Monday, December 15, 2014

Anything is possible.

As we wrap up our 2014 farm business management experiences, and look to 2015 and beyond – we may consider expanding something we already do, or we may explore a new enterprise. We may even transition to something outside of agriculture.

Our farm business choices are only limited by our imagination!
It is important to keep in mind that “anything is possible!”  Examples easy to recall when emphasizing the openness of potential markets include; 1) bottled water, 2) pet rocks, and 3) gourmet dog treats.

Sticking with the family-companion theme, let’s examine the potential of moving up a marketing channel. I’ll focus on simple hard wood here.

            1,000 board feet of pallet grade hardwood = $240
This same wood as firewood = $580
            Same wood as 1 cubic foot bundles of firewood = $2,760
            Same wood as hamster houses = $2,121,400

Maybe an overly simplistic example, but you get the point – anything is possible. The challenges revolve around actually making a profit with whatever it is we decide to do.

My preferred process for gauging the probability of success for expanding or starting a business is summarized here:

What is the objective?
Can you describe to me (very briefly) what it is you are going to accomplish?

Start at the end
            How much net income would it take to call this effort worth while?

As we develop budgets and project revenues let’s remember some concepts from economics:
Cash costs
            People that operate out of a check book only use this method. If they can pay the input bills they believe they are successful.
Accounting costs
            Folks that use accepted accounting methods to manage their business recognize there are costs other than cash when gauging profitability.
Economic costs
            It may also be meaningful to consider our opportunity costs. I’m not the sharpest spoon in the drawer, but I could work as a laborer somewhere in town and forego my farm income. Am I content with the trade off?

Sure, anything is possible, but is it feasible? I can make all the hamster houses I want. Is it reasonable to assume I could sell them?

I do believe our opportunities are only limited by our imagination! However, the risks are great and we must be considerate before we bet all our assets on a new venture.

Monday, December 1, 2014

New farm risk management tool!

Basics of the new Whole Farm Revenue Protection (WFRP) policy

Diverse family farms now have an additional risk management tool available.

WFRP is a new crop insurance policy called for in the 2014 Farm Bill and developed by the USDA, Risk Management Agency. This newly available crop insurance product is not intended for a single specific crop, but for all the crops, livestock, and products that are grown, raised, or produced on your farms.This product may be of special interest to diversified and organic farms that do not have single crop policies or organic price elections available.
This new crop insurance product is available as one response to the needs of many farm families that previously had fewer choices of risk management tools because of their highly diverse enterprises.
Producers should start talking with their crop insurance agent if they are interested in the policy to be prepared for the March 16th sales closing date for WFRP.
WFRP is available in all states and counties of the eastern U.S.Some of the most notable benefits this new insurance option offers include:
  • An $8.5 million liability limit (an increase from $6.5 million under AGR and $1 million under AGR-Lite);
  • 85% of historical revenue coverage level when at least three crops are grown (an increase over the previous 80% cap);
  • a premium subsidy of up to 80% when at least two crops are grown (a significant increase over the highest subsidy rate of 59% provided under AGR-Lite);
  • a premium discount for increased diversification stair stepped up to 7 crops;
  • coverage for both crops and livestock (capped at 35% of expected revenue up to $1 million);
  • inclusion of some incidental processing expenses necessary to make the commodity ready for market, such as washing, trimming, and packaging;
  • replant coverage for a crop losses early enough for replanting; and
  • the continued option to insure individual crops under separate crop policies (cannot be CAT level coverage).
The paperwork responsibilities for the farmer will include:
  • The WFRP Application
  • Whole Farm History Report (last 5 tax years)
  • IRS Tax Form 1040 Schedule F
  • Farm Operation Report (Intended, Revised, Final)
  • Allowable Expenses Worksheet
  • Allowable Revenue Worksheet
  • Beginning and end of year Inventory Reports (if applicable)
  • Accounts Receivable and Payable Reports for beginning and end of year (if applicable)
  • Market Animal and Nursery Inventory/Accounting Worksheet (if applicable)
  • Verifiable complete marketing record for each commodity

The USDA, RMA fact sheet on this new risk management tool is available at:

RMA provides this web site so we can search for certified crop insurance sales agents:

Saturday, November 22, 2014

Assessing available marketing opportunities

How do you gauge the value of a marketing channel?

Of the roughly $700 billion annual food system value in the U.S., slightly over $100 billion is the farm gate value for all the food farmers produce. The remaining $600 billion covers the processing, packaging, marketing, storage, distribution and transportation between the farm gate and our dinner table. This difference is what excites many farmers about getting closer to the final consumer through value-added and direct-to-consumer farm marketing.

Of course, all this added revenue also comes with added expenses. If we are considering a new revenue generating enterprise it is best if we also consider the potential added costs. The challenges of farm production are many and vary from year to year. When we add the potential issues associated with our also managing the processing, marketing and distribution components of a farm-food business our challenges can increase exponentially.

One method to use for evaluating some of these potential challenges and the associated costs is referred to as “market channel assessment.”  With this method we explore the available market channels we could use as both sources of revenue and expense.

There is an excellent opportunity to enhance your understanding of accessing marketing channels the second week of December.

Penn State Extension is pleased to announce a workshop devoted to enhancing farmers’ knowledge and skills for assessing the potential economic return from the many marketing methods available to them. Those interested in direct-to-consumer sales will learn with industry experts from Pennsylvania and New York.

As we probably recognize, there are many ways to sell direct-to-consumer farm products: farmers’ market, CSA, farm stand, wholesale, direct to institution, online, u-pick, and more. This workshop will help you match the right market mix to your customers, your business goals and your personal skills and resources.

For additional information on this unique program go to

PROFITS: Choosing Your Marketing Methods Workshop  or call Brian at 610.391.9840

Saturday, November 8, 2014

U.S. agricultural productivity out paces all other industries

Where does all this food come from?

