Labor

Farmers Remain Cautiously Optimistic About Agricultural Economy

Source: James Mintert and Michael Langemeier, Purdue Center for Commercial Agriculture

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Agricultural producer sentiment improved slightly in July as the Purdue University-CME Group Ag Economy Barometer rose two points above its June reading to an index value of 123. This month’s two-percent rise in the barometer was primarily the result of farmers’ improved perception of current conditions on their farms as the Index of Current Conditions rose 5 points to a reading of 121. The Index of Future Expectations changed little compared to June, rising just one point to 124. This month’s Ag Economy Barometer survey was conducted from July 10-14, 2023.

Farmers’ rating of financial conditions on their farms was virtually unchanged in July, compared to June, as the Farm Financial Conditions Index rose just one point to 87 vs. a reading of 86 in June. Looking back to May, however, the percentage of producers rating their farm’s financial performance as better than last year improved from 14% to 17%, while those rating financial performance as worse than a year ago fell from 38% to 30% of respondents. When asked to look ahead one year, there was a one percentage point increase in farmers expecting farm financial conditions to improve in July vs. June and, correspondingly, a one-point decline in the percentage of farmers expecting conditions to worsen. And farmers’ longer-term perspective on the U.S. agricultural economy improved somewhat in July, as the percentage of respondents expecting bad times in the upcoming 5 years fell from 41% in June to 39% in July.

Figure 1. Purdue/CME Group Ag Economy Barometer, October 2015-July 2023.
Figure 1. Purdue/CME Group Ag Economy Barometer, October 2015-July 2023.
Figure 2. Indices of Current Conditions and Future Expectations, October 2015-July 2023.
Figure 2. Indices of Current Conditions and Future Expectations, October 2015-July 2023.
Figure 3. In a year, will your farm operation be better off financially, worse off, or about the same as now?, October 2015–July 2023
Figure 3. In a year, will your farm operation be better off financially, worse off, or about the same as now?, October 2015–July 2023

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Benchmarking Crop Machinery Cost And Investment

by Michael Langemeier, Purdue University

The continued increase in size of tractors, combines, and other machinery has enabled farms to operate more acres and reduce labor use per acre. However, this increase in machinery size also makes it increasingly important to evaluate the efficient use of machinery. This article will discuss machinery cost and investment benchmarks, and illustrate the computation of crop machinery cost and investment for a case farm in west central Indiana.

Key Machinery Benchmarks
Crop machinery cost per acre is computed by summing depreciation, interest, property taxes, insurance, leasing, repairs, fuel and lubricants, and custom hire and rental expense; and dividing the resulting figure by crop acres or harvested acres. Interest should include both cash interest paid and an opportunity charge on machinery and equipment that is owned. In regions where double-cropping predominates, using harvested acres is preferable.

Crop machinery investment per acre is computed by dividing total crop machinery investment (i.e., investment in tractors, combines, and other machinery) by crop acres or harvested acres. Again, in regions where double-cropping is prevalent, using harvested acres gives a more accurate depiction of machinery investment.

Machinery investment per acre typically declines with farm size. Thus, it is important for farms to compare machinery investment per acre with similarly sized farms and to examine the trend in this benchmark for a particular farm. A farm with relatively high machinery investment per acre needs to determine whether this high value is a problem. If the farm faces serious labor or timeliness constraints, their machinery investment per acre may be relatively high. However, if their machinery investment per acre is high due to the purchase of assets used to mitigate income tax obligations or for some other reason, the farm needs to think about their long-term strategy with respect to purchasing machinery and equipment.

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Summer is a good time for a youth labor legal checkup

BY  | JUNE 14, 2021 · 12:44 PM
School is out and youth employment is in.  As more and more youth turn to the job market during summer break, now is a good time to review the laws that apply to youth working in agricultural situations.  Here’s a quick refresher that can help you comply with youth employment laws.  For additional details and explanation, refer to our law bulletin on “Youth Labor on the Farm: Laws Farmers Need to Know.”

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Tips for Speaking with Your Lender

by: Chris Zoller, Extension Educator, ANR

2019 is upon us and you may be meeting soon with your lender to discuss financial needs for the year. We all know agriculture is suffering from poor economic conditions – and the outlook for many sectors of the industry doesn’t look real promising. A variety of factors are forcing lenders to be more critical of loan applications. Let’s review a few things you can do to assist your lender as they review your loan application.

Financial Forms:

A year-end Balance Sheet is very helpful and provides a snapshot of the assets, liabilities, and net worth of your farm. Get in the habit of completing one each year for your lender to keep on file and for your own reference so you can monitor changes over time. You can get a blank balance sheet from your lender or access one here: https://farmoffice.osu.edu/farm-management-tools/farm-management-resources.

Cost of Production:

Know your cost of production. What does it cost you to produce 100 pounds of milk? What is your per acre or per ton cost to grow and harvest crops? If you need assistance with determining these, please see: https://farmoffice.osu.edu/ for copies of Ohio State University Extension production budgets and https://farmprofitability.osu.edu/business-summariesfor copies of the Ohio Farm Business Summaries.

Goals:

Why are you requesting money from your lender? What is your goal(s)? What are you hoping to accomplish with the money you are requesting? Will you use the money as an operating loan to plant your crops? Are you planning an expansion? Are you wanting to consolidate existing debt? Regardless of the reason, your lender is going to need to know how you plan to repay the loan. A budget and cash flow projections will help everyone understand how the money will be used and how it will be repaid. Research has proven that you are more likely to accomplish your goals if they are written. Be sure your goals are Specific, Measurable, Attainable, Rewarding, and Timed (SMART). See this Ohio State University Extension fact sheet for information about writing SMART goals: https://ohioline.osu.edu/factsheet/node/767.

Tax Returns:

Your lender may request copies of your tax returns. Make sure you categorize income and expenses the same way each year. This allows the lender to compare apples-to-apples when evaluating your historic income and expenses. Also, if you pre-pay expenses or defer income, make sure your lender is aware of this so they can make accrual adjustments.

Communication:

Communication with your lender is critical. Your lender is interested in understanding your farm, knowing how you are progressing, and what your plans are for the short and long-term. Invite your lender to visit the farm for a tour, a ride in the tractor, or to assist with milking!

Business Plan:

Every lender would love to see each client have a written business plan. A business plan is made up of five parts: Executive Summary, Description, Operations, Marketing Plan, and Financial Plan. The University of Minnesota Extension has a template available at the following site: https://agplan.umn.edu/.

Summary: The items discussed in this article are ones you can control. Focus on these areas and make adjustments accordingly to make improvements. Contact the Knox County Extension Office for assistance.