cost control –farm and nonfarm · cost control –farm and nonfarm tina barrett | nebraska farm...
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2/14/2017
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Cost Control – Farm and NonFarmTina Barrett | Nebraska Farm Business, Inc.
Goal: To Help Educate Farmers &
Ranchers with Record Keeping and Management Through Financial
Analysis.
Financial Analysis
Tax Planning
Accounting
Tax Mangmnt
Payroll
Cash Flow
Planning
Business Planning
Nebraska Farm Business, Inc.
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Net Farm Income Trend
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Family Living & Taxes
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Family Living Taxes
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Working Capital As A Percentage of Gross Income
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Working Capital As A Percentage of Gross Income Goal
Working Capital to Gross Revenue
0%
20%
40%
60%
80%
100%
2008 2009 2010 2011 2012 2013 2014 2015
>80% 26‐80% 11‐25% 0%‐10% < 0%
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So What Happened?
Cash Corn Price Received
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
All Farms
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Average Cost Comparison – Irr. Corn
2001 2006 2009 2013 2015
Price Per Bushel $1.93 $2.92 $3.70 $4.57 $3.59
Yield 171.4 193.98 207.84 220.88 221.42
Seed $31.99 $53.20 $68.05 $89.49 $87.43
Fertilizer $47.07 $61.07 $143.87 $163.80 $110.73
Chemicals $37.87 $31.65 $50.75 $56.16 $53.81
Crop Insurance $8.28 $13.19 $23.36 $40.36 $37.11
Operating Power/Machine Costs $41.51 $57.10 $74.52 $112.50 $90.86
Land Rent $105.98 $111.56 $171.74 $274.74 $237.52
Other Direct Costs $76.73 $73.45 $84.14 $106.91 $78.00
Overhead Expenses $39.09 $54.90 $71.84 $75.67 $95.99
Total Expenses $388.52 $456.12 $688.27 $919.63 $791.45
Cost Per Bushel $2.27 $2.35 $3.31 $4.16 $3.57
Included in our Operating Power/Crop Machinery cost is Fuel & Oil, General Repairs & Supplies, Machinery Repairs, Custom Hire and Machinery Leases.
Average Cost Comparison – Irr. Corn
2001 2015
Price Per Bushel $1.93 $3.59
Yield 171.4 221.42
Seed $31.99 $87.43
Fertilizer $47.07 $110.73
Chemicals $37.87 $53.81
Crop Insurance $8.28 $37.11
Operating Power/Machine Costs $41.51 $90.86
Land Rent $105.98 $237.52
Other Direct Costs $76.73 $78.00
Overhead Expenses $39.09 $95.99
Total Expenses $388.52 $791.45
Cost Per Bushel $2.27 $3.57
Included in our Operating Power/Crop Machinery cost is Fuel & Oil, General Repairs & Supplies, Machinery Repairs, Custom Hire and Machinery Leases.
Is The Extra 50 Bushels / Acre worth the Extra Cost?
