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Wednesday, May 17, 2017

Farm Machinery Cost Estimates Publication Updated

by William F. Lazarus, Extension Economist

An updated version of this publication is available online at www.extension.umn.edu/agriculture/business/farm-financial-management/. The tables in this publication contain estimates of farm machinery operation costs calculated via an economic engineering approach. The data are intended to show a representative farming industry cost for specified machines and operations. The list of machines, the fuel price, and the labor rates are the same as last year.  Machinery prices continue to creep upward.

Have you tried the Microsoft Excel spreadsheet (MACHDATA.XLSM) that goes with this publication?  It is available for downloading at z.umn.edu/machdata. The “Calculate” and “Self-propelled” sheets in this spreadsheet can be used to calculate costs for your own situation.

The spreadsheet can also be used to answer a variety of specific questions, such as:
Should I keep the machine I have for another year, or should I replace it now?
Which is the best size machine for my operation?
How does inflation affect machinery ownership and operating costs over time?
How will the latest precision-ag features affect cost and performance? 

The “Sensitivity” sheet contains tables that show how annual use and years of ownership will affect costs per hour and per acre.

Tuesday, May 9, 2017

Outlook 2017 for Corn and Soybean Crops

by David Bau, Extension Educator

Farmers are just getting started planting their 2017 crops with hopes of good yields and good prices. There has been plenty of spring moisture and now the cropping season will take off in full swing when the soil dries out. Farmers have been blessed with two years in a row of record crops, will 2017 bring a third? The good yields have helped many farmers survive the low prices and small profits the past couple of years. In Southern Minnesota corn farmers in the Adult Farm Management programs have averaged losses on corn production since 2014, while they were able to generate small profits on soybean during this time.

Crop prices for 2017 corn are at $3.40 and soybean prices are $8.90 depending on your local basis. Farmers in my marketing groups have worked on their 2017 budgets and determined breakeven prices at $3.80 or above for corn and $10.10 or above for soybeans. The high futures price in December 2017 corn occurred on June 8, 2016 at $4.22 and for November 2017 soybean high was $10.42 on November 28, 2016. Using a 60 cent corn basis and a 70 cent soybean basis, which are wider than normal due to the large crop inventory, the high prices would have been $3.62 for corn and $9.72 for soybeans. With both current and the high prices offered for 2017 corn and soybeans below 2017 breakeven prices farmer will again be facing a small or no profit year.

Farmers will be examining their farm expenses to determine ways to lower costs. Rents are the largest expense accounting for 40% of soybean crop expenses and 33% of corn expenses. The next largest is fertilizer, followed by seed, chemicals and repairs and hired labor. The challenge is to lower input costs without sacrificing yield.

Farmers need to be alert for opportunities if the markets rally close to the prices necessary to lock in profits. Farmer need to develop a marketing plan with target prices beginning close to their individual breakeven prices and stair step their way up to higher price targets. Decision dates should be added to determine if prices are high enough to lock in prices available at the time. The high in corn prices usually occur in May, with historically higher than average prices for both corn and soybeans from April through June.  This time period would be a good time to set decision dates.

If the target prices are not met and on decision dates have passed with too low of price to market any grain, farmers need to add default dates to force sales, especially for those bushels that the farmer will not have on farm storage space for at harvest time. Hopefully 2017 will be another year with good yields which also help lower the breakeven prices. Without better yields or prices or both, 2017 will be another with little to no profits for Minnesota corn and soybean farmers.

Tuesday, May 2, 2017

Use Your Employee Handbook!

by Betty Berning
Extension Educator

Does your farm have an employee handbook?  I’ve talked to many dairy farmers about employee handbooks this winter.  Many farms have a handbook, which is great!  However, farmers tell me they are unsure of how to use the handbook once it’s written.  Too often, employees don’t look at the handbook or farms forget they have it and the handbook collects dust on a shelf. 

An employee handbook can be a very valuable communication and labor management tool.  I’d like to propose four reasons why your farm needs to not only have an employee handbook, but also needs to actively utilize it. 

An employee handbook communicates what your farm is about- In other words, what is the culture of your farm?  Business culture can be defined as values, beliefs, and behaviors that are typical of your farm. For example, if being on time is an important behavior on your farm, your handbook should reflect that.  You might have a very firm policy on tardiness and missed work that is included in the handbook.  Perhaps the farm’s culture is to keep things simple.  Your handbook might be succinct with only a few critical policies included. 

Every farm has a culture.  The way in which you write and the topics you choose to include in the handbook will send a strong message about your farm’s culture.  This will provide clarity to your employees because they will understand what is important to you and how they can be successful.  Clarity is critical in labor management because it helps employees understand your expectations and, in turn, meet them.

