Resources to Help Producers Develop Budgets

by: Lynn Kime, Senior Extension Associate

Creating budgets is a chore most people do not enjoy. If you are currently producing a crop, the task may be somewhat easy but still takes time.  If you are entering agricultural production creating a preliminary or pro-forma budget can be a difficult task. Budgets are a valuable tool to all producers and beginning producers as well. If you have been producing a crop for years and you cannot seem to determine how profitable that crop is, an enterprise budget helps make that determination. For beginning producers, producing a crop that only provides income to cover direct costs means that eventually your fixed assets (land and equipment) will be depleted and you can no longer stay in business.

For existing producers, to create an enterprise budget you will rely on your current records. The budget unit may be per acre, per bushel, per head, or another common unit. Whatever you choose, consistency throughout the process is critical. You need to determine what expenses were dedicated to that specific crop or enterprise. This will take some time to separate these expenses from your totals. For example, you determine that you purchased $2,000 worth of seed for this growing season; the problem is that you planted corn, soybeans, and oats. To determine how much you spent on the oat seed you need to look through your invoices and make that determination. This example may seem elementary but you need to do this same process for all inputs including fuel, labor, and repairs just to name a few. These items are much more difficult to extract from total expenses.

When you have determined your direct expenses, the more difficult task of allocating fixed expenses to each unit begins. For example, you made the calculations to determine how much fuel you used per unit, now determine how much of your depreciation is allocated to the equipment and buildings needed to produce that crop. What is the cost of the land required and how much of your property taxes and farm owner’s insurance policy is allocated to this enterprise? These are not as easy to break out of the invoices.

For potential producers, these tasks are even more difficult as you do not have the current production year’s expenses to use. You need to conduct research to find these numbers. There are several places to start that have budgets and templates for your use. For agronomic crops, the Penn State Agronomy Guide has budgets for you. For horticulture crops, TheMid-Atlantic Berry Guide for Commercial Growers  and the PennsylvaniaTree Fruit Production Guide are available on-line for free and printed copies are available through you local extension office or may be ordered from: Publications Distribution Center, College of Agricultural Sciences, The Pennsylvania State University, 112 Agricultural Administration Building, University Park, PA 16802-2602. Phone: 814-865-6713. On-line at: http://pubs.cas.psu.edu. E-mail: AgPubsDist@psu.edu. All of these publications contain budget sections with a column labeled “Your Estimate.” This is where you enter your figures to customize the budget. The items listed are to make sure you consider all items needed to create the budget.

 

Another source of budgets for specific crops and enterprises can be found in the Agricultural Alternatives publications.  There is a link to a PDF file for easy printing on the web pages. There are also links to interactive PDF budgets included in the web pages. These budgets can be customized to your operation by completing the necessary research to determine your income and expenses and entering these figures into the appropriate cells and the file makes the calculations for you. There are cells for both income and expenses and you use your figures so the document reflects your enterprise. You may print this budget for your use. 

I encourage you to check out the web site and discover what the project has to offer. By using these publications and the included budgets you will be better informed about the time, capital, and equipment needed for the enterprise. All issues you need to consider when creating enterprise budgets or starting a new venture or enterprise.

Ideas to Market a Seasonal Business Year Round

By Heather Mikulas, Extension Educator, Allegheny County

The seasons provide a natural break from all of the hard work of growing fresh produce. If your farm’s business plans include some well deserved time off from the rigors of the growing season, there are some fireside efforts which can be done in slippers, at any hour of the day or night, which can keep your farm in the forefront of your customer’s minds. These suggestions for marketing a seasonal business in the off season can keep customers hungry for your business while the ground is frozen. Additionally, some of these activities may open off season revenue channels, should that be something your business wants to explore.

Update and expand your customer database during full season

Whether you are operating a CSA, farmers markets, farm stands, or pick your own, the time to collect customer information is while your product is ripe. Weekly or daily interactions with your customers can give you opportunity to collect names, addresses, phone numbers, and emails. This data can be collected via a piece of paper on a clipboard at market, or through social media or website, updating those contacts to maintain and improve customer relationships.

Ask your customers what they want

Additional information can be gleaned from your customers by asking them what they want next year, which can help with planting plans and market mix. While you are collecting contact info, tack on a question or two asking customers what they want to buy next year, and what they like best about doing business with you. Communicating with your customers helps to understand what your business can improve and helps to build loyalty.

Pay attention to consumer trends

Customers will love seeing photos from
"their" farms!

