CAN YOU AFFORD TO FARM...
In 1999, and 2000, and into the Future ?
Farm: "A tract of land or water devoted to agricultural purposes"
YOU CAN AFFORD TO FARM - If you can pay the costs associated with the business.
A farm is a business. It produces income and incurs expenses in the production process. An estimate of cash flowing through a business indicates that business's ability to exist.
How To Use This Guide
The following pages are designed to help farm operators evaluate their profit potential. Work sheets are provided to evaluate individual enterprises and the feasibility of keeping, expanding, reducing or eliminating enterprises in the business.
This is not intended to be a substitute for records. The main objectives are:
a) To create an awareness of fixed debt load that the business must incur, and
b)
To determine the potential for paying this debt while at the same time
paying the annual
operating costs.
Sources of income include: 1) Commodity sales, 2) Any government payments,
3) Off farm income and
4) Any capital item sales. Income leaves the farm business in the forms
of; a) Cash operating outlays,
b) Taxes, c) Insurance, d) Annual debt costs and e) Allowances for
family living.
Keep in mind that not all funds must be generated within the farming
business. As any farm profits may be used outside the business, then
cash from other sources may be used to keep the business afloat. Any business
- farm or non-farm - may be unprofitable, but can be kept in operation
if other funds are available.
What Are (Will Be) Your Cash Outlays ?
This analysis is concerned with cash flowing into and out of the business. It is not a profit analysis using inventories, depreciation and other accounting terms.
Fixed Annual Outlays - page 3
These costs incur regardless of enterprise mix or level of income. List them first.
These type outlays include (but are not limited to); 1) annual recurring debts such as loans for land and machinery, 2) taxes, 3) insurance, 4) restructured debts and 5) an allowance for family living.
For planning purposes, include the total payment - including both principle and interest. Should a payments be applicable for only a short time, you can note this for future planning.
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Annual Operating Expenses - page 4
These items are cash expenditures for crop, livestock and poultry enterprises; i.e. land rent, purchased production inputs and interest on operating capital.
A cost estimate of each enterprise lets you project the cost and contribution
of each enterprise to the farming operation. To assist with your planning,
the following table shows the estimated break-even yield - using specified
commodity prices - of major field crops in the state. You can obtain more
detailed cost estimates of major crops from the UGA Extension publication,
1999 South Georgia Crop Enterprise Cost Analysis.
|
Specified Costs and Commodity Prices, Georgia, 1999 ** |
|||||
|
Crop |
Variable Costs
per Acre (VC) |
Price per Unit |
Break Even
Yield; VC |
Total Costs per Acre (TC) |
Break Even Yield. TC |
| Soybeans:
Dryland; Conv. Till Dryland; Roundup Redy Irrigated; Conv. Till |
$125.56 $132.26 $149.91 |
$5.50 / bu. $5.50 / bu. $5.50 / bu. |
22.8 bu. 24.0 bu. 27.3 bu. |
$196.66 $203.56 $298.10 |
35.8 bu. 37.0 bu. 54.2 bu. |
| Peanuts:
Dryland Irrigated |
$412.08 $461.72 |
$375.00 /T. $375.00 /T. |
1.1 tons 1.2 tons |
$551.50 $690.22 |
1.5 tons 1.8 tons |
| Corn:
Dryland Irrigated |
$163.70 $293.83 |
$2.25 /bu. $2.25 / bu. |
72.8 bu. 130.6 bu. |
$251.68 $465.94 |
125.2 bu. 220.4 bu. |
| Wheat:
Conventional Mgt. Intensive Mgt. |
$115.96 $164.50 |
$2.60 / bu. $2.60 / bu. |
44.6 bu. 63.3 bu. |
$171.29 $241.92 |
65.9 bu. 93.0 bu. |
| Cotton:
Dryland Irrigated |
$291.36 $353.49 |
$0.62 /lb. $0.62 / lb. |
470 lbs. 568.5 lbs. |
$410.63 $558.95 |
662.3 lbs. 901.5 lbs. |
| Tobacco:
Hand Harvest Machine Harvest |
$2207.33 $1991.23 |
$1.70 /lb. $1.70 /lb. |
1298 lbs. 1171 lbs. |
$2924.58 $2764.07 |
1720 lbs. 1626 lbs. |
| Grain Sorghum | $146.49 | $1.90 /bu. | 77.1 bu. | $230.49 | 121.3 bu. |
| Canola | $130.01 | $5.50 /bu. | 23.6 bu. | $195.78 | 35.6 bu. |
| Coastal Bermuda Hay | $228.78 | $60.00 /ton | 3.8 tons | $318.66 | 5.3 tons |
** Land Costs Not Included
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CASH OUTLAYS
1. Long - Term Loans
Eight Years & Longer
___________________
$______________
2. Intermediate - Term Loans
Three - to - Seven Years
______________________________
$___________
3. Short - Term Loans
One - to Two Years
___________________________
$___________
4. Taxes