A handbook highlights the most important policies on your farm- Are there certain behaviors that would cause immediate termination?  These unacceptable behaviors and their consequences must be listed in your employee handbook.  This provides clarity to your employees so that they understand what is important to you.  If they engage in one of these behaviors, and they’ve read and signed off on the handbook, there won’t be any question as to why they were terminated.  This protects your farm and you.

An employee handbook can be a powerful tool for human risk management- Are you concerned about an employee mishandling an animal?  Maybe you worry about an employee having an accident with equipment?  You need to create policies on farm safety, animal welfare, and any other risks associated with employees.  These policies need to be in your employee handbook.  Furthermore, these policies need to be reviewed with employees.  Provide training to your employees on these policies, so that the expectations are completely clear.  This is managing your risk.  All employees should sign off that they’ve read the policy and received training on the policy. 

If an unfortunate event happens on your farm, you will have documentation to show that you did your due diligence.  There still may be ramifications, but providing a written policy and training (and re-training) can lessen the blow of an event.  More importantly, a policy that has been explained well can prevent an event from occurring.

As you write, update, and utilize your handbook, you build your leadership and business skills- Writing your employee handbook is a strategic activity, as opposed to being a day-to-day activity like milking and feeding cows.  Every time you look at the handbook and review your policies, you are spending time on your business and setting its direction.  You are thinking about the type of farm you want to have and what its future might look like.  I encourage every farm owner to take an time each week (30-60 minutes once/week is a good place to start) to spend time on strategic activities like the employee handbook, business plan, goal setting, transition planning, etc.  Anything that will have a big impact on your future, but doesn’t feel as urgent as milking cows, is something that you can work on during this time.  Put the time on your calendar and hold it; don’t let other activities creep in.  Take the time to shape your farm’s culture and future.

If you’ve gotten off track, i.e. you have a handbook, but haven’t looked at it in a while, it’s okay.  Just pick up where you left off.  If it needs to be updated, do that first.  Then begin to ask your current employees to read it.  Implement the best practice of requiring new employees to read the handbook within a certain time period of their hiring.  Have employees sign off after they’ve read it and provide time for your employees to read it!  If you have staff meetings, review sections of it during your meetings.  Provide training and re-trainings on the most important policies.  It might seem redundant, but this will ensure that even your more seasoned employees are reminded of your farm’s culture and policies. 

Employee management is challenging right now.  The entire workforce in Minnesota (not just the ag workforce!) is facing a shortage.  There is no silver bullet to solve this.  You have a choice, though, in how you want to manage your employees and business.  Choose to be proactive and do the right things.  Over time, doing the right things, like utilizing an employee handbook, will provide great results back to your farm. 

Thursday, April 27, 2017

June Women in Ag Network Event Announced!

by Betty Berning
Extension Educator

Women in Agriculture Network (WAGN) will be hosting a farm transition and estate planning program, "Where Do I Begin?", as its next quarterly seminar.

The event takes place June 6, 2017 at the Halstad Legion Recreation Center (580 2nd Ave. West, Halstad, MN 56548).  Registration is at 9AM with the program running from 9:30AM-3:30PM.  The fee is $20, which covers the cost of lunch.  Payment can be made the day of event.

"Many farm families struggle with beginning the process of transitioning the family business to the next generation," shares Gary Hachfeld, Extension Educator. "The process takes communication, trust, and respect as a foundation to begin the task. The 'Farm Business Transition: Where Do I Begin' program addresses many of these items. Program participants will be introduced to ideas, concepts, and tools they can use to help them get started with the process."

Participants will learn about different communications styles; transferring labor, income, management, and assets; retirement considerations for the senior generation; assessing an operation’s financial viability; and goal-setting.  Through fun, hands on exercises, families will learn how to apply these concepts to their farm and begin their own transition and succession plan. 

To register, please visit:  http://z.umn.edu/junewagn.


To learn more about Women in Ag Network or this event, please visit:  http://www.extension.umn.edu/agriculture/business/women-in-ag/.  

Tuesday, April 11, 2017

2016 Southern Minnesota Corn and Soybean Results

By David Bau, Extension Educator

The 2016 FINBIN data base was recently updated with 2016 figures from farmers in Adult Farm Management programs across Minnesota. There were 974 corn farmers in the data base in 2016 in southern Minnesota and 868 soybean farmers. Average gross revenue for Southern Minnesota corn farmers declined from $731.20 in 2015 to $699.91 in 2016 while input costs averaged $753.76 in 2016 compared to $788.59 in 2015. Indicating the net return per acre improved from a loss of $57.39 in 2015 to a loss of $53.76 per acre. The average southern Minnesota corn farmer has lost money since 2014.

Average gross revenue for Southern Minnesota soybean farmers increased to $587.12 in 2016 from $522.28 in 2015 while input costs averaged $503.03 in 2016 compared to $519.07 in 2015. Indicating the net return per acre improved from $3.21 in 2015 to $84.09 per acre in 2016. These average net incomes were negative for 2014 and 2015.