During the winter, food industry consultants and corporations put out research regarding food trends for the upcoming calendar year. These reports list what the ‘new’ flavor trends will be, package size, convenience and health trends, for instance. Even though these reports are designed for chain restaurants and new snack chip flavors, they can help farm markets and value added producers understand what product competition will be in the wider marketplace. This can provide backing for trying new product lines and freshening up product mix.

Invest in your newsletter and social media content all year long

Do your consumers LOVE to see pictures of spring lambs? They will love to see the ewes nestled in the barn in the winter, too. Do you excel at producing spring greens? Consider selling cold hardy greens in the off season, or at least share information about your seed purchase and provide some salad dressing recipes. Customers love to be connected to ‘their’ farm, even though it is your farm! Give them an insider’s peek into your off season my snapping pictures of your work and planning for the upcoming year. This way, they will be eager customers on opening day.

Stake out your territory

This can be done by defining your niche. Do you make jams and jellies? Perhaps limited run seasonal flavors will encourage customers to ‘buy it while they can’. Are your onions as sweet as candy? Talk them up in newsletters and social media, and create hoopla before they hit market, so when the onions hit the shelf, they don’t sit for very long.

Farm Financial Analysis Tool Proves Useful in Analyzing Solvency and Liquidity

By Miguel Saviroff, Extension Educator, Somerset County

For a farmer, making economic decisions may be a stressful task if accounting records and financial statements are not available.  The use of spreadsheets and computerized financial records help farmers relax while making a plan. Penn State Extension Farm Management Educators have used FINPACK as one of the tools in training farmers to evaluate the farm’s financial position, explore alternatives, and make informed farm management decisions. There are, of course, other financial programs that can be purchased for this use.

Dave Van Pelt is fine tuning and monitoring his operation's current financial strategies. He used FINPACK to simulate expansion strategies and analyze the possible new challenges. “My experience with FINPACK was with dairy start-up strategies, it has helped me see the level of production needed to support a herd large enough to meet financial obligations,” said Van Pelt.

The road map of a farm financial analysis starts at the beginning of the year with a beginning balance sheet. Once this point of reference is set, a monthly cash flow is planned and compared with the actual at the end of each month. At the end of the year, the accounting cycle closes and an ending balance sheet is prepared. Both balance sheets are used to calculate inventory changes and a year-end analysis leads to an Income Statement. Financial performance can be assessed using three concepts: Profitability, Liquidity, and Solvency.

In the FINPACK program using the data entry mode, a complete listing of assets, liabilities, and ownership equity is fed into the system, and the program creates the beginning balance sheet. Assets and liabilities are listed as current, intermediate, and long term. The output section presents this balance sheet with assets in order of liquidity in one section, and liabilities and net worth in the other section, with the two sections "balancing."  Owner’s Equity (aka Net Worth) is the difference between the assets and the liabilities, and it should be more that 50% of total assets. For example, assume my total assets are worth $800,000 and my total liabilities are $320,000. My owner’s equity would be $480,000 ($800,000 - $320,000). Owner’s equity should increase between 2 consecutive balance sheets. An owner’s equity growth rate should be at least 6% annually. If the business does not grow it could be a sign of liquidity problems, such as an income decrease.

FINPACK provides a suite of tools that guide producers 
and ag professionals to sound financial decisions. 

Two financial ratios obtained from the balance sheets are found in the FINPACK output screen. They are the liquidity and the solvency ratios. The liquidity ratio states the ability of the farm to pay its short term obligations. The liquidity ratio is also known as the current ratio and is obtained by dividing current assets by current liabilities. For example, if your current assets are $20,000 and your current liabilities are $16,000, then your current ratio would be 1.25 ($20,000 / $16,000). We interpret this ratio as follows: you have $1.25 of current assets (cash, savings, etc.) for every $1.00 of obligations (i.e. loan payments, line of credit or accounts payable) you owe within the upcoming year. A ratio greater than 1.7 is “Strong”; a 1.7 to 1.1 would fall in the “Caution” range; and less than 1.1 would be “Vulnerable.” A “vulnerable” situation can have potential causes, such as a farm expansion, low returns and high costs, and rapid debt payments. Strategies to get out of this “liquidity crunch” include raising cash by partially liquidating (selling) non-current or non-essential assets or borrowing to meet the current liabilities. Restructuring current debt into non-current debt reduces current liabilities. Debt restructuring should not be the first alternative in trying to solve liquidity problems. Other alternatives may need to be tried to provide a faster infusion of capital.

