and Bob Craven, Center for Farm Financial Management, Applied Economics

The Farm Service Agency (FSA) recently released 2016 county yields for corn, soybeans and wheat. These yields along with the marketing-year-average (MYA) prices which were released in September provide the information needed to calculate Agricultural Risk Coverage-County (ARC-CO) payments. These payments will be made in October 2017.

ARC-CO triggers a payment based on a crop’s base acres if the actual county revenue for that crop is less than 86% of the “benchmark” revenue. For corn, the MYA price (Table 1) is almost 30% lower than the benchmark price. Payments will be made in counties where the 2016 yield is up to 22% above the county benchmark yield. For wheat, payments will be triggered in counties where their yields are up to 48% above the benchmark yield.

Table 2 includes the payments per base acre by county for corn and wheat. These numbers have been adjusted to reflect the 6.8% reduction for budget sequestration. For soybeans, there are only two counties in Minnesota that will receive ARC-CO payments, Kittson ($12) and Lake of the Woods ($19).

The variability in payments between counties are a result of differences in the 2016 crop yield compared to the county benchmark that is based on 2011-2015 yields. There is significant variation not only in the 2016 yields but also in the benchmark yields between the counties. Counties with a high yield compared to their benchmark will not receive payments.

To calculate the payment for a farm, multiply the base acres by the payment for that county. A farm in Waseca County would receive $29 per base acre for corn. With a 300 acre corn base the payment would be 300 x $29 = $8,700.





Monday, October 2, 2017

New Opportunities for Minnesota Beginning Farmers and Farm Asset Owners Who Want to Help Them

By Don Nitchie, Extension Educator

Beginning in 2018, there are two new opportunities available which can be very helpful to beginning farmers in Minnesota. These programs are the Beginning Farmer Incentive Credit for existing farm asset owners who rent or sell assets to beginning farmers and the Beginning Farmer Management Credit for the beginning farmer enrolled in an approved farm business management program. These tax credits can reduce an individual’s Minnesota income tax. The programs were created by the Minnesota Legislature during the 2017 Special Session. According to MDA, current legislation funds these programs through 2023.

According to the Minnesota Department of Revenue posting of June 6, 2017, the beginning farmer incentive credit is a tax credit for owners of agricultural assets. Such assets may be land, livestock, facilities, or machinery located in Minnesota. The assets must be sold or rented to a beginning farmer who is not a family member of the asset owner, as defined in the Internal Revenue Code. Seven eligibility requirements are listed for beginning farmers and are listed below. The credit equals 5% of the sale price of the asset (up to $32,000), 10% of the gross cash rental income in each of the first three years of a rental agreement (up to $7,000 per year), or 15% of the cash equivalent of the gross rental income of the first three years of a share-rent agreement (up to $15,000 per year). If the amount of the credit exceeds tax liability, the excess may be carried forward 15 years. Equipment dealers do not qualify for the credit. The total value of credits allocated by the Rural Finance Authority is capped at $5 million for tax year 2018 and $6 million per year in later years. Certificates for the credit will be issued on a first-come first-served basis, but with preference for some re-certifications. The beginning Farmer will need to participate in a farm business management education program.

The beginning farmer management credit is equal to 100% of the cost of participating in a financial management program approved by the Minnesota Rural Finance Authority (up to $1,500 per year). The credit can be taken for three years directly reducing Minnesota Income tax due for the beginning farmer. If the amount of the credit exceeds tax liability, the excess may be carried forward three years.

Wednesday, September 27, 2017

Make Time for Planning

By Betty Berning, Extension Educator

There is always a lot to do and it is easy to wonder where time goes.  In the midst of milking cows and making hay, management activities, like working on a transition plan for the farm or writing up an animal welfare policy, are frequently set aside.  That is why it is so important to MAKE time on a regular basis (ideally weekly) to work on these strategic activities.  Just like an exercise program, if you don’t make time for these items, activities that are more urgent will consume your time.  It takes discipline to commit to a regular time to work on management activities.

Management of your business is important.  By carving out time to regularly work on your business’ strategy and goals, you set the course for your farm and can proactively respond to changes.  This can help your farm to survive in the future.

One management task I suggest beginning with is a business plan.  Does your farm have a business plan?  I recommend that every farm have a business plan, especially those that are new, expanding, or making major changes. 

