[PPT]PowerPoint Presentation - Department of Economics · Web viewOutline Current situation...
Transcript of [PPT]PowerPoint Presentation - Department of Economics · Web viewOutline Current situation...
Is There Room Enough For All of
Us?
Michael DuffyJanuary 16, 2009 Photos by USDA NRCS
Outline• Current situation• Questions to consider• Using financial information to help
withthe decisions
• Questions and discussion
Current Situation
Return to ManagementIowa Farm Business Association
-$80,000
-$30,000
$20,000
$70,000
$120,000
$170,000
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
High Third Low Third Average
Corn Total Economic Cost Per Bushel, 2007Iowa Farm Business Association
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
< 100 100 - 400 401 - 800 801 - 1200 1201-1500 > 1500
Number of Row Crop Acres
Dol
lars
Per
Bus
hel
Total Economic Cost per Bushel by Cost Group, 2007 Iowa Farm Business Association
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
High Third Middle Third Low Third Total Group
Net Farm Income per Dollar of Expense
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
Percent of Iowa Farms with Swine
0%
10%
20%
30%
40%
50%
60%
Percent of Iowa Farms with Cattle
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1964 1969 1974 1978 1982 1987 1992 1997 1998 1999 2000
Estimated Total Cost per Bushel
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
1999 2000 2001 2002 2003* 2004* 2005** 2006*** 2007*** 2008 2009$-
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
Corn after Corn Corn after Beans Soybeans
Iowa Average Land Values
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
Iowa Cash Rent per Acre Based on ISU Survey
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Where we are• Management is the key; not size• Technology has increased production
but it has come with a cost• Most Iowa farms are small and do not
have livestock• Land values and costs are high but
they have always been high• Working with our heads and
managing risks will be the keys in the future
Questions to Consider
Is There Room Enough for All of Us?
• Remember there is no right way to help a young person get started farming. Wages, partnerships, sharing capital and labor, profit sharing and so forth are all examples of different approaches
• Do what works best for you and your situation• Multiple family farms are more common than
most people realize
Percent of Iowa Farms with More than One Operator by Sales Category, 2002
0%
10%
20%
30%
40%
50%
60%
All farms <$50,000 $50-$100,000 $100-$249,999
$250-$499,999
$500-$999,999
>$1M
Is There Enough Room For All of Us?
Question has at least three parts• Is there adequate income for all the families
involved?• Are there too many bosses?• Is there enough recognition and
communication with the non-farm members of the family?
Is There Room Enough for All of Us?
Too Many Bosses?
• Who is responsible for making decisions• The severity of this problem depends a lot
upon the secession route chosen• Communicate, avoid unspoken expectations• Have a plan
Is There Room Enough for All of Us? Family Members
• Be sure that everyone knows the plan• Don’t assume• Communicate together; don’t just talk• Remember that equal is not always fair
Farmers Responses to Best Plan for an Estate Plan
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Sell Put it inTrust/
Corporation
Dividebetween all
heirs equally
Give/Sell toSuccessor
No Plans Give to 1Heir
Misc/ Keepland in 1
piece
Dividebetween all
heirs w/farming
heirs gettingland or more
than rest
Give tosomeoneother than
familymember
Is There Room Enough for All of Us?
Adequate Income• This is the most important aspect; many single
family farms don’t have an income adequate for the level of family living draws and this is even more of an issue for multiple family farms
• Remember most technologies are designed to substitute capital for labor, they are not necessarily designed for multiple family farms
• The key is to select the most appropriate technology and enterprises for the situation
• Simply increasing volume is not the answer
Strategies
Increasing Net Income• How much additional income is
necessary?• Remember; family living, taxes,
retirement income or full living expenses for older generation
• Include off-farm or income that isn’t from the current farming operation
Using Ratios
• Use ratios from current farm as a starting point; remember that as changes are made these ratios can change
• Ratios vary considerably by size, profit level and type of operation
Asset Turnover Ratio
Asset Turnover Ratio =Value of Farm Production/
Total Assets Used
2007 Average for farms in IFBA was 42%
Net Farm Income Ratio
Net Farm Income Ratio =Net farm income/
Gross farm income
2007 average for farms in the IFBA was 35%
$___________ = $___________ x = $___________ x
$___________ = $___________ x = $___________ x
$___________ = $___________ x = $___________ x
Income to Achieve Your Goals
Net Farm Income
Gross Income
Total Assets
Net Farm Income Ratio
Asset Turnover Ratio
121,951 41% 248,880
135,135 37% 314,268
208,333 24% 612,745
49%
43%
34%
50,000
50,000
50,000
Net Farm Income and Asset Turnover Ratio by Profit Group, Iowa Farm Business Association, 2007
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
NFI ratio Asset turnover ratio
Low Middle High
Gross Income to Needed to Increase Net Farm Income Using NFI Ratios from
Iowa Farm Business Association Profit Groups, 2007
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$30,000 $40,000 $50,000 $60,000
Added Net Income
Gro
ss In
com
e
Low Profit Middle Profit High Profit
Increase in Value of Assets Needed to Generate Additional Net Farm Income by Profit Group, 2007
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$30,000 $40,000 $50,000 $60,000
Net Income Category
Low Profit Middle Profit High Profit
Using Your Ratios• How do you know your ratios? use your own
financial documents• How can you change the ratios? Examples
- Increasing management for cost control
- Increasing management to increase value of output
- Increasing intensity of use for existingassets (rented land)
- Acquiring more assets
Increasing Income from the Existing Farm
• Increase the assets used • Increase the efficiency with which
theexisting assets are used
• Increase the amount of gross revenue
converted into net income
Possibilities• Look for ways to more intensively use
the current assets (additional enterprises, alternative production techniques, etc)
• Look for ways to improve the net income ratio (organic production, non-commodities ie, special attributes, improved marketing and production, etc)
• Look for ways to improve both ratios (new enterprises, etc)
Possibilities• Supplemental income from off-farm
sources; could be another farm or farm related activities- 2004 Rural Life Poll reported 95% of farmers felt spouse would need off-farm job and 92% said beginning farmer would need off- farm job
• Delay process until capital can be acquired or situations change
Is There Room Enough for All of Us?
• Agriculture is a high-risk industry but it can have great rewards; there is a future for farmers, different from the past but opportunities none the less
• When examining the question of adequate income, remember you can:
Live with the tight margins but ensure an adequate volume for the incomeLook for ways to widen the marginsLook for additional sources of income
Is There Room Enough for All of Us?Final thoughts
• Be sure there is an adequate income• Take the necessary steps to help minimize the
income instability, especially in the beginning• Develop, evaluate and revise your plan as
needed• Communicate and respect differences• Remember the view should be for a farm
family; not a family farm
Discussion
Beginning Farmer Centerwww.extension.iastate.edu/bfc/
877.BFC.1999