There were records yields in 2015 and again in 2016 for Minnesota and soybeans yields increase in 2016 by 1.4 to an average of 61.25 bushels per acres, while corn yields were down slightly by .7 bushels to an average yield of 204.78 bushels per acre.

Some corn input costs declined, corn seed costs declined by $1.50 per acre to $120.26, and fertilizer declined by $13.50 per acre to $134.14.  Rents declined from an average of $232 in 2015 to $227, a decline of 2.2 percent. Crop insurance, fuel and oil, repairs, hire labor and depreciation were down slightly while crop chemicals, and operating interest increased slightly.

For soybeans, seed, crop chemicals, fuel and oil, and depreciation were down from 2015 to 2016, while fertilizer, repairs, and operating interest increased. Rents declined from an average of $229 in 2015 to $221 in 2016.

Average government payments declined from $49.65 per acre for corn in 2015 to $28.91 in 2016 and beans declined from $46.38 in 2015 to $22.68 in 2016.

Cost of production, on a per bushel basis, declined from $3.85 in 2015 to $3.78 in 2016 for corn and from $8.47 in 2015 to $7.84 for soybeans in 2016.

Unfortunately current price for cash corn is $3.15 and soybeans $8.60 so farmers have to market their crops wisely to achieve these prices. Looking forward to 2017 taking 2016 actual expenses divided by yields of 190 bushels per acre for corn and 52 bushels per acre for soybeans with no government payments expected.  The price needed to cover the input costs with no income for farmer would be $3.97 per bushel and for soybeans $9.67 and 2017 forward contract bids are well below these prices.

Wednesday, March 22, 2017

Finding and Keeping Good Employees- It Can Be Done!

by Betty Berning
Extension Educator


One of the top issues I hear about from farmers is labor management.  Most people aren’t farmers because they wanted to manage employees.  Most farmers want to FARM.  As farms grow, though, more help (and management!) is required.  Enter employees.  For an operation to be successful as it grows, owners must accept that they will need to spend more time on management activities, like human resources. 

I hear about human resource struggles- even from farmers that have embraced their role as “farm manager”.  It is hard to find good employees and it is hard to retain them.  The agricultural industry pays less than other comparable industries.  Minnesota mean hourly wage data from May 2015 indicates farmworkers on farms with animals were paid $12.58/hour.  Compare that to a construction laborers’ mean hourly wage of $17.57/hour during that same time.  That’s a difference of almost $5/hour.  In addition, farm work is physically demanding and can be dirty.  Not everyone is cut out to work on a farm!  These factors can make it difficult to find good employees.

It sounds like a lot of doom and gloom, right?  It doesn’t have to be.  With the right tools and approach to employee management, it is possible to both find and keep good employees.  I will offer the disclaimer that there is no silver bullet to solve all problems.  There are some things, though, that a farm can implement that will help improve its chances of recruiting and retaining the right people for the job. 

Let’s start with your image.  What is your public image as a farm?  What do people think about when your farm’s name comes up in conversation?  For example, maybe you lease animals to the local 4-H Club.  People might think of you as service-oriented or good advocates for agriculture.  What do your employees say about working for you?  Your employees can be great advocates for your farm’s image, if they are satisfied and feel valued!  (I’ll provide some tips later in this article on how to value employees, so they feel valued.)  The important thing is that when people hear about or think of your farm, they have a positive image.

If your farm doesn’t have an image or it’s negative, think about what you can do.  Start by being a good neighbor!  This could mean communicating with your neighbors about manure spreading or avoiding fieldwork near neighbors’ homes late in the evening.  I’d also encourage you to think about your farm’s positive attributes- every farm has a few!  Your next step is to determine how to share this positive image.  Social media can be a good way to do this. Traditional activities, like volunteering at church, making school visits, or serving on a community board, are also great ways to build your farm’s image.  Your image lets potential employees know what it might be like to work for you.  Building a positive image will attract people to your farm.

The next thing to think about is recruitment.  How do you recruit?   Do you simply place an ad that says, “Looking for a tractor driver,” in the local paper, or do you write a compelling ad that provides a little bit of information about the job and your farm?  How do you share this message- only in the paper?  Consider new places and ways to recruit, like job fairs, internships through local colleges or FFA programs, referrals from other employees, or handing out your ad to agribusiness professionals.  Be sure to communicate responsibilities and competencies needed for the job, along with a little bit about your farm’s values.

Finally, you have to value your employees.  Treat them like you would want to be treated.  How often do you show them that they are valued?  Simple things often tell people how much we value them.  A “thank you” or “good job” goes a long way!  Some farms have a birthday board or bring in treats to celebrate employees’ birthdays.  Offering a hot meal once a day during busy times like planting or harvest can also be a great way to let your employees know they are appreciated.  Hold regular meetings with your employees to talk about the farm and listen to their feedback.  Listen well.  Try to understand any concerns your employees may have and determine ways to address them.


