A quick comment on Virginia’s net farm income: USDA Economic Research Service forecasts that U.S. Net Farm Income will be down 38 percent from 2008. Appling this to Virginia’s historical real net farm, then Figure 1 shows a forecasted decline in per farm real net farm income. This level begins to approach the early 1980 levels and the era of 1979-1984 was later referred to as the “Farm Financial Crises.” The key point is to keep a close watch on farm level management decision and cash flow.
Figure 2: Real Virginia Net Farm Income per Farm (GDP Implicit Price Deflator: BEA, 2005=100) Source: USDA-ERS Farm Income and Costs http://www.ers.usda.gov/data/FarmIncome/finfidmu.htm)
Farm business managers should consider putting the following activities on their management calendar for October-November.
- As pointed out above, the cash flow statement is still the best tool we have to estimate when and under what conditions the business has a cash surplus or deficit. If you project and actual cash flow, look for problems. Actual inflows or outflows that differ from your projections may not signal a problem, but understanding why you have differences helps you understand changes in the farm business. Finally, Alex White has a number of excellent resources at www.extension.agecon.vt.edu/farmbusinessmgt.html. He also has a spreadsheet to help develop all the common business financial statements at www.extension.agecon.vt.edu/spreadsheets/Financial%20Statements%20template.xls.
- Time to order your farm record book. As we enter the last quarter of 2009, it is time to order a new copy of the Virginia Cooperative Extension “Farm Record Book: Expenses and Receipts” (Publication 446-017). This 120-page record book provides an organized way of keeping track of annual financial, labor and personnel, and production related records. It provides forms for many categories of expenses, receipts, labor, and financial summaries to meet the needs of most agriculturally-related businesses using cash accounting methods. Column headings are included for major items with some columns remaining blank for your own headings. Forms are arranged to facilitate transferring totals to income tax forms (Schedule F, tax deprecation, and Form 4797) and to help complete end-of-the-year analysis. Virginia Cooperative Extension “Farm Record Book: Expenses and Receipts” is available from Virginia Cooperative Extension for $12.00. Call your local extension office and request the order form VCE Publication 446-016, print the form at www.ext.vt.edu/pubs/agecon/446-016/446-016.pdf, or contact me at (540) 231-5850.
- Farmers faced with high input costs or low returns driven by lower commodity prices and other issues can look to their top five cash expenses as a way to reduce costs in the short run. Total all expenses and estimate spending for the remainder of the year. Then identify the largest expense items and review each, looking for ways to reduce spending. Ask questions: Are there lower priced alternatives? Is this item needed? If I reduce usage, will output be reduced? Also, make use of local experts for advice on ways to improve cost management.
- Using the last three-quarters of cash flow and financial records, estimate total farm expenses, income, and capital purchases and sales. Then make an appointment with your tax advisor to plan year-end tax management strategies. Be sure to estimate crop insurance payments and any government payments that will appear on this year’s taxes. To take full advantage of year-end tax management strategies, cash-based farmers must make decisions before December 31, 2009. Be sure to review changes to state and federal tax laws with your tax advisor to make sure you have not missed deductions and/or credits.
- Farm business managers should never loose sight of the two objectives of tax management: 1) all decisions, including tax management, should be made to improve the long-term survivability and profitability of the business, and 2) tax management tools are used to level out the year-to-year swings in reported income and subsequent taxes paid. You can use the multitude of tools and techniques written into the tax code for farmers and all businesses to manage income and expenses and to even out the wide swings in annual profits and losses that many farmers experience. Leveling out the income tax liabilities year-to-year will lead to lower total taxes being paid.
- Be sure to keep crop records up-to-date during harvest: include yields, machine times and equipment used, weed problems, and differences in hybrids. If you’re moving up in the information age, consider the fully integrated record keeping systems using yield monitors, GPS, handheld computers, and management software on your office computer. One example of this whole farm system (includes accounting, personnel, and livestock records add-ons) is FarmWorks at www.farmworks.com.
- Be sure to keep livestock records up-to-date during fall sales. At a minimum, include weight, grade, sale prices, and identification numbers of all calves sold and/or purchased.
- There are lots of changes in federal programs, so make sure you visit with your local FSA office at www.fsa.usda.gov/FSA/stateOffices?area=stoffice&subject=landing&topic=landing and your crop insurance agent. See the following web site to find an agent in your area www3.rma.usda.gov/apps/agents/. Check the following web site for closing dates for all insurance policies: www.rma.usda.gov/data/sales-closing-dates/.
Cost-share for organic certification
- Interested in organic certification? Take a look at the USDA-AMS site to see if you qualify for cost-share assistance to eligible organic operations.