A business plan is simply a statement of business goals and a roadmap to how those goals will be achieved.  Think of it as a blueprint for your farm.  It sets the direction of where your business is headed in the future. 

By creating this plan, you can effectively communicate what your farm is about to others. Do you farm with other family members?  A business plan can help all of you discuss and align on goals for your farm.  Do you work with a lender?  You farm’s plan can be shared with your lender to help him/her understand your farm’s vision and goals.

There are several sections to a business plan:  executive summary, business description, production management, personnel management, marketing management and financial management.  It takes time to write your first plan.  After you have a plan in place, though, it becomes a living document that you can use.  If you want to make changes to it, it is easy to update.  Because it’s an important piece of YOUR farm’s business, I strongly suggest that you (or your leadership team) write this document.  You know your business best and can best describe its goals.  A brief synopsis of each section follows:

  • ·         Executive Summary:  I like to think of this as the bow on a present.  It wraps everything up and presents it in an easy to understand format.  Often times this may be the only section that is read.  It is here that you’ll want to summarize your business and its goals. 
  • ·         Business description:  This is a great place to start.  Many people find this to be the easiest section to write because you simply write about your farm.  For example, you may write about the size of your farm, where it’s located, what you produce, your ownership, or your history.   Think about what you’d want someone to know about your farm as you write this section.
  • ·         Production management:  Some people call this operations management.  This is the nuts and bolts of how you run your farm!  In this section, you describe what you produce and how you produce it. 
  • ·         Personnel management:  Here you describe the organizational structure of your farm.  You may be laughing, thinking, it’s just me!  That’s okay.  This section will be short for you, but it’s good to write that you are the sole proprietor and list any help that you have.  If you have a profitability team or advisory committee, include them, too.  For larger farms, list your employees.  Describe the different jobs on the farm and each person’s responsibilities. 
  • ·         Marketing management:  This section can be about how you sell your grain or milk, or if you sell products directly off your farm, it might be your plan for how you effectively sell these products.  For most dairy farms, this is the place to write about whom you sell your milk to and your selling strategy.  You can also include an analysis of market trends or describe a competitive advantage (e.g. being organic or grass-fed) that your dairy may possess.
  • ·         Financial management:  If you are creating your plan because you’d like to request a loan from your lender, this is the section for you.  Here you’ll want to include financial history, financial projections, financial statements, and your capital request.  It may also be helpful to include benchmarks against other dairies that are similar to yours.  It is here that you can illustrate if your farm can financially handle an expansion or change.


All of this may seem overwhelming.  There is a great tool available from the Center for Farm Financial Management at University of Minnesota called AgPlan (agplan.umn.edu).  This tool will help you create your own business plan for your farm.  There are tutorials and resources available that provide in-depth detail on each of these sections.  It can help you determine what you want to include in your plan!  It also allows you to share your plan with others, so that you can edit it between family members and business partners.


By completing a business plan, you begin to shape your farm’s strategy.  This exercise will help you identify where to spend your management activity time. Take time every week to work on becoming a better manager.  With discipline, you will find the time to do this and your farm will benefit!

Thursday, September 7, 2017

2017 Agricultural Tax Issues Course
Locations and dates for
Agricultural Tax Issues Course

University of Minnesota Extension is offering an agricultural tax school in late September and early October.  This course targets income tax professionals that work with farmers.  Additionally, this course will benefit agricultural professionals such as agricultural lenders and farm management instructors. The agricultural tax school will be offered in five locations and the course has been approved for eight hours of continuing professional education.

Locations and dates for Agricultural Tax Issues Course:

St. Cloud, Minnesota
Tuesday, September 26, 2017
The Tuscan Center
3333 West Division St., Suite 116
St. Cloud, MN 56301

Rochester, Minnesota
Wednesday, September 27, 2017
Kahler Apache Hotel and Water Park
1517 16th St. SW
Rochester, MN 55902

Marshall, Minnesota
Thursday, September 28, 2017
Ramada Inn Conference Center
1500 East College Dr.
Marshall, MN 56258

Crookston, Minnesota
Tuesday, October 3, 2017
Crookston Inn
2200 University Ave.
Crookston, MN 56716

Fergus Falls, Minnesota
Wednesday, October 4, 2017
Bigwood Event Center
925 Western Ave.
Fergus Falls, MN 56537


This course targets income tax professionals that work with farmers.  Additionally, this course will benefit agricultural professionals such as agricultural lenders and farm management instructors.