$791.45 – 2015 Cost‐388.52 – 2001 Cost$402.93 – 14 Year Cost Difference
$402.9350
$8.06 –Cost Per Extra Bushel
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Average Cost Comparison – Irr. Corn
2001 2015
Price Per Bushel $1.93 $3.59
Yield 171.4 221.42
Seed $31.99 $87.43
Seed CostIncrease = $55.44Percent Increase = 173%
Why?• Seed Is Not Just Seed
• Genetics include pesticides• Contributes to Yield Increase
Cost Per Bushel Increase: $1.11 / BushelBushels @ $3.50 to Breakeven: 15.8 Bu
Average Cost Comparison – Irr. Corn
2001 2015
Price Per Bushel $1.93 $3.59
Yield 171.4 221.42
Fertilizer $47.07 $110.73
Fertilizer CostIncrease = $63.66Percent Increase = 135%
Why?• Fertilizer Cost Has Increased
• Anhydrous Cost in 2001 = $314/ton*• Anhydrous Cost in 2015 = $534/ton*• Peak Cost = 2013 @ $780/ton
• Fertilizer “Program” Now more than Anhydrous
Cost Per Bushel Increase: $1.27 / BushelBushels @ $3.50 to Breakeven: 18.2 Bu
* Cost Per Ton Provided by Single Producer
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Average Cost Comparison – Irr. Corn
2001 2015
Price Per Bushel $1.93 $3.59
Yield 171.4 221.42
Crop Insurance $8.28 $37.11
Crop Insurance CostIncrease = $28.83Percent Increase = 348%
Why?• Grain Price Increase Causes Premiums to
Rise• New Products
• Higher coverage levels available• Production Hail• Higher Participation %
Cost Per Bushel Increase: $0.58 / BushelBushels @ $3.50 to Breakeven: 8.2 Bu
* Cost Per Ton Provided by Single Producer
Average Cost Comparison – Irr. Corn
2001 2015
Price Per Bushel $1.93 $3.59
Yield 171.4 221.42
Operating Power/Machine Costs $41.51 $90.86
Equipment CostIncrease = $49.35Percent Increase = 119%
Why?• Equipment MUCH more expensive• Tax Savings• New Technology
Cost Per Bushel Increase: $0.99 / BushelBushels @ $3.50 to Breakeven: 14.1 Bu
* Cost Per Ton Provided by Single Producer
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Average Cost Comparison – Irr. Corn
2001 2015
Price Per Bushel $1.93 $3.59
Yield 171.4 221.42
Land Rent $105.98 $237.52
Land Rent CostIncrease = $131.54Percent Increase = 124%
Why?• Supply & Demand• Share of Profits
Cost Per Bushel Increase: $2.63 / BushelBushels @ $3.50 to Breakeven: 37.6 Bu
* Cost Per Ton Provided by Single Producer
Take It Home…
2001 2015
Price Per Bushel $1.93 $3.59
Yield 171.4 221.42
Seed $31.99 $87.43
Fertilizer $47.07 $110.73
Chemicals $37.87 $53.81
Crop Insurance $8.28 $37.11
Operating Power/Machine Costs $41.51 $90.86
Land Rent $105.98 $237.52
Other Direct Costs $76.73 $78.00
Overhead Expenses $39.09 $95.99
Total Expenses $388.52 $791.45
Cost Per Bushel $2.27 $3.57
Included in our Operating Power/Crop Machinery cost is Fuel & Oil, General Repairs & Supplies, Machinery Repairs, Custom Hire and Machinery Leases.
1. Look at the differences between your farm today and 10 years ago.
2. Evaluate why it’s different.1. It may be a good change.2. Are you doing that because you’ve
ALWAYS done it that way?3. Is there another way?
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It’s Being Done Differently
Top Efficient Farms Study
Started Study in 2004 to see if Small Farms could survive
Farms were selected for having a Net Farm Income Ratio > 20% for a three year period
NFI Ratio shows what percent of gross was retained as net
Farms remain as consistent as possible
Very little livestock representation
Program considers feeder livestock purchase as a expense (drop the NFI Ratio)
Farms have similar geographic spread across Nebraska as the general group
Includes both dryland and irrigated operations
Have traditionally carried less debt.
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Net Farm Income Comparison
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
Gross Farm Income Comparison
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
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Corn Price Received
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
$7.00
$7.50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
Dryland Corn Yield Comparison
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
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Seed Cost, Irrigated Corn on Owned Land
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
$100.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
Fertilizer Cost, Irrigated Corn on Owned Land
$‐
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
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Chemical Cost, Irrigated Corn on Owned Land
$‐
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
Crop Insurance Cost, Irrigated Corn on Owned Land
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Efficient All Farms
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Cost per Acre, Irrigated Corn on Owned Land
$0.00
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
$700.00
$800.00
$900.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Cost Per Acre Difference, 2006 ‐ 2015
$60.02
$103.59
$51.62
$24.16
$55.38
$88.88
$65.27
$40.51
$75.33
$129.52
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Series1
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Farm Management & Baseball…??