____________________
$___________
5. Insurance
_____________________
$___________
6. Family Living Expenses
_____________________
$___________
7. Other
_____________________
$___________
TOTALS:
8. ForThe Farm
$___________
9. Per Acre Openland
$___________
10. Per Acre Cropland
$___________
- 3 -
====================================================================
Number Units x Cost per Unit = Amount
COST ITEM
Land Rent
____________
$___________
$_____________
Land Rent
____________
____________
______________
Quota Rent________
____________
____________
______________
Quota Rent________
____________
____________
______________
Number Acres x Cost per Acre
IRRIGATED CROPS
Cotton
____________
$___________
$_____________
Peanuts
____________
____________
______________
Corn
____________
____________
______________
Tobacco
____________
____________
______________
Vegetables
____________
____________
______________
Soybeans
____________
____________
______________
Other___________
____________
_____________ ______________
Number Acres x Cost per Acre
NON-IRRIGATED CROPS
Cotton
____________
$____________ $_____________
Peanuts
____________
_____________ ______________
Corn
____________
_____________ ______________
Tobacco
____________
_____________ ______________
Vegetables
____________
_____________ ______________
Soybeans
____________
_____________ ______________
Small Grain
____________
_____________ ______________
Other__________
____________
_____________ ______________
Other__________
____________
_____________ ______________
Number Head x Cost per Head
LIVESTOCK & POULTRY
Cow - Calf
____________
$____________ $_____________
Backgrounding
____________
_____________ ______________
Hogs
____________
_____________ ______________
Dairy Cattle
____________
_____________ ______________
Broilers
____________
_____________ ______________
Other__________
____________
_____________ ______________
Number Units x Cost per Unit
OTHER; INTEREST
____________
$____________ $_____________
TOTAL OPERATING OUTLAYS
$_____________
- 4 -
Units x Yield x Price per Unit = Amount
ITEM
Land Rent
_______
______
____________
__________
Land Rent
_______
______
____________
__________
Quota Rent________
_______
______
____________
__________
Quota Rent________
_______
______
____________
__________
Acres x Yield x Price per Unit =
IRRIGATED CROPS
Cotton
_______
______
$___________
$_________
Peanuts
_______
______
____________
__________
Corn
_______
______
____________
__________
Tobacco
_______
______
____________
__________
Vegetables
_______
______
____________
__________
Soybeans
_______
______
____________
__________
Other___________
_______
______
____________
__________
Acres x
Yield x
Price per Unit =
NON-IRRIGATED CROPS
Cotton
_______
_______
$___________
$_________
Peanuts
_______
_______
____________
__________
Corn
_______
_______
____________
__________
Tobacco
_______
_______
____________
__________
Vegetables
_______
_______
____________
__________
Soybeans
_______
_______
____________
__________
Small Grain
_______
_______
____________
__________
Other__________
_______
_______
____________
__________
Other__________
_______
_______
____________
__________
Head x Yield x Price per Head =
LIVESTOCK & POULTRY
Cow - Calf
_______
_______
$___________
$_________
Backgrounding
_______
_______
____________
__________
Hogs
_______
_______
____________
__________
Dairy Cattle
_______
_______
____________
__________
Broilers
_______
_______
____________
__________
Other__________
_______
_______
____________
__________
Units x Yield x Price per Unit =
OTHER; INTEREST
_______
_______
$__________
$_________
TOTAL OPERATING RECEIPTS
$__________
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==============================================================
OTHER RECEIPTS:
Back
AMOUNT
1. -----------Dividends and Interest
________________________
$__________
2. -----------Government Payments
__________________
$__________
3. ------------Forest Products
_________________
$___________
4. ------------Custom Work (net)
_______________________
$___________
5. ------------Livestock (breeding animals)
_______________________
$___________
6. ------------Machinery Sales
________________________
$___________
7. ------------Land Sales
________________________
$___________
8. ------------Other (incl. Off-farm employment)
________________________
$___________
TOTAL OTHER RECEIPTS $___________
==========================================================================
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What Is Your Estimated Annual income ?