Course Topics:
1.      Legislative Update
a.       Information reporting
b.      Income tax basis
c.       Due dates of tax returns
d.      Table of expiration dates
2.      Miscellaneous Agricultural Tax Issues
a.       Livestock transactions
b.      Form 1099-MISC
c.       Net investment income tax
d.      Inherited property
e.       Oil and gas payments and deductions
f.        Repairs
g.      Revoking a CCC loan election
h.      Marketing gain on CCC loans
i.        Going out of business
j.        Farm casualty gains and losses
k.      Casualty repair costs
l.        Children of farmers and the “Kiddie” tax
m.    4-H and FFA members
n.      Safe harbors for farmers
3.      Income Issues
a.       Commodity futures and options contracts
b.      Deferred payment contract losses
4.      Farm Employees
a.       Employee vs. independent contractor
b.      Payment of wages with commodities
c.       Employer-provided meals and lodging
d.      H-2A agricultural workers
5.      Self-employed tax and social security benefits
a.       Interaction of self-employment tax and social security benefits
b.      Farm optional method for computing self-employment earnings
c.       Self-employment tax on land rented to an entity
6.      Depreciation and I.R.C. Section 179
a.       Depreciation and section 179 expensing
b.      Related parties and depreciation
c.       Irrigation systems and water wells
d.      I.R.C. section 179 recapture
7.      Deduction Issues
a.       Prepaid farm expenses and deposits
b.      Prepaid expenses: change of plans
c.       Promissory note to supplier
d.      Deducting interest on loans secured by the residence
e.       Lease vs. purchase of equipment
f.        Improvements installed by lessee
g.      Demolition of a farmstead
h.      Deducting cost of growing crops purchased with land
8.      Farm-related Income Reported on Form 4797
a.       Depreciation recapture
b.      Depreciation recapture from assets received as a gift
c.       Net I.R.C. Section 1231 loss
9.      Like-kind exchanges
a.       Like-kind exchange of equipment
b.      Like-kind exchange of livestock
c.       Depreciation of cars, vans and trucks
d.      Like-kind exchange tenancy-in-common
e.       Like-kind exchange of Conservation Easements
10.  Rulings and Cases


TIME SCHEDULE:
Registration: 7:30 a.m. – 8:00 a.m.
Class:  8:00 a.m. – 5:00 p.m. (with a one-hour break for lunch**)
** Lunch will be provided as part of the course (This is a change from previous years).

FEE:
The fee for this 8-hour course is $180.00 and includes refreshments and course materials.

MATERIALS:
Participants will receive the 2017 Agricultural Tax Issues book authored by Philip E. Harris, Professor Emeritus from the University of Wisconsin-Madison/Extension.

By attending this course, you will earn:
·         8 Federal Tax update credit hours*

INSTRUCTORS:
Rob Holcomb, EA, Extension Educator in Agricultural Business Management, University of Minnesota Extension

Nathan Hulinsky, Extension Educator in Agricultural Business Management, University of Minnesota Extension.

REGISTRATION:     
Registration for the agricultural tax course will be conducted through the University of Minnesota College of Continuing Education.  Below is a link that may be used to register for each of the respective locations.  The deadline for registration is Friday, September 8, 2017.  For more information or questions, please contact Rob Holcomb at holcombr@umn.edu or by calling 507-337-2807.


Or you may copy and paste the following web link into your email browser.


*This course has been approved by the IRS Registered Preparer Office. The University of Minnesota College of Continuing Education is an Approved Continuing Education Provider.



Wednesday, August 30, 2017

Your Ability to have a Critical Conversation is Important to Your Long Term Farm Business Success

By Don Nitchie, Extension Educator

Successful farm management today, often depends on your ability to discuss important items “beyond and between the numbers”, in a constructive way.  Often these discussions are about pivotal points in history for your farm business or careers.  Sometimes you may be struggling with or even attempting to have a badly needed “critical conversation” about a significant decision that has to be made or implemented.  This maybe with a business partner, spouse, other family members, a landlord, son or daughter.

While many Minnesota farms are on average holding up well financially in these tight profit margin times—there are some stress points on some farms. Some critical conversations are necessary on the best of farms  for example if;  liquidity is weakening more than average the last few years and profitability has been weak across enterprises and the whole farm for the last few years. This probably has resulted in a weakening of Net Worth and maybe over-expenditure on family living in some cases.  If this situation is not being acknowledged-a discussion of the impact of continued current trends plus ways to improve the situation needs to occur-soon. The farm manager should ideally seek out discussion and consultation before they are forced to by someone else such as their lender.

