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Extension > Agricultural Business Management News > May 2018

Wednesday, May 23, 2018

Managing Farm Profit Margins - The 5% Club Update

By Don Nitchie, Extension Educator

A single 5% improvement may be easy to overlook, but you should not take this small improvement for granted. Increasing revenue 5% while also decreasing costs 5% can have a big impact on your bottom line.  We have studied the potential impact this can have on a Southwest Minnesota Farm Business management Association average farm in 2017.

The table below compares actual outcomes for the average Southwest Minnesota Farm Business Management Association farm in 2017, to the projected 2018 results for the average association farm if it joins “The 5% Club”. Our analysis of “The 5% Club” compares farm performance if the average association farm improves gross revenues by 5% and lowers operating costs by 5% over 2017 for 2018.

It is impressive how just these small changes result in Net Farm Income of an average farm doubling and Term Debt Repayment Capacity improves from 1.3 in 2017 to 2.3 in 2018.  In 2016, the same 5% changes would have almost tripled Net Farm Income for the average farm. Therefore, small changes have a BIG impact on your bottom line. Attention to the correct details can make a real difference.


Is it possible to achieve a 5% improvement in gross revenue?  Probably. Do a little better than average on selling prices, yields or a little of both. Be willing to sell portions of your production when profitable pricing opportunities are available. Do not hold out for the highest price and avoid selling all your production in a few large portions. Make the basic math work in your favor. Try to sell increasing quantities if a market is moving higher and a greater quantity first as a market moves lower. Any price should always be evaluated relative to YOUR projected cost of production instead of on the latest price forecast.

Is it possible to lower costs by 5%? Probably. Being more effective with expenditures on inputs is one of the real keys. Getting the most revenue possible for each dollar spent on herbicides, pesticides, seed, fertilizer, and feed is very important. You do not necessarily want to try to cut expenses 5% across the board. Be strategic and critically examine which of those expenditures may not be adding to production efficiency at current expenditure levels.

Sharpen your production management and marketing skills. Be a student of current production technology research and methods. Discard products and methods that seem to only have great advertising and cost money with little proof of effectiveness. Know where your costs are relative to competitors using your benchmarking reports.  Focus in on costs that seem out of line, and seriously examine the products or practices behind those costs. Also, celebrate the things you have done well.

Successful managers do more little things just a little better rather than doing one thing really well. It pays off when profits are scarce! Strive to join “The 5% Club” in 2018.

Prevented Planted Insurance Coverage Dates

By David Bau, Extension Educator

Heavy spring rains resulting in flooded fields have delayed planting for many farmers in southern Minnesota.  Many of these farmers will have to decide what to do when the final planting dates of May 31 for corn and June 10th for soybeans.

The USDA’s Federal Crop Insurance Corp. policies have prevented planting provisions for payment if planting cannot occur before the final planting date.  There are also options to plant after the final planting date, but with reduced insurance coverage.

For most of Minnesota, the final planting date for corn is May 31. It is May 25 for northern counties.  The final planting date for soybeans in Minnesota is June 10. The late planting period extends for 25 days after the crop's final planting date at this point the insurance coverage is reduced to 55% for corn and 60% for soybeans.

University of Minnesota Extension agriculture business management educators have posted extensive information regarding prevented and delayed planting on their website. (Link: z.umn.edu/prevplant18)

Additional resources are available for farmers and their advisers.  A worksheet developed by Iowa State University and adapted for Minnesota by Extension economists Robert Craven and Kent Olson, to evaluate their options when prevented from planting. The worksheet also helps evaluate whether to replant or not. The worksheet template is available online. (Link: z.umn.edu/3i80)
  • Additional information and details regarding federal crop insurance rules and guidelines can be found on USDA's RMA website.
  • For agronomic information related to crops, late planting and the effect on yields, late planting rates and maturities, cover crops and more, visit the University of Minnesota Extension Crops website. (Link: www.extension.umn.edu/agriculture/crops)
  • Search the early summer hail and flooding page for fact sheets specific to your situation. (Link: www.extension.umn.edu/agriculture/crops/hail-and-flooding)

Tuesday, May 22, 2018

Dairy MPP - Strategies for MY Farm

By Nathan J. Hulinsky, Extension Educator

MPP

Dairy Margin Protection Program (MPP) was enacted in the Agricultural Act of 2014 (2014 Farm Bill). The program was an insurance mechanism for dairy producers to protect milk price/feed cost margin by selecting a coverage level from $4.00 to $8.00/cwt. Also producers need to select coverage percentage between 25% and 90% of annual pounds produced. The program initially had mixed results with most farmers only receiving enough payments to cover their enrolment fees. In April 2018 The Bipartisan Act of 2018 was passed, making changes to the MPP payment structure, resulting in better benefits to most dairy farmers.

Changes to MPP

  • Calculations are monthly, instead of bi-monthly of margins. 
  • Pounds of milk covered increased in Tier 1 to 5 million pounds/year, from 4.
  • Premium rates reduced significantly.
  • Certain groups, beginning, limited resource, disadvantaged, or military veteran farmers may qualify for administrative fees. 
  • Must re-enroll by June 1, 2018.


Payment Structure
Table 1 shows the dollar amount per hundred weight for the different coverage levels.  Tier 1 has been changed from 4 Million pounds to 5 Million pounds and the premiums have been reduced. 


Table 2 shows the expected returns based on 1 Million or 3 Million pounds of milk sold annually and based on either 70% or 90% covered. One can see from the table that the $8.00 and $7.50 coverage level at either 70% or 90% has a positive expected return for both 1 Million and 3 Million pounds. 
The chart below shows the same information as Table 2.  For the 1 Million and 3 Million pounds producers has a positive Expected Return at 70% and 90%.


To be Eligible
  • Produce and commercially market milk from cows located in the United States.
  • Provide proof of milk production at the time of registration.
  • Not be enrolled in the Risk Management Agency's Livestock Gross Margin for Dairy program (LGM-Dairy).

Additional Resources
Contact your local USDA FSA office to enroll and to ask further questions.





Tuesday, May 8, 2018

Outlook 2018 for Corn and Soybean Crops

By David Bau, Extension Educator

With heavy April snowfall farmers are just getting started planting their 2018 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 three years in a row of above average crops. Will 2018 continue the trend?  The good yields 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 from 2014 through 2016 turning to a loss in 2017.

Cash crop prices for 2018 corn are at $3.70 and soybean prices are $9.60 depending on local basis. These prices are 30ȼ better than a year ago for corn and 70ȼ higher for soybeans. December corn futures rallied 25ȼ from the April low price and soybeans futures have increased 60ȼ. Farmers in my marketing groups have worked on their 2018 budgets and determined their average breakeven prices of $3.85 for corn and $10.60 for soybeans. With current prices offered for 2018 corn and soybeans below 2018 breakeven prices farmer will again be facing a smaller profit year unless prices continue to rise.

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. Yield may also be lowered by a later planting date this year.

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 occurs 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 marketing decision dates. With the prices improving, farmers should look at marketing part of their 2018 crop.

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 at harvest time. Hopefully 2018 will be another year with good yields which also help lower the breakeven prices. With prices currently below the breakeven prices necessary, 2018 will be another with smaller profits for Minnesota corn and soybean farmers.

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