The solvency ratio indicates the financial position of the farm, and whether the business can cover its total debts with its asset base. A business is “insolvent” if it has more debts than it has in assets. The Debt to Assets ratio measures a farm’s solvency and is calculated by dividing total liabilities by total assets. From the above example, my debt/asset ratio would be 40% ($320,000 / $800,000). This measure helps us compare our solvency to similar operations.

A Debt to Asset Ratio less than .3 (30% debt) should be comfortable; between .3 and .6 (30% to 60% debt) is a medium to heavy load; and over .6 (60% debt) becomes heavy and if high enough, impossible to service. Overcoming a poor solvency measure will depend on the cause. A new operation will be expected to have a poor solvency. It will require hard work, strong cash flow, and solid profitability over time. In general, selling unneeded assets and using the proceeds to pay down your debts, can work. Refraining to take on additional debt can possibly help. You will need to increase your asset base by reinvesting your profits in the operation or bringing in outside investors. Also important, is taking good care of the assets by preventative maintenance, so they will hold their value longer.

In my next blog article,  I will discuss cash flow, financial efficiency, repayment ability, and profitability, which are highly important areas when looking at the overall financial condition of an agribusiness.

For information on Farm Financial Management educational programs, or if you have questions on financial aspects of your farm business, contact Miguel Saviroff at Penn State Extension in Somerset County at 814-445-8911 extension 144.

Selling Produce in the Snow - Generating Income with a Winter CSA

by Heather Mikulas, Extension Educator, Allegheny County

The last thing producers may want to think about in the middle of the growing season is extending the growing season.  However, that is just what many Community Supported Agriculture (CSA) business models are doing across the state to meet consumer demand for fresh, vibrant food.  Many farmers are finding that summer share customers desire to eat local twelve months out of the year.  Serving this niche market can open a revenue stream, with winter CSA boxes bringing in an average of $40 a week in Western Pennsylvania, and this income can help farms offset those winter purchases for the upcoming summer season.  Market value for boxes varies in different geographic regions due to particulars such as hardiness zone, storage, growing facilities, transportation, and customer base.  Many winter CSAs quickly fill and have waiting lists.  In this post, we discuss some considerations for cultivating produce sales during the winter months.

Partnering with other farms to market a well-rounded box

Winter CSA box.
Photo credit: Coon Rock Farm

Your farm may excel at storage of apples and squash, but how will that satisfy customer demand?  Talk to other growers in your area to explore the idea of a cooperative winter CSA.  This model has been successful in many places, with several producers contributing cider, produce, baked goods, grains, and other items to round out winter shares.  A challenge with this model is coordinating pickup and delivery, but once that schedule is worked out, transportation costs can be shared, as well as revenue.

Planting greens can bring in the green.  If selling produce in the cold months to bring in the cold cash is attractive, understanding plant biology is key to properly selecting plants which can be successfully grown and stored during the 'off season.'  For instance, working with plants that germinate in cold temperatures, or have slow respiration rates to provide longevity in storage is key to having marketable produce.  Set up your business for success by selecting cold hardy plants to grow or store instead of planning on heating a high tunnel with propane all winter, a sure budget buster.  Many cold hardy greens such as kale, chard, spinach, cress, and mache will survive hard frosts and even light freezes with some protection from desiccating winds.  Many Brassic species, carrots, and leeks also perform well.

Agritainment, selling value-added products, and community building

Many customers enjoy visiting farms during the growing season, and winter CSA on-farm pick-ups can provide opportunities to extend a farm's agritainment season while boosting sales of value-added products.  Options for customers could include cross-country skiing or sledding on the "back 40," sleigh rides in the snow, sales of hot cider and hot chocolate, and offering farm branded value-added product lines to add to the standard box at pick-up are all ways to cultivate year-round revenue streams from high season customers.  Just make sure to check with your liability insurance if having customers on-farm is new to you.

Convincing customers that root crops are delicious is critical to your marketing strategy.  Many committed locavores may turn their nose up at a celeriac root, but one taste of a creamy soup or roasted version of this strange looking vegetable is enough to send a creative cook home with your product, inspired to slice and dice.

Since many winter crops have this image problem, tap into a niche customer base willing to take the chance that parsnips really are sweet and delicious, and have the fortitude to tackle a large squash to create seasonal recipes.  The trick from the producer standpoint is creating storage to slow the respiration and decay process.  Just remember to control temperature, humidity, ethylene, and provide customers with recipes.