For pivotal business decision-making that is dependent on or involves others, you need to assess what you need to do to make the impending “critical discussion” productive and hopefully successful.  You may have been avoiding discussion because it will not be a comfortable situation-or you may have to deliver bad news in the process.  Whatever the case, you probably realize procrastinating will only make it worse.  Examples of critical conversations can be; informing others (partners, family or banker) of farm financial conditions; rental discussions with landlords; farm transition needs/realities with family members—as well as many others.

There are several books and self-help guides probably written on this topic.  Many guidelines and tips are very good but, often easier said than done.  I will offer some here that I have found to be helpful to me personally and professionally.  This is after attending numerous trainings myself as well as working with many students, producers and employees over the years.  I hope you find some of these helpful.  I am not an expert in this area but, have some practical experience.

  1. Try to minimize the emotion in the conversation. Talk to a neutral 3rd party in confidence first if you feel a lot of stored up anger, regret, disappointment or you feel taken advantage of. Work out some of your emotions first.  When you meet, it certainly would be accurate to let the other party know how you have felt but, doing it under control will likely lead to better outcomes for you and all concerned.  If someone does get emotional—let it happen as those feelings are probably very real, acknowledge their feeling for what they are—then attempt to bring it back to the real decision at hand.  Set the tone by using a calm and quiet voice.
  2. Try to pick the right time for the conversation—maybe let them know ahead of time or even schedule it in advance.  It is maybe OK to let them know a general topic but, save the real content for the actual conversation.  Don’t procrastinate though, just because you anticipate the conversation will be uncomfortable—or someone will get emotional.
  3. Make a very brief list of your expectations of necessary items to discuss before you meet. When you meet ask the other conversation participant to state their expectations for the discussion—then list yours.  Ask if you both agree these are the correct topics.  Set a tone for mutual respect.
  4. Prepare yourself to be satisfied with shorter term or interim discussion points—where you can maybe more easily find common ground or understanding. “Don’t try to solve world peace in one meeting”.
  5. At the end of discussions, affirm what you have heard, as a way to conclude. So, what I heard is “we both agree on……. But, we disagree on……….”.  Be careful to not put words in someone else’s mouth.  It is OK to ask the other party to clarify a point you may not agree with by asking; “Could you help me understand…or could you clarify….”? You may find out you may not have understood their reasoning; there may be information you were not aware of or, their information maybe primarily a feeling versus fact.


Friday, August 18, 2017

Finding Common Ground with Consumers

by Betty Berning
Extension Educator

Local, non-GMO, organic, gluten-free.  These are some of the words you might see if you look at a package of food at the grocery store.  Some of it might make you chuckle.  What exactly is non-GMO soda, anyway?  And wasn’t oatmeal always gluten-free?!  Why are food companies using these words?

The answer is simple.  Consumers are asking for it.  According to the Center for Food Integrity (CFI), a non-profit organization whose members and partners range from farmers to food companies, today’s consumer is different from the consumer of the past.  Their research indicates that the consumer of the past valued price, taste, and convenience, while today’s consumer is looking for more.  Health and wellness, safety, social impact, experience, and the overarching theme of “transparency” are values of younger consumers.
This explains why there are more organic and natural offerings at the grocery store.  It also explains the to be a boom in agri-tourism (berry-picking, pumpkin patches, wine tasting, etc.).  Consumers want to feel connected to their food and feel like they are buying from a trusted friend.

For traditional/conventional farmers, these trends can be maddening.  Farmers work hard to provide a high-quality product.  They are very proud of their product (and rightly so!)  Farmers consume their product and are happy to serve it to friends and family.  One can understand why farmers might feel frustrated when consumers do not seem to trust the product they have worked so hard to create.

Like it or not, consumers buy your products.  They need you and you need them.  Before I worked in Extension, I worked for a food company.  The consumer’s voice is greatly valued at food companies.  Our goal was to sell a product that consumers wanted to buy.  We did not just make a product and expect consumers to buy it. 