Annual Cash Operating Receipts - page 5
As operating costs are estimated for each enterprise on page 4, it follows that receipts should be projected in a like manner.
This permits the comparison of expected costs and returns of each enterprise
under consideration. Also it lets one determine which enterprise(s) can
contribute the most - or least to the farming operation.
Other Receipts - page 6
Most farming operations have cash inflows other than the sale of annual commodity output. Regardless of the source of this income, it helps constitutes a cash flow.
Some common sources of other cash receipts are: 1) Government payments,
2) Forest product sales,
3) Land parcels and 4) Machinery items. Any off farm income that
can be used to help pay the bills should also be included on this page.
Summary - page 8
The figures on this page are grouped into total outlays, on line III,
and total receipts on line VI.
The difference on line VII shows what is expected to be left over after
all costs are paid.
If there is a deficit look for ways to reduce costs. Or maybe a marketing consultant can help with expected commodity prices. Are there some fields that would be better off not planted - or not rented and not planted? Are there assets that can be sold without affecting the farming operation? How about excess machinery? Or some land that is not suited for farming but can be used by someone else? Or is there timber than can be sold?
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SUMMARY OF CASH FLOW PROJECTION Back
II.
TOTAL OPERATING OUTLAYS - page 4
$ ___________
III. $___________
---------------------------------------------------------------
IV.
TOTAL OPERATING RECEIPTS - page 5
$___________
V.
TOTAL OTHER RECEIPTS - page 6
$___________
VI. $___________
VII.
$___________
What Is Next ?
With the cash flow information compiled here, you should be in a position to better answer questions concerning the future of your farming operation.
A. Will the current enterprise combination earn an acceptable cash flow?
Yes__________ No_________ Maybe________
If "no", is there a reasonable combination of enterprises that will work?
Yes__________
No_________
B. What are the obvious strengths and weaknesses of your farming
operation?:
- On the production side of the business
_____________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
- On the financial side of the business
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
C. Factors Outside the Farm
A. What is the current economic situation of agriculture in general?
Good________ Average________ Poor_________
Comment: Other things being equal, more of the same would be
as good as any.
2. Is there evidence of a fundamental change in the near future?
Yes________ No________ Maybe________
Comment: What caused the current situation to develop? Is there
any evidence of change in those things
in the near future?
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3. List the most positive factors in the current general economic outlook.
*Factors that could increase the demand for those commodities you produce.
_______________________________________________________________________
_______________________________________________________________________
* Factors that could decrease the demand for those commodities you produce.
______________________________________________________________________
_______________________________________________________________________
4. List the most negative factors in the current general economic outlook.
* Factors that could depress demand for those commodities your produce.
_______________________________________________________________________
_______________________________________________________________________
*Factors that could increase the supply of those commodities you produce.
______________________________________________________________________
______________________________________________________________________
Where Do We Go From Here?
Based on the financial information accumulated thus far, where do we go from here? Should we:
1. Fine tune the existing farm operation?
Production strategies___________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
Marketing strategies____________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
Financial strategies____________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
- 10 -
2. Consider an alternative fam plan?
Expand________________
Contract________________
Reorganize_______________
...or should we..
3. Restructure farm debt_______________
4. Convert to part - time farming__________________
5. Find additional off - farm income________________
6. Find another occupation_______________________
The latter option is not one we want to see. Hopefully 1999 and subsequent years will see better commodity prices and better crop yields. But if we can't project a positive cash flow for the near-term planning, then some different options are needed. This can be a variety of options that can best be discussed with a lender or financial planner.
References:
Portions of the following are quoted in this medium:
Givan, William, R. Edward Brown, Jr. and Claude Dorminey. Can You Afford To Farm?, Cooperative Extension Service, The University of Georgia, Misc. Pub. No. 209, May, 1985.
Farm Financial Profile, Assembled by members of the Extension Agricultural
Economics Department, The University of Georgia, 1985.
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