Tuesday, March 7, 2017

Long Term Health Care Planning Crucial Part of Business Transition & Estate Planning

by Gary Hachfeld, Extension Educator

Not planning for long term health care, when doing farm business transition and estate planning, can financially cripple the farm business.

There are three reasons why many farm families overlook planning for long term health care when doing business transition and estate planning. They do not realize the probability of needing long term care, they do not realize long term care costs have skyrocketed in the last 5 years and there are lots of misconceptions about what people think they can do with their assets to shelter them from long term care costs, said Gary A. Hachfeld, University of Minnesota Extension educator in agricultural business management.

"Long term health care costs are potentially more financially devastating to a farm business than any tax issue,” Hachfeld said. "Long term care costs can undo any amount of transition and estate planning if not addressed."

Currently, one in every two Americans over the age of 65 will have some type of stay in a nursing home. One in ten Americans over the age of 65 will have a nursing home stay greater than five years. Of those individuals currently receiving nursing home level care, 40 percent are under the age of 65. Long term care costs, based upon a recent survey by Genworth Financial, shows median costs for home care of $65,000 and a private nursing home room at $97,000.

Medicare will pay for a maximum of a 100 day stay in a nursing home if certain criteria are met. Medicaid has asset limit rules which state a Medicaid applicant cannot own more than $3,000 worth of assets and a prepaid burial to qualify. In addition, life estate and most trusts will not shelter assets from long term care costs. If assets are gifted away, 60 months has to pass before the donor can qualify for Medicaid. In Minnesota, the only way to protect farm business assets from long term health care costs is to purchase long term care insurance. Seek the help of an elder law attorney when doing any long term health care planning to avoid making any mistakes.

Minnesota Farms Continue to Get Larger and Fewer

by David Bau, Extension Educator

Last month the USDA came out with estimated number of farms in Minnesota declining by 300 from 73,600 in 2015 to 73,300 in 2016. The total amount of land in farms was constant, but the average farm size increased by one acre per farm from 352 acres in 2015 to 353 in 2016. Looking back 20 years there were an estimated 87,000 farms in Minnesota with an average size of 343 acres in 1997. Total land in farms declined from 29,800,000 acres in 1997 to 25,900,000 acres in 2016.

What is surprising is how the numbers varied by size group.  Small farms less than $10,000 in gross sales declined from 33,000 in 1997 to 26,500 in 2016. Farms from $10,000 to $99,999 gross sales declined from 31,000 in 1997 to 21,600, but farms with over $100,000 increased from 23,000 in 1997 to 25,200.

Comparing land in farms by size indicates small farms under $10,000 in sales in 1997 was 3,200,000 acres and 2,100,000 in 2016, while farms with gross income from $10,000 to $99,999 were 8,900,000 acres in 1997 and 3,600,000 acres in 2016. Land in farms with over $100,000 in sales had 17,700,000 acres in 1997 and 20,200,000 aces in 2016.

Much of these changes in numbers can be associated with the cost of living increases and the need to generate larger sales to cover increased farm expenses and living costs. In 1997 the average living cost for farm families in adult farm management was $34,284 for a farm family of 3.7 and in 2015 this had increased $67,092 for 3.1 family size, almost double. Total farm cash expenses were $303,241 per farm in 1997 and increased to $798,226 in 2015, more than double.

If you divide the average family living costs by total crop acres of 648 in 1997 and 940 in 2015. That translates into $53 per acre in 1997 and $72 in 2015 in family living costs. This can be explained by increased cost due to inflation. What did a loaf of bread, a gallon of milk or health insurance, cost in 1997 compared to 2015? Corn price was $2.30 at end of 1997 and soybean price was $6.40, while at end of 2015 corn price was $3.19 and soybean price was 8.04.

If a farmer can generate $50 of net income per acre they would need to farm 686 acres to cover living costs in 1997 and in 2015 the same farmer would need 1342 acres. This is the simple answer as to why farm size continues to increase. The smaller hobby farms by far outnumber larger farms with 48,100 farms with gross income less than $100,000. Today a farm would need to have over $500,000 in expenses to generate a majority of their income from farming. There were 10,400 farms of this size in 2016 compared with 62,900 in the other size groups which accounts for the smaller farm size and slower growth in acres.

Monday, March 6, 2017

Becoming a Preferred Employer- Join Us April 4

Finding and keeping good employees for your farm operation can be a real challenge.  Join the Women in Ag Network on April 4, 2017 for "Becoming a Preferred Employed".   