Winter CSAs are an opportunity, but do come with some infrastructure costs

Here are some considerations to help you with successful profit margins.  As with many things in life, good timing is everything.  Timing fall plantings correctly can help maximize profits and efficiency.  Marketing these frost-kissed vegetables can be creative as the sugar content concentrates with exposure to cold.  Carrots can be marketed as "candy carrots."  What mom doesn't want to buy those for her kids?  Making sure greens are teacup sized before planting in mid-August will help ensure the plants are mature enough to withstand cold stress.  Carrots should be thumb-sized before frost to be successfully harvested after frosts, and again in late winter/early spring.

High tunnel production for winter CSA.
Photo credit: Scott Arbor

If fresh greens are more to the taste of your customers and growing prowess, here are some upfront costs related to production to turn greens into "green."  To provide protection to field crops when the cold northern winds start to blow, consider investing, as a minimum, in row cover cloths on homemade metal or flexible PVC to create low tunnels.  Two layers of row cover cloth can keep mature cold hardy greens alive through the December holidays.  Some producers report success in keeping crops alive through winter with a kind of dormant period in January and February.  Keep in mind, harvesting from low tunnels is difficult work, so if the investment of a high tunnel is feasible, it will make the winter work easier from a physiological standpoint.  Remember to cover plants in high tunnels with row cover.

Planning for a new business venture can seem overwhelming during the day to day management of an existing business.  Farming on paper is worth the time, as calculating upfront costs and comparing them to projected cash flow is what it takes to assess potential profitability.

Extension can provide technical assistance in the development of CSAs via production, marketing, and business development support.  For further reading on this topic, please visit Penn State Extension's Ag Alternatives website for publications on CSAs and Cooperatives.

Are you considering a pick-your-own experience?

by: John Berry, Extension Educator, Lehigh County 

Recently, the popularity of P-Y-O family outings has increased. It is no wonder. Consumers can enjoy not only the fruits and vegetables available for harvest, but they also get to experience some time on a real farm. Adding to this excitement, each month changes the availability of a different fruit or vegetable. As we know, what is available to pick varies on location, varieties planted, and weather conditions. To create a good communication stream with your potential shoppers it is important you remind them to always call the farm so they don't miss the products they are after or the times they are available to pick. In this part of the country we are finishing up blueberries and blackberries. Peaches, tomatoes, green beans, figs, raspberries and early apples are going full steam this month. Additionally, we are looking forward to more apples, grapes, pumpkins and winter squashes later this fall.

Pick-Your-Own farms offer fun for the whole family!

Because the average consumer is three generations removed from living on a farm they may need a fair amount of education to make their P-Y-O experience most enjoyable. It may be beneficial if you remind your P-Y-O customers to bring snacks, hand towels and plenty of liquids to drink. Should they bring containers for picking and for carrying the fruit home? This can depend on the farm they are visiting as some farms provide containers. Should they dress in old clothes so they are comfortable and not worried about staining or tearing? How about suggesting a hat to offer protection from the sun? In the fall, extra layers keep them warm for picking. Remind them the value of sunscreen for the back of their neck and exposed skin.

Also, be sure to tell them the fun doesn't have to end with just picking the fruit. Especially if your farm also offers hay rides, petting zoos, corn mazes, gift shops, picnic areas, or even some form of food service.  Do you also sell pre-picked produce as an added convenience if children tire before the family has gotten its fill of fruit?

Every farm is a bit different. Some have more relaxed rules, others are more strict. Customers need to find a farm that matches their needs - a farm with strict rules would not make for a happy experience with adventurous, young children. It is best to note and post all rules and regulations at your picking locations.

Read a detailed story on an Ohio farm’s P-Y-O experience. 

It will soon be pumpkin season, what a great way for kids to enjoy
the outdoors and a fun farm experience!

Below are a few common expectations at a P-Y-O farm that you may want to include in your list of rules:

• Look for the check-in and check-out areas. Before picking, note whether you will be charged according to weight, volume or count. Also, inquire if there is a minimum quantity requirement.
• Place trash in proper receptacles or take it with you;
• Stay clear of parked or moving tractors and equipment;
• Health codes usually require no pets in the fields.
• Always call in advance to find out if the fruit/vegetables you want are available, to get directions, check their opening and closing hours and to ask if children are welcome.
• Walk in the rows, don't step on plants! 

Keeping the fruit cool is a good run of thumb.  Check with your local Extension office for storage tips and provide some fact sheets to your customers. Be certain to plan ahead if you intend to market supplies to folks that plan to freeze, can, or make jam from some of their harvest. The risks of inviting strangers onto your farm and letting them roam about can be a challenge to control. However, with the growing popularity of pick-your-own farm experiences it may be worth your time and trouble to experiment a bit and see if this method of direct farm marketing is for you. For additional information on a great you-pick farm experience check http://www.pickyourown.org/.

