Does the Implementation of Technology Improve Farm Profitability?

Agriculture and Technology

By:  C. Robert Holcomb and Joleen Hadrich

In 2017, the Minnesota State Colleges and Universities Farm Business Management Program, the Southwest Minnesota Farm Business Management Association (SWMFBMA), and the University of Minnesota Extension conducted a survey to identify management skills and tendencies of highly successful producers. 

This month, we will discuss how the use of technology in the farm operation affects profitability.  (Previous articles in the Top Farmer series can be accessed here and here.) Only 6% of all farms considered themselves innovators, adopting technology at its earliest availability.  Forty-five percent of the respondents consider themselves early adopters, making investments in new technology once proven by a small number of success stories.  This group does not consider themselves innovators though. 

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Projections Training

FINPACK Online Training

We want all users to have a positive experience using the FINPACK tools.  Therefore, several training options are available to assist with learning the ropes of the new FINPACK Projection tool.

One of the training options for FINPACK is online training.  Each FINPACK tool has a learning module in FINPACK Online Training.  As you migrate to the 3-in-1 cash flow projection (FINFLO), know training is available and accessible for your use. These training modules have been updated to specifically address using the FINPACK Projections tool (FINFLO).

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Family Living Expenses Add Up

Family Living Expenses

When putting together customer cash flow projections for the coming year what amount of family living expense is appropriate?  Family living expense is unique to every household, but averages can be used as a starting point.  The FINBIN farm financial database is a great resource to assist with this question.  (The FINBIN database summarizes actual farm data from thousands of agricultural producers who use FINPACK for their farm business analysis.  The data in FINBIN is contributed by farm management education programs across the country.)

So, let’s take a look at the numbers.  Over 750 farm families keep track of detailed family living expenses in the database.  In 2017, a family of 3 spent $63,648 on cash family living expenses.  This amount includes expenses like food, health insurance, medical care, clothing, household supplies, utilities, and recreation to name a few.  Family living expenses obviously vary depending on family size, stage of life, spending habits, and benefits provided by non-farm employment.  When income taxes paid and personal capital purchases are added, an additional $21,508 was consumed in 2017, bringing total cash family living costs to $85,156 for that same family of 3. 

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Converting Legacy Projections

The Legacy Projection tools in FINPACK will be retired at the end of 2019. This includes the Annual Cash Flow Plan and the Monthly Cash Flow Plan. As you work on renewals in 2019, the FINPACK Team suggests you test out the new Cash Flow Projection tool found in Projections. Yes, there are a few changes to cash flow projections in the new tool, but by and large, we think you will appreciate many of the updates.    

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FINPACK Long Range Planning

FINPACK Long Range Planning

As you work with agricultural customers this winter, do you find yourself running multiple cash flow scenarios?  Are some farms wanting to compare major changes to their operation with their current situation?  Are farm customers then looking to you for advice and feasibility of these plans?  Instead of running multiple cash flow projections based on different scenarios, use FINPACK’s Long Range Planning tool FINLRB.  The Long Range Planning tool (FINLRB) is available as one of the FINPACK Projection tools for agricultural files. This projection tool allows you to compare multiple alternatives for a farm or ranch operation at one time.

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Handling Trades on the Balance Sheet – Revisited

Trading machinery and equipment is common for all types of businesses.  FINPACK allows for streamlined data entry of capital purchases, sales, and trades within its different tools.  By entering extra detail on the FINPACK balance sheet, the details of these capital transactions can be brought into other FINPACK analysis tools, like Schedule F Cash to Accrual, Earned Net Worth Analysis, or Financial Analysis (FINAN).

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Starting Points Matter

Does helping the next generation start farming improve their profit potential?

By:  Joleen C. Hadrich and C. Robert Holcomb

Farmers are entrepreneurs and finding the resources to start their operation can have direct implications on their financial success over time, which is the topic of the second installment of the “Top Farmer”[1] newsletter series. Of the 334 survey respondents, 18% of the farms started independently without any help from family, 47% reported receiving help from their parents while operating their own farm independently, 25% are currently farming with family members in a partnership, and the remaining 10% used other strategies to start farming.

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Difficult Choices

Difficult Decisions - Grain Markets and LendingHarvest is here and it is time to assess storage opportunities in corn and soybean markets.  As a lender, here are a few items that should be on your customer’s minds.

Prices are low

In the Northern Plains, producers are looking at cash soybean prices of $7.30/bushel in southern Minnesota, and as low as $6.75/bushel in North Dakota. The last time we saw prices like this was the harvest of 2007. Corn prices are $3.00/bushel, +/- 20 cents in the same areas. $3 corn at harvest is not profitable and, unfortunately, not new. These prices are all too similar to levels seen in each of the last four harvests. [Read more…]

Does Grain Marketing Improve Profitability?

Does Grain Marketing Improve Profitability?By:  Joleen C. Hadrich and C. Robert Holcomb

Farm managers recognize the importance of having a marketing plan to improve their profitability.  And, the title of Ed Usset’s grain marketing book conveys an important truth- “Grain Marketing is Simple-it’s just not easy!”  In the “Top Farmer”[1] survey, crop producers were asked to categorize the percent of their crop marketed across 3 general categories: pre-harvest contracts (cash contracts, futures, and options), post-harvest contracts (cash contracts, futures, and options) and cash sales (harvest and post-harvest).

In order to compare the highest and lowest performing farms, farm profit performance was measured using an adjusted net farm income ratio[2].  Comparison across performance levels was completed for the “Top Farmers” who were in the highest 20% of financial performance, measured by the adjusted NFI ratio, compared to the lowest 20% of farmers.  In 2016, regardless of whether you were in the highest or the lowest 20% of producers, approximately 34-35% of the overall crop was sold using pre-harvest contracts, futures, or options while another 36-37% was sold through harvest or post-harvest cash sales.  The main difference in marketing between these two groups occurred with post-harvest contracts.  The highest performing farms contract approximately 29% of their crop using some combination of post-harvest cash contracts, futures, and options.  The lowest performing farms only contracted 22-23% of their crop with post-harvest contracts, futures, and/or options.  [Read more…]

Cash Flow Planning Tools

Cash Flow Planning ToolsPutting together cash flow projections for farm clients can be tedious at times.  What is a reasonable feed expense for dairy operations?  Is the projected cost of production on corn acres in line with peers?  These are a few of the questions lenders and other professionals may ask when putting together projections, especially for new customers.  With that in mind, The Center for Farm Financial Management has put together two different cash flow planning tools.  The Minnesota Price and Cost Summary and the FINPACK Livestock Budget Estimates are two aides FINPACK users may find useful in cash flow planning.  These items and more are found in the FINPACK Knowledge Base.

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