Dairy Margin Coverage and how it may help your borrowers

By: Joleen Hadrich, Associate Professor, Extension Economist

Dairy Margin Coverage (DMC) is a voluntary federal program available to dairy farms across the country, which can be used to help stabilize dairy farm revenue.  DMC replaces the previous Margin Protection Program (MPP).  DMC makes payments to enrolled farms when the national average income over feed cost margin falls below the coverage level selected by the farmer. A number of coverage levels are available for dairy farmers with varying premium rates. 

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Minnesota Farm Income Hits Historic Low

After adjusting for inflation, Minnesota farms earned the lowest median farm income in the past 23 years of data tracked by University of Minnesota Extension and Agricultural Centers of Excellence within Minnesota State.  

In 2018, the reported median net income was $26,055, down 8 percent from the previous year. Farmers in the lowest 20 percent reported losing nearly $72,000. The analysis examined data from 2,209 participants in farm business management programs, as well as 101 members of the Southwest Minnesota Farm Business Management Association.  This is a collaborative project with the FINPACK Team and the Center for Farm Financial Management (CFFM).

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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…]