• 177 Home Runs (6 World Series)• Ranked 9th/ 30th
• 1,290 Strike Outs (46 World Series)• 11th Most
• 1,351 Hits (35 World Series)• 6th Lowest
• 683 Runs Scored (19 World Series)• 17th Most
• Won 92 Lost 70 (1 World Series)
• 139 Home Runs (2 World Series)• Ranked 24th/30th
• 973 Strike Outs (37 World Series)• Lowest in MLB
• 1,497 Hits (47 World Series)• 2nd Most in MLB
• 724 Runs Scored (27 World Series)• 7th Most
• Won 95 Lost 67 (4 World Series)
Farm Management & Baseball…
“Keep the Line Moving” “Home Run Derby”
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Royals Comparison
2015 2016 Difference
Home Runs 139 147 +8 (5.8%)
Strike Outs 973 1,224 +251 (25.8%)
Hits 1,497 1,450 ‐47 (3.1%)
Runs Scored 724 675 ‐49 (6.8%)
Wins 95 81 ‐14 (14.7%)
How to We Hit “Home Runs” in Farm Management?
Home Runs
Hit the Marketing
High
Maximize Yields
Cut Single Costs
Expand Farm Size
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Hitting a Home Run
Yield 200 250 200 200
(Raise Yield) (Double Acres) (Cut Costs)
Direct Costs $457.94 $457.94 $457.94 $457.94
Cash Rent $237.52 $237.52 $237.52 $125.00
Overhead Costs $95.99 $95.99 $48.00 $95.99
Total Farm Costs $791.45 $791.45 $743.46 $678.93
Family Living & Taxes $86.63 $86.63 $43.32 $50.00
Total Costs $878.08 $878.08 $786.78 $728.93
Cost of Production $4.39 per Bu. $3.51 per Bu. $3.93 per Bu. $3.64 per Bu.
Managing Royals’ Style
Yield 200 220 10% +
Direct Costs $457.94 $415.00 ‐9.4%
Cash Rent $237.52 $220.00 ‐ 7.4%
Overhead Costs $95.99 $80.00 ‐16.7%
Total Farm Costs $791.45 $715.00 ‐10.0%
Family Living & Taxes $86.63 $75.00 ‐13.4%
Total Costs $878.08 $790.00 ‐10%
Cost of Production $4.39 per Bu. $3.60 per Bu. ‐18%
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Reducing Costs
Can you save just 10 cents
for every $ you spend?
$0.79 per bushel x 220
bushels x 1,000 acres =
$173,800
Family Living/TaxesReason for concern
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Family Living & Taxes
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Family Living Taxes
Family Living Expense Distribution
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
0%
20%
40%
60%
80%
100%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Family Living Expense
Less than $50,000 $50,000‐100,000 $100,000 ‐ 200,0000 Over $200,000 Average
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Non‐Farm Expense Summary
2015 2002
Family Living $91,991 $36,804
Income Taxes $30,727 $8,862
Furnishing & Appliances $1,121 $0
Non‐Farm Vehicle $4,402 $1,702
Non‐Farm Real Estate $17,772 $1,373
Other Non‐Farm Capital Purchases $2,767 $‐628
Non‐Farm Savings & Investments $15,166 $‐870
Total Cash Family Living, Investment & Non‐Farm Capital Purchases
$163,946 $47,203
Salary Comparison
GrossWage $160,000
Principle $12,000
Retirement $8,000
Federal & State Taxes $48,500
Net Check $91,500
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Reducing Family Living
Determine Family Goals
Is continuing the farm operation #1 for everyone?
Is looking like you have money #1?
Think about Needs vs Wants
Do you need that item or want it?
Family Budget
Needs
Food
Clothing
Shelter
Insurance
Wants
iPhones
Concerts
Cable TV
Vacations
Needs vs Wants
Everyone needs shoes
Do you need Uggs or Jimmy Choo??
Or protection for your feet? Needs
Shoes
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After Needs are Paid
Prioritize Wants as a family
Big House
Nice Vehicles
Vacations
Eating Out
Devices
Education
Sports
Concerts/Sporting Events
Big House
Vacations
Stop Excuses
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Where to Start?
Tract Your Costs
You can’t control what you don’t know.
Each family is different
Identify High Cost Areas
Compare to “average”
Can you reduce or not?