Our products were created based on consumer research.  We listened to our consumer, asked questions, and then we responded.  Our response was to launch a product and market it.   Marketing did not mean telling consumers all the facts about why a product was good for them.  Marketing meant highlighting how the product met the needs and values that the consumer had previously expressed to us.  We related to our consumers through our advertisements, social media engagement, and customer service.  We wanted consumers to feel like they were buying a product from a trusted friend. 

I spoke with Natasha Mortenson, Public Relations Director at Riverview Farms, about the topic of consumer engagement.  She and I have engaged with consumers, but in very different ways!  As we talked, we quickly discovered that regardless of how you are engaging with consumers (as a farmer, processor, food company, etc.), the strategy is similar.    Natasha’s process was simple:  1. Listen, 2. Ask questions, 3. Relate and express where you have common ground, and 4. If you can, come up with an analogy to explain why you do what you do. 

Think about common values that you have with most people.  You are most likely a member of a local community and farm with your family.    Like most Americans, you are probably trying to provide for your family.  Your farm could be considered a “small business”, as opposed to a corporation.  You care about your cows’ health and well-being.  Consumers value these principles, just like you do! Sharing these common values help consumers feel connected to you and provide a sense of transparency.  

I would encourage each of you to connect with consumers, which is as easy as talking to your non-farming family and neighbors.  Understand their needs and preferences by LISTENING, even if you don’t agree.  Ask for clarification or more information if you don’t understand or disagree. Talk to them about your needs and share your farm’s story (not just facts).  Finally, try to identify common values. 


Facts are important, but people are more inclined to trust facts once they trust you.  Remember that quite often we have more in common with others than we might realize.  We often want the same things, whether it is safe food, clean water, or healthy animals.  Listen, ask questions, and then highlight your common values.  Be patient and good luck!

Wednesday, August 16, 2017

Marketing Grain in Low Price Market

By David Bau, Extension Educator

Current marketing opportunities for the 2017 crop have been below the average farmer’s breakeven prices. Each year farmers in my marketing groups determine breakeven prices needed to cover their crop input costs and living expenses. The average cash breakeven price is $4.26 for corn and $10.78 for soybeans for southern Minnesota farmers. The average cash corn and soybeans prices for Worthington in 2017 has been $3.23 for corn and $9.07 for soybeans, well below the prices needed to cover costs.

Using 2016 farming results for corn and soybean producers from FINBIN database, the numbers are not good. The average of 1382 corn farmers in Minnesota lost $62.35 per acre for corn, while making $7.88 per acre on soybeans. This compares to a loss of $55.07 per acre for corn in 2015 and income of $8.34 for soybeans. A trend of larger losses was created from 2015 to 2016 even while input costs including rent rates declined and yields increased. The average price for corn sold in 2016 was $3.29 and for soybeans $9.35. This compares to $3.49 for corn and $8.55 for soybeans in 2015. These average prices are well below breakeven prices for the marketing groups.

Farmers should first start with determining their own breakeven price and use these prices to establish target prices. Target prices are sometimes set at levels below breakeven levels due the current market situation. Target prices are goals that when met will cause the sale of a predetermined portion of the crop in the marketing plan. A farmer can use the Acceptable Crop Price Worksheet to complete crop budgets for corn and soybeans. Available at: www.extension.umn.edu/agriculture/business/commodity-marketing-risk-management/ 

Decision dates should be a part of a marketing plan where a farmer is establishing a date for which to decide to establish a price for a portion of their crop. The real point here is to spread out the decisions in the March through May period which has now passed and now cash flow needs will take over. The marketing plan should incorporate a list of when cash needs to be generated.

Default dates need to be established to force action in a marketing plan so a farmer does not miss a historically good time to establish a price for their crop. Historic price information will help a farmer determine price objectives for marketing plan. Trying to determine where to start and end.

Crop Insurance can insure some revenue levels along with loan rates. In Minnesota the loan rates average $1.82 for corn and $4.84 for soybeans. These prices are well below breakeven prices.

If farmers sell crops below their breakeven price, they can reown the crop with call options, or hope that later sales will be at higher prices to bring their average above their breakeven before the last of the crop is sold.

For the last 5 years, high cash corn price $8.22 (2012) and $17.74 (2013) beans for Worthington and the lows were $2.65 (2016) for corn and $8.03 (2016) for soybeans. Today’s cash prices in Worthington were $3.16 and $9.16 for corn and soybeans.