We'll learn why these challenges exist in agriculture and how you can build your farm’s “brand” to help recruit employees.  Get ideas on how to avoid mis-hires and what you can do to make your employees feel valued every day.   We’ll close out the day by discussing the importance of an employee handbook to help your employees understand your farm and be safe in their work!  

 The event will take place April 4, 2017 at the Heintz Center in Rochester, Minnesota (1926 Collegeview Rd E, Rochester, MN 55904). Registration begins at 9:30 a.m. and the program runs from 10 a.m. to 3:00 p.m. The fee is $20, which covers the cost of lunch. Payment can be made the day of the event. 

The Women in Ag Network offers more information about the program, including registration details at: http://z.umn.edu/AprWAGN.

Wednesday, February 8, 2017

Minnesota Farmland Sales Down Slightly in 2016

By David Bau, Extension Educator

Last month I listed the average sales prices for farmland sold in the first six months of 2016 for 14 SW Minnesota counties. That data indicated a 2.6 percent decline in sale prices from 2015 to 2016 but half of the counties average sale prices increased from 2015 to 2016.  In January the farmland sales for every Minnesota County were made available to the public. You can find this information online at www.landeconomics.umn.edu.

This data is from the county assessors and compiled on this website by Professor William F. Lazarus, University of Minnesota. Results indicated statewide Minnesota farmland sales from 2016 were down 2%, from $4,911 per acre in 2015 to $4,813 in 2016. This was down from $4,975 in 2014 average or 1.3% decline from 2014 to 2015. You are able to find average price acre for farmland sales by township on this website since 1990. The assessed values can also be found at this website. Another feature found here is the ability to search for Crop Productivity Index for all the counties in the state as well.

These figures compare very closely with survey data for 14 counties in SW Minnesota where average farmland prices declined from $6,929 in 2015 to $6,751 in 2016 or a 2.6% decline. Prices declined by 8.9% from $7,556 in 2014 to $6,929 in 2015. The high average farmland sale price was in 2013 with an average of $8.466 per acres, which then declined by 20% from 2013 to 2016.

In 2015 average farmland sale prices were below the assessed values by 2.5% for the 14 counties in SW Minnesota. Four counties farmland sales were above the assessed values included Chippewa, Nobles, Watonwan and Yellow Medicine. Lincoln had the lowest farmland sales compared to assessed values with average sale price lower by over 32 percent compared to assessed values. The average CER (Crop Equivalency Rating) was 64 with the highest in Rock County at 90 followed by Jackson at 78 with the lowest in Lac qui Parle at 54. The average sale price divided by the CER was $95.71 paid per CER per acre. This varied from a high of $118.99 in Rock County to a low of $86.35 in Yellow Medicine.

The last three years the average for the fourteen counties in SW Minnesota had declines in farmland values for the first time since collecting the data starting in 1998.  In 2008 farmland price increased 30%, 2009:0.8%, 2010:4.8%, 2011:19.8%, 2012:33.2%, 2013:35.6%, 2014:-10.1%, 2015:-8.9% and 2016:-2.6%. But the change in values has really fluctuated from 2008 to 2016. Before this time, land prices increased more gradually.

Farmland sale prices really varied as well from a high of $19,000 per acre in Rock County to a low $1,297 per acre in Chippewa County. The average of the high farmland sales was $9,158 with average of $6,756 and low of $3,929. Even though corn prices have continued to decline since 2013, farmland sales have not declined as dramatically.

Rental rates have not declined as much as grain prices and rental rates determine the return per acre which would keep farmland prices higher. Other factor affecting farmland sales are interest rates, which have been at historically low rates, with the first small increase in several years last December.

What happens to farm land sale prices will determined by tax rates, interest rates, commodity prices, rental rates other investment opportunities and local competition.

Wednesday, February 1, 2017

Early Bird Registration Extended!


Early bird registration for the 2017 Women in Ag Network Conference Planning Our Future has been extended to Feb. 7th!  Register today to receive this discounted rate of $45 online (or $50 by phone).

There is a great line up of speakers and events for the day.  Included is our keynote presenter Lilia McFarland.  Lilia is the new and beginning farmer and rancher program coordinator for USDA.  Her message is titled, "Planting Seeds for the Future" is sure to be thought provoking and inspiring.  There are also breakout sessions on a plethora of topics including entrepreneurship, marketing, business planning, communications, stress management, budgeting, and goal setting.  Another highlight of the day will be our panel focused on Finding and Maintaining Personal Balance in Life.  Panelists include Natasha Mortenson (moderator), Amanda Freund, Alise Sjostrom, and Marianne Peterson.  The day will offer plenty of networking opportunities as well.

For registration and additional conference details, please visit:  http://www.extension.umn.edu/women-ag.

The Women in Ag Network was formed to provide educational opportunities for women involved in agriculture, to enhance their leadership, management, and production abilities.  Our goal is to connect women to relevant, research-based education and to each other.  For updates, see our webpage or like our Facebook page:  https://www.facebook.com/umnextwomeninag.