 

An experienced and successful P-Y-O farm operator told me the secret to success in this business is to “Develop a sound pricing strategy, have plenty of signs and remember to be flexible and patient with the public as they patronize your operation. Sometimes the results of their harvesting may result in damage to your trees and plants.”

Thinking of Starting a Farmers' Market in Your Town? (Part 2)

by Carla Snyder, Extension Educator, Adams County

Thinking of starting a farmers' market in your town?  Check out the first installment of our Building Your Market blog here.  The first steps cover the basics including what and how to research the feasibility of your farmers' market and the one thing no one likes to think about, insurance.  These first two steps will have you well on your way to determining if a farmers' market is right for your town.

Farmers on the Square, Carlisle, PA
Photo credit: Ali Frohman

Once you have your research in place, put it to work in the next three steps to help develop your location, advertise your market, and keep yourself up to date on rules and regulations to follow.  (Steps 1 and 2 can be found in Part 1 of this post from last week).

3.  Marketing - How will you promote the market?  What is the merchandising mix plan that will draw in your customers?

• Once you have a good idea of who your customers are from Step 1 and their shopping habits and values from your research, an important step is determining the best way to reach them.  Consider the use of streamlined social media through dashboards or focusing on one or two of the most popular types of social media heavily.  Affordable solutions include advertising the market through local news articles, partnering with a sponsor for banners or partnering with other area local businesses to promote through their established presence in your area.
• A marketing mix plan, or what and how much you plan to sell at your market, can be a great draw for customers or a potential setback to the sustainability of your market.  Most shoppers do not want to visit a market that only sells vegetables, so consider vendors of other goods.  Be strategic about what goods you will allow to be sold at your market to maintain your market's identity.  Will you be producer only, with vendors only selling goods they themselves produced or grew?  Will you allow resale vendors from area produce auctions to bulk up your market's offerings?  Will you include prepared food items?  Confusion from vendors about what they are and are not allowed to sell at market can be tackled ahead of time by determining set levels of which products your market will sell.

4.  Ease of Use - What is the ideal location and layout for the market?  How will customers travel to the market and how will they get goods home?  Is there parking or public transportation close enough to your location to be convenient?

• Location selection is of utmost importance for a market.  Be sure to locate your market in a spot that is convenient for your customers.  Again, use data research to determine how many of your customers prefer to travel.  Is your region plentiful with public transportation options or is it a predominantly pedestrian town?  Consider how your shoppers will transport their goods to their vehicle or public transport stop.  Be as strategic as a grocery store when considering customer convenience.  Remember, the grocery store may be the shopping experience your customers are accustomed to when purchasing food.  Make sure your market is just as convenient to shop at as your customer's local grocery store.
• Secondly, consider the layout of your market.  Aisles should be wide enough to accommodate your heaviest flow of customers, vendors should be instructed to keep their boxes and coolers within their tented area and customers should be able to flow from stand to stand with ease.  For security purposes it is at times a courtesy to place vendors back to back or against a building to minimize their vulnerability to customers entering stands from the back and therefore securing their cash box area in a more efficient manner.

Farmers on the Square, Carlisle, PA
Photo credit: Ali Frohman

5.  Rules and Regulations - Be sure you and your vendors are following all state and local regulations regarding your market and their vendor stands.  Be clear about operational guidelines so vendors are all on the same page from the start.

• There are established regulations from the PA Department of Agriculture for the operation of farmers' market vendor stands.  As a market, it is pertinent to be aware of these regulations to serve as a resource for your vendors and to be sure your market provides safe food to the community.  Please refer to ACT 106 requirements and contact the PDA Bureau of Food Safety and Laboratory Services with any additional questions.  These regulations primarily refer to vendors as farmers' markets themselves are no longer considered license holders under the ACT 106 requirements.
• In addition to PDA regulations, be sure to check with your local borough or municipality to be sure that signs, market location and tent placement and other regulations are being followed.  Some locations may refer you to your county health department depending on your location.
• Before opening day, establish a set of guidelines that all vendors will follow to keep the market safe and fair for all vendors.  Establishing these guidelines early will save you headaches as your market continues to grow.

The Farmers' Market Coalition resource library is a great place to start your research.  Please contact the Penn State Extension Ag Entrepreneurship Team for additional assistance.