The last USDA report was negative while the June USDA was positive, corn and soybean prices went up significantly after the June report and now after the August report have given all the increase and more in price back.

Farmers need a marketing plan with target prices and default dates to sell crop as needs and opportunities arise. Hopefully prices will rally before harvest, if not there will be losses.

Friday, July 28, 2017

Outlook for 2017 Corn and Soybeans

By David Bau, Extension Educator

I was asked to speak at FARMFEST on a panel discussing Strategies for Farming in Challenging Times.  I thought I would examine some of the reasons for the stress in farming.  If you look at 2016 farming result for corn and soybean producers, the numbers are better than they were in 2015 according to FINBIN figures, but on average 1382 corn farmers in Minnesota lost $62.35 per acre, while making $7.88 per acre on soybeans.  This compares to a loss of $55.07 per acre for corn in 2015 and income of $8.34 for soybeans.  A trend of larger losses was created from 2015 to 2016 even while input costs including rent rates declined and yields increased. Results in the marketing groups I work with, shows better income on 2016 crop sales than 2015 crop but did not cover their total costs in either year.

So what about 2017?  Each year farmers in my marketing groups determine breakeven prices needed to cover their crop input costs and living expenses.  The average breakeven price is $4.26 cash for corn and $10.78 for soybeans. These are based on historical average yields of 177 bushels per acre for corn and 50 bushels per acre for soybeans. The last two crop years experienced record yields. If I used 200 bushels of corn per acre and 55 bushels of soybeans per acre, the breakeven prices declined to $3.77 for corn and $9.80 for soybeans.

Yields could be good again this year, but probably not record levels and closer to historical yields.  So farmers will need $4.00 cash per bushel for corn and $10.50 for soybeans.  So what have the 2017 December corn and November soybean contract prices been?  The high in December 2017 corn futures since 2016 has been $4.23 and assuming a 50 cent basis would be $3.63 cash high, but basis has been wider than normal due to large crops the past couple of years, so using a 60 cent basis would make the high cash corn price $3.53.  For soybeans, the high in November soybeans since 2016 has been $10.47 and with a normal 60 cent basis the cash price would be $9.87 and with wider basis of 70 cents which is more common the cash price would be $9.77.

The average cash corn and soybeans prices for Worthington in 2017 has been $3.23 for corn and $9.07 for soybeans. Well below the prices needed to cover costs.  Looking at 2016 figures from FINBIN 70 percent of Minnesota farmers had a breakeven higher than $3.23 and 30 percent of soybean farmers had costs higher than $9.07. Today’s cash prices in Worthington were $3.16 and $9.16 for corn and soybeans.

So the outlook is this:  If the average farmer could get the record yield experienced in 2016 and sell all of their crop at the contract high prices they would cover their costs. If they sold their crop at the average 2017 prices they would have a loss and if they get normal yields closer to their historic averages the losses will be larger.

So what are some strategies farmers are engaging in?  Farmers are examining all costs and looking for ways to lower cost of production without affecting yield, the largest input cost is land rent, followed by fertilizer, seed and chemicals. Farmers have given up some rented land that does not cover costs at current rental rates. Farmers are looking very carefully at every new purchase to determine if it will add or hurt the bottom line.  Farmers are looking for ways to adjust and finance a cash flow that will keep them farming in 2018.

Tuesday, July 25, 2017

Farm Transition and Estate Planning Workshop on August 3

by Betty Berning
Extension Educator

“Farm Business Transition: Where Do I Begin?"  is scheduled for August 3rd at Ridgewater Campus in Willmar,.  The workshop is $40 per family, $15 for Ag Professionals.  To pre-register for the workshop by July 31st contact Kami Schoenfeld at 320.212.5255.

In “Farm Business Transition: Where Do I Begin?,” participants get a greater understanding of establishing intergenerational communications, the process of transferring labor-income-management-assets, determining the financial viability of the farm business, retirement issues for the senior generation and establishing goals as the foundation for beginning the farm business transition process. As part of the workshop, participants will be given time to discuss issues and complete worksheets related to the application of the different sections of the workshop. The result is a process for farm families to begin transferring the farm business to the next generation.

 The workshop is jointly sponsored by Minnesota Dairy Initiative and the Ridgewater College Farm Business Management. The program will be presented by University of Minnesota Agricultural Business Management educators, Gary Hachfeld, Betty Berning, and Nathan Hulinsky. 

For more information, please click here.  
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