Funding for this project was provided by the North Central Extension Risk Management Education Center, the USDA National Institute of Food and Agriculture Award Number 2015-49200-24226.


Monday, January 23, 2017

Farm Resource Guide Available

By David Bau, Extension Educator

The Farm Resource Guide for 2017 is now available upon request at many University of Minnesota Extension County offices across the state.  This resource guide includes a variety of useful farm business management information including the following items:

  • Custom rates
  • Average farmland rental rates by county
  • Flexible Rental Agreements 
  • It includes lease forms for Cash Rent and Share Rent arrangements
  • Farmland sales information for all counties in Minnesota
  • Information on charges for custom feeding, commodity storage, leasing buildings and various bin rental rates 
  • Current information on pasture rental rates, tree timber values
  • Marketing information along with recent cost trends for Minnesota
  • Commodity price probabilities for corn, soybeans, alfalfa hay, straw, grass hay, hogs and cattle
  • Corn and soybean yields by county 
  • Feedlot Rule Highlights and information on Manure Agreement and Easements 
  • Examples of Manure Spreading Lease and Land Application Agreement forms

This Resource Guide is available for a $25 fee plus postage and sales tax if you would like to have your own copy.  I can provide you the information in your preferred format: e-mail cost $25 plus sales tax; CD cost $28.50; or hard copy cost $30.00.

If you would like your own copy of the Farm Resource Guide, please e-mail me at bauxx003@umn.edu or give me a call at 507-372-3900 ext. 3906 and let me know what format you would like.  I will send out the materials and an invoice as soon as possible.  I hope you find the Resource Guide useful and would welcome your feedback on what you would like to see included in next year’s Guide.


For more farm business information, please see the University of Minnesota Extension website: http://www.extension.umn.edu/agriculture/business/farm-financial-management/

Leadership for Successful Employee Management

Employee management is critical!  

Join us for a multi-session program to learn how to improve your employee management skills.  We'll cover a variety of topics including leadership, supervision, hiring, communications, employee handbooks, employment law, and others.



The program commences February 2, 2017 at the Melrose City Center (located at 225 1st St. NE, Melrose, MN 56352.)  Additional sessions are February 17, March 2, and March 16.  Each session is 10:00 AM-2:30PM and includes lunch.  Three webinars will be held in between classes to discuss implementation of course tools and foster further learning.    

A detailed schedule  and registration details can be found at http://z.umn.edu/1bw3.  The fee is $200/farm and can be made at the first session.  


Betty Berning, Extension Educator explains, “When I ask dairy farmers about the struggles they face, labor management is one of the top two concerns they mention.  It is hard to find and keep good employees.  There is no perfect solution to this problem, unfortunately. Our goal in the class is to equip students with the right skills and tools to set themselves up for success.”  

Please contact Betty Berning (#320-203-6104) with questions.  We hope to see you there!




Thursday, January 12, 2017

New W-2 and 1099 Deadlines

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

January 12, 2017

New for 2016, in an effort to combat identity theft, the IRS is requiring employers and business owners to file forms W-2, W-3 and 1099-MISC by January 31, 2017.  These changes were contained in the PATH Act (Protecting Americans from Tax Hikes) which was signed into law December of 2015. 

A W-2 is the form that reports wages paid to an employee.  The W-3 is a transmittal form that summarizes all the W-2s issued from a single employer. 

Form 1099-MISC is issued to individuals or entities that are not employees.   Form 1099-MISC is typically issued for rent, non-employee compensation and custom hire.  The payment threshold for issuing a 1099-MISC is $600.  The threshold is based upon the total amount paid to the individual or entity during the calendar year without regard to the number of checks or transactions.   Typically, corporations are exempt from the filing requirements to issue Form 1099-MISC.  In other words, if you paid over $600 to a corporation for custom harvesting, you would not be required to file a 1099-MISC because you paid the funds to a corporation.  There are two exceptions to this rule: (1) Attorney fees (over $600) paid in the course of a trade or business requires filing a 1099-MISC even if the firm is incorporated.  (2) Payments to veterinarians are payments for medical and health care services.  This requires taxpayers to issue Form 1099-MISC for such services (over $600) in the course of a trade or business even if the veterinarian is incorporated.   

New legislation increases the penalties for failure to timely file information returns.  The new penalties are in effect for all information returns due after December 31, 2015. Penalties range from $50 per return to $250 per return depending upon when the taxpayer issues the required information return.  For failures or misstatements due to intentional disregard, the penalty per return or statement increases to $500. 


References:

Agricultural Tax Issues. Fall 2015. Harris, P.E., Tax Insight, LLC. Madison, WI.