Your Costs Average
Food & Meals $13,258 $9,927
Medical Care/Health Ins. $20,562 $11,700
Cash Donations $10,000 $5,401
Household/Clothing $5,625 $10,283
Personal Care/Recreation $8,562 $15,837
Child/Dependent Care $404 $1,577
Gifts $3,906 $4,138
Education $8,313 $1,892
Utilities $3,198 $3,129
Non‐FarmVehicle Expense $3,479 $4,382
Household RE Taxes $1,275 $1,489
Non‐Farm Interest $467 $2,187
Life/Disability/LTC Ins $3,148 $6,306
Miscellaneous $5,179 $18,369
Total $87,376 $96,617
Reducing Family Living
Set a budget
You can’t manage what you don’t measure
A budget isn’t always about cutting spending
It’s “Telling Your Money Where to Go Instead of Wondering Where it Went.”
Which of the pie pieces get the biggest share?
Food
Clothing
Shelter
Vacation
Vehicles
Donations
Education
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Reducing Family Living
Too Hard?
Take your annual family living planned spending divided by 12 and transfer to a separate checking account
Don’t pay personal expenses from farm account
Make separate accounts for different categories
Vehicle Expense
Debt Reduction
Vacation
Home Remodel
Reducing Family Living
Watch the little spending
It’s just $8 per month
Burning through $100’s of cash each month? Where’s it going?
Adds Up:
$5 Smoothie each day = $1,825 per year
Finding 10 ‐ $5 savings per day = $18,250 per year
Work with WHOLE family –Can’t be one person’s job or fault
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Make a Plan
Get a WRITTEN budget
We are more likely to follow through when it’s written
Excel File
Google “Personal Finance Budget”
“EveryDollar” – Dave Ramsey’s
Find help
Hire a consultant
Take a personal finance class
Dave Ramsey ‐www.daveramsey.com
Online or Near You
Making Choices
Choices different for each family
Earning Money vs Saving Money
Grocery Shopping
Tough choices may be needed
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Why is it important?
Year 1 Year 2 Year 3 Year 4
Net Farm Income $75,000 $75,000 $75,000 $75,000
Income Taxes $21,000 $21,000 $21,000 $21,000
Family Living $100,000 $100,000 $100,000 $100,000
Total Expense $121,000 $121,000 $121,000 $121,000
Net Shortage $‐46,000 $‐46,000 $‐46,000 $‐46,000
Extra Borrowing $46,000 $92,000 $138,000 $184,000
Net Worth Loss
2015 2016 Projected
Net Farm Income $29,432 $0
Personal Income $36,087 $36,000
Family Living/Owner Withdrawals * $82,691 $80,000
Income Taxes * $27,616 $25,000
MarketValue Adjustment $11,081 $10,000
Net Worth Change $‐33,707 $‐59,000
* Include all farms in averages – not just those with detailed family living records
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Where Are You Going?
Watch Where You’re Going?
Speed = 55 MPH
Time = 2,000 Hours
Distance = 110,000 Miles
Speed = 85 MPH
Time = 2,000 Hours
Distance = 170,000 Miles
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Watch Where You’re Going?
2,000 Acres
Loss Per Acre = $150
Net Worth Loss = $300,000
20,000 Acres
Loss Per Acre = $150
Net Worth Loss = $3,000,000
Windshield vs Rear View Mirror
Analysis Cash Flow
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Working Cash Flow
Written down
Updated Monthly/Quarterly
Shock tested for price changes
Both Up and Down
Both Commodity and Inputs
Incorporates a tax plan and marketing plan
Works into a cost of production estimate
Estimates Accrual Net Income
Why Don’t You Have a Working Cash Flow? Don‘t take the time
Don’t know how
It’s going to be wrong
Too much uncertainty
It won’t change what’s going to happen
The bank did one. I don’t need to do another.
I already got renewed so I’m good this year.
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Cash Flow Results
$100,000 Positive
Relax
Think I have $100,000 extra to spend?
$100,000 Negative
Panic, loose sleep
Think I have to cut some money someplace.
Positives in Outlook
Only constant in life is change
This won’t last forever
Tough times make better managers
Use this time to tighten the belt and make good choices
Opportunities will be available
Having solid records and financial statements updated and ready will make it possible to make quick and accurate decisions.
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Questions?
Tina BarrettExecutive Director
Nebraska Farm Business, Inc.
3815 Touzalin Ave, Ste 105
Lincoln, NE 68507
(402) 464‐6324
www.nfbi.net