The abundance of safe, nutritious food in the U.S. is efficiently produced.
We understand that every American farmer feeds roughly 155 people. Since these people do not have to farm to feed themselves they are free to pursue other careers. This phenomenon is often referred to as the “industrialization of agriculture.”  By increasing the productive capacity of our farmers we were able to devote massive amounts of creativity and innovation to manufacturing, technology, communications and trade. What is this thing we call “productivity?”

Productivity is the ratio of output to inputs in production; it is a measure of the efficiency of production.

Productivity has many benefits. At the national level, productivity growth raises living standards as more real income improves people's ability to purchase goods and services, enjoy leisure, upgrade their housing and education, and contribute to social and environmental programs. Productivity growth is important to a business because more real income means the business can meet its commitments to customers, suppliers, workers, shareholders, and governments (taxes and regulation), and still remain competitive or even improve its competitiveness in the market place

It is widely agreed that increased productivity is the main contributor to economic growth in U.S. agriculture.  The level of U.S. farm output in 2011 was 170% above its level in 1952, growing at an average annual rate of 1.63%. This occurred as total input use increased a mere 0.11% annually, so the positive growth in farm sector output was very substantially due to productivity growth. But what exactly is farm productivity? 

Single-factor measures of productivity, such as corn production per acre or per hour of labor, have been used for many years because the underlying data are often easily available. While useful, such simple measures can also mislead. For example, yields could increase simply because farmers are adding more of other inputs, such as chemicals, labor, or machinery, to their land base. To account for a wider range of inputs our USDA produces measures of total factor productivity, taking account of the use of all inputs to the production process.

Specifically, annual productivity growth is the difference between growth of agricultural output and the growth of all inputs taken together. Productivity therefore measures changes in the efficiency with which inputs are transformed into outputs. Input measures are adjusted for changes in their quality, such as improvements in the efficacy of chemicals and seeds, changes in the demographics of the farm workforce, or innovations in machinery design. As a result, agricultural productivity is driven by innovations in on-farm tasks, changes in the organization and structure of the farm sector, research aimed at improvements in farm production, and/or random events like weather. There are many facts and figures  on U.S. farm productivity to support this conclusion.

As we have benefited as a society from the creativity and innovation of all those people freed from the tasks of food production, we have also benefited greatly from the creativity and innovation of those few people that did chose to pursue farming as a career. In other words, farmers were getting better and better at their jobs, using more and better technology, and progressing at a faster pace than urban workers. Many see this as a huge advantage for both farmers and consumers. Productivity growth provides the potential for higher farm incomes and lower consumer food costs (Bill Ganzel. ) The U.S. leads the world in food production efficiency. We get the most food from resources consumed which allows us to put additional resources towards other uses.

SOURCE: USDA, ERS research report: Agricultural Productivity in the U.S.

Monday, November 3, 2014

What's your vision for family farms?

How do you see the future of family farms?

Can our current farm community structure continue as a viable business model?

The average size of a U.S. crop farm has changed little during the past three decades. However, this seeming stability masks important structural changes in the farm sector: there are growing numbers of very small and very large farms and declining numbers of mid-sized farms. In 2011, 1.68 million U.S. farms had an average size of 234 acres, according to our USDA. However, 80% of farms were smaller than this average with just 45 acres. On the other hand, most cropland was on much larger farms—those with 1,000 acres or more. How can this be?

Cropland consolidation has occurred across the U.S. with most crops shifting to larger farms. As examples; the midpoint enterprise size for corn rose from 200 acres to 600 acres, from 450 to 1,090 acres for cotton, from 295 to 700 acres for rice, from 243 to 490 acres for soybeans, and from 404 to 910 acres for wheat. In fact, cropland shifted to larger operations in almost all commodities. Based on census of agriculture data the calculated midpoint acreages for 39 crops accounting for berries, fruits, tree nuts, and vegetables also experienced an average increase over 107%.

The evidence is consistent. Cropland shifted to larger farms in most States and for most crops. The increases were persistent over time, and they were substantial.

Among the many factors contributing to cropland consolidation, two have had a particular effect: changes in technology and changes in farm organization. Farmers who want to make a living from farming, and who can operate a larger crop operation, have a strong incentive to expand because larger operations, on average, show better financial performance.

In recent decades, farm equipment has gotten larger and faster, and guidance systems have become more precise and reliable. With available equipment having higher effective speeds, larger capacities, and the ability to cover more of a field with each trip across, farmers can now cover more acreage in a given amount of time than ever before.

Changes in farm organization have also affected consolidation. As late as 1960, most U.S. farms raised at least some cattle, poultry, and swine, and almost all farms raised corn to feed this livestock. By 2011, less than 10% of farms had any swine, poultry, or dairy cattle. As a result, farmers without a livestock enterprise have more time available to devote to crop production, and operate a larger crop enterprise.

Farmers have also pursued organizational changes that limit some of the financial risks faced by larger and more specialized operations. They now rely more on forward contracts to manage input and product price risks, and they rely more on leased equipment and custom service providers to limit the risks associated with major purchases of fixed capital equipment.

In 2011, 96% of U.S. farms with cropland were family farms. Few U.S. industries are as dominated by family businesses as agriculture.  To date, family farms continue to dominate U.S. agriculture. If continued innovations enable large, complex operations to overcome the information-gathering, monitoring, and decision-making advantages still clearly held by family farms, then they may be able to make wider use of their ability to finance large-scale operations.

Information for this article was adapted from: Farm Size and the Organization of U.S. Crop Farming, by James MacDonald, Penni Korb, and Robert Hoppe, USDA, Economic Research Service, August 2013

For additional research on U.S. farms, farming and farm families check:


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