2016 National Income Tax Workbook.  Land Grant University Tax Education Foundation.  www.taxworkbook.com

Internal Revenue Service Website.  www.irs.gov




Planning for a Successful 2017

Happy 2017! I love New Year’s. It’s the start of something brand new. The year is full of promise and opportunities. It is a fresh start.

As a general rule, I recommend that farms look at their financial records around January 1st. This helps to provide a consistent point in time for comparison. Farming is seasonal and a farmer’s finances are no different. Your checkbook after planting (June) might look very different than your checkbook after you sell harvested grain (December). By comparing the same points in time, you get a clearer picture of how you’re doing financially.

Additionally, it is wise to think about what your finances might look like in the year ahead. This is called “cash flow planning”. Simply put, it’s creating a budget for the year. You’ll look at your cash from operations, investing, and financing activities.

To do this, you’ll want to have monthly records of your income and expenses. If you use an accounting software, you can print off these records. Your banker or farm business management instructor can also help. Remember, your records are as good as what you put into them. If you haven’t done a good job keeping financial records, it will be difficult for you to identify how much you should budget. Good records are important for all types and sizes of businesses.

Begin by looking at cash from operating and start with your cash inflows. (Table 1) What is your checkbook balance? That goes in the first line. Add in any sales, payments, dividends, or other income you received. Sum up the total of all lines. This is your total cash inflow.


Table 1: cash inflows
Cash inflows January
Beginning cash balance (Checkbook) $5,000
Sales of crops $250,000
Sales of livestock $2,000
Government payments $0
Dividends $0
Other income $0
Total $257,000

Next you want to determine your cash outflows (Table 2). What expenses do you expect that you’ll have? If you’re not sure, try looking back at your records. As an example, if you are trying to figure out your January 2017 expenses, look at your January 2016 expenses. Use those as a benchmark. Remember, this is budgeting and the numbers are not written in stone. Give your best estimate. You’ll also want to identify the minimum balance you want to have in your checkbook. I used $5,000. Add up all of these numbers to calculate your outflow.

Table 2: cash outflows
Cash outflows January
Seed $0
Fertilizer $0
Chemicals $0
Crop insurance $0
Drying fuel $0
Fuel and oil $2,000
Repairs $1,500
Land Rent $75,000
Real estate taxes $0
Farm insurance $0
Utilities $500
Capital purchase $0
Misc $600
Living expenses/draw $4,500
Minimum checkbook balance $5,000
Total outflow $91,100
Operating surplus/deficit $165,500

Now you want to subtract your outflow from your inflow. In this case $257,000-$91,100= $165,900. It’s a positive number, which means there was money left over after covering expenses. A negative number tells us there wasn’t enough to cover all the expenses.

Next, you move to cash from investing and financing activities next. (Table 3) This includes your capital sales, capital purchases, new term credit, and our term debt payments. This farm is not planning any capital sales, but is planning to purchase a farm truck later in the year. Fill in your loan payments and sum them up. Here’s the tricky part, find your operating surplus deficit, add capital sales and new credit to it, and subtract your loan payments and capital purchases. This will give you your total surplus/deficit.

Table 3: cash from investing and financing activities
Capital sales January
None planned $0
Capital purchases
Farm truck $0
New credit
Truck loan $0
Loan payments
House $400
Land $0
Truck loan $0
Tractor $0
Combine $0
Total loan $400
Total surplus/deficit
(Operating Surplus/Deficit + Capital
Sales-Capital Purchases+ New Credit-Loan Payments)
$165,500

Finally, refer to your operating loan. (Table 4) Find your operating loan balance. That goes in the second line. If you had a deficit, you borrow against your operating loan (line 3). If you had a surplus, you pay down the balance and interest (lines 4 and 5). Calculate your ending balance based on what you paid or borrowed and fill in. (line 6) Finally, determine your new cash balance. If you have an operating surplus, subtract off the principal payment and interest payment from the surplus, and add in your minimum checkbook balance (here it’s $5,000). If you have a deficit, add the operating loan borrowing and minimum cash balance to the deficit.

Table 4: Operating loan
Annual operating loan January
Surplus or deficit $165,500
Operating Loan Balance $20,000
Operating Loan Borrowing $0
Operating Loan Interest Payment $100
Operating Loan Principal Payment $20,000
Ending Operating Balance $0
Accrued Interest $0
Ending cash balance $150,400

You’ll need to do this for each month of the year. Your ending cash balance from January becomes your beginning cash balance in February, your February ending cash balance becomes your beginning cash balance in March, etc. A template for this can be found at: https://www.extension.iastate.edu/agdm/decisionaidswd.html. (Look for cash flow budget)

By doing this planning, you can get a picture for how your year will shape up financially. This can help you determine how much you need to borrow for your operating loan. It will also help you understand if you will be able to pay your bills. I try to be honest about these exercises. This one will take some time. Enlist the help of a trusted financial advisor if you need to. The important part of this is the finalized budget. With this you will be able to determine what you can afford for land rent, if you can purchase new equipment, and get an idea of the financial health of your business.

Be proactive. It is one of the best things you can do to be successful in your business. Good luck in the New Year!

Monday, January 9, 2017

Comparing Corn and Soybean Cash Prices with Average Southern Minnesota Farmland Rental Rates

by David Bau, Extension Educator

The average cash price for corn and soybeans each calendar year since 2000 is listed in Table 1 below. Columns 2 and 3 list the average cash prices each year in Worthington for corn and soybeans. The Column 4 lists the average percent change in corn and soybean prices from the prior year. Column 5 lists the average rent paid by 1200 farmers in Southern Minnesota who are part of an Adult Farm Management Programs. Column 5 multiplies the price percent change by previous year’s actual average rents to determine the farmland rent each year. Column 7 starts with the average rent $98.31 in 2000 and then multiplies this by the corn and soybean price change (-3.21) to determine a rental rate of $95.16 for 2001. To determine the 2002 rental rate, start with the 2001 rate of $95.16 and multiply this by the price change (15.06) and to determine an average rent of $109.49 for 2002. This process was repeated to determine rentals rate through 2016. There are two question marks for 2016 as the average rent will not be available until March of this year.


The last three columns vary quite significantly. If the change in corn and soybean prices was the main factor determining Southern Minnesota farmland rental rates, you would expect the actual rental rates to be similar to the Column 6. Comparing these figures the estimated rents using the price change factor were $25.94 lower than the actual rents listed in Column 5 over fifteen year or an average of $1.73 per acre per year, very close. Using the second calculation of starting with the 2000 average ($98.31) and adding or subtracting the price change each year to the previous calculation, there is much more variability and with calculated rents in Column 7 were higher by $775.67 over the fifteen years or $51.71 per acre per year, a significant difference.

Rent had been on a steady increasing trend of less than $10 per from 2000 through 2005 then started increasing more rapidly from 2006 through 2010 and then increased only slightly in 2011 due to lower prices in 2009 and 2010, with $6.00 plus corn and $12.00 plus soybean prices, rents took off in 2012 and 2013 before beginning to decline in 2014 as corn and soybean prices moved lower.

Many factors effect rental rates like property taxes, input costs, yields, prices and gross income, but there does seem to be a relatively close tie to corn and soybean prices and rental rates.

Thursday, January 5, 2017

Five Tips for Planning for Your Future

by Betty Berning

Extension Educator

It is the start of a New Year.  It’s full of promise and opportunities!  What are you going to do?  Did you make a few resolutions in your personal life?  Maybe you’ll spend more time with your family, exercise, or read more books?   

Planning in business and farming is similar to making resolutions.  Both require giving some thought to the future by identifying what you might like to do.  They both take commitment and patience.  Plans in farming, though, are often more complicated than some of the simple resolutions we make in our personal life.  Additionally, it may take longer to reach our business goals than our personal goals.  In order for a business to be successful, it is critical to have a plan in place. I’d like to offer five tips for business planning:

  1. Take the Time to Make the Plan:  It is really easy to get caught up in daily tasks of milking cows, running errands, fixing machinery, and growing crops.  These day-to-day activities will eat up all of your time, if you let them.  Set aside time (schedule it if you have to!) to work on your plan.  It might not feel like you are increasing profitability by thinking and writing, but you will create more value by mapping out your vision and working toward it than you will if you simply keep with the status quo.
  2. Bring others into the conversation:  Talk to your spouse, parents, and business partners about your plans.  What are their goals?  Are you aligned?  It is critical that everyone is working toward the same goals.  If not, conflicts will arise as you each work on your own interests.
  3.  Be Willing to Acknowledge Past Mistakes:  This can be difficult, but is very important.  If you want to take charge of your future, you have to be willing to determine where you could have been more proactive, rather than reactive.  Look back.  Where could you have done better?  Don’t feel sorry for yourself, but be honest about your shortcomings.  Identify them and determine where you could have done better.  Perhaps you failed to market your grain and had full bins at harvest time.  What can you do to avoid that in the future?
  4.  Make a realistic plan:  Chances are slim that you will increase your acreage from 1,000 acres to 10,000 acres in a year.  Don’t set yourself up for failure.  Be realistic.  Set short, medium, and long range goals.  For your long range goals, identify what you need to do in the next year to make progress.
  5. Revisit your plan:  This is a lot like the first point.  You need to make time to not only work on your plan, but also to revisit it on a consistent basis.  If your goal is to grow your milking herd from 80 cows to 300 cows, you’ll want to check in to see how you’re doing against that goal.  What are your next steps?  When can you accomplish them?  Is your goal still realistic?  Spend time on the plan so you can keep moving forward.

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