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Strategies for Maintaining Farm Profitability in 2008

This presentation by Craig A. Chase, Farm Management Field Specialist, focuses on maintaining profitability for farms in 2008. It includes a forecast of net farm income, key production costs, and effective margin management strategies. The document provides crucial insights into cost structures, including seed, fertilizer, and labor. It also emphasizes developing a marketing plan, understanding price trends, and utilizing tools like crop rotation and machinery economics. By following these strategies, farmers can enhance profitability amid changing market conditions.

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Strategies for Maintaining Farm Profitability in 2008

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  1. Maintaining ProfitabilityJanuary 2008 Craig A. Chase Farm Management Field Specialist

  2. Presentation Objectives • Net Farm Income Forecast • Cost of Production • Margins • Sizing up the Market • Strategies for Managing Margins

  3. Net Farm Income * Forecast Source: USDA Economic Research Service, Sept. 2007.

  4. Costs of Production • Seed • Fertilizer • Chemicals • Insurance • Machinery • Labor • Grain handling and storage • Land

  5. Direct Cost of Crop Production ($/A)Historical vs. 2008 Estimate Source: U of IL Extension Economics, October 2007.

  6. Non-Land Costs vs. Gross Revenue ($/A)Historical vs. 2008 Estimates $308.00 $200.00 $235.00 $154.00 Source: U of IL Extension Economics, October 2007.

  7. Tools for Evaluation Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-20croprotation.xls Crop Rotation Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls Crop Rotation N Calculator http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls Machinery Economics http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST Flexible Rent Calculator http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

  8. Crop Rotation Calculator

  9. http://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xlshttp://www.extension.iastate.edu/agdm/crops/xls/a1-80rotationprofitabilitycalculator.xls

  10. http://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xlshttp://www.extension.iastate.edu/agdm/crops/xls/a1-80nratecalculator.xls

  11. Corn after SB $3.00 price $.32 N 122 pounds

  12. Corn on Corn $4.00 price $.40 N 178 pounds

  13. Corn Nitrogen Rate Calculator Corn on Corn $4.00 price $.70 N 152 pounds Source: http://extension.agron.iastate.edu/soilfertility/nrate.aspx

  14. Machinery Economics Field Operations http://www.farmdoc.uiuc.edu/pubs/FASTtool.asp?section=FAST

  15. Managing Machinery Costs Combine Operations

  16. Cash Rent as % of Gross RevenueIowa Average Yield x December Cash Price 45% 35% Source: ISU Extension Economics, 2007.

  17. Share of Gross RevenueExample--Corn Cash rent is equal to 35% of Gross Income from Corn Actual yield is 200 bu. of Corn Harvest market price is $4.00/bu Gross Income is (200 x $4.00) = $800/A Cash Rent is 35% x $800, or $280/A

  18. Share of Gross RevenueExample-Soybeans Cash rent is equal to 45% of Gross Income from Soybeans Actual yield is 50 bu. of Soybeans Harvest market price is $10.00/bu. Gross Income is (50 x $10.00) = $500/A Cash Rent is 45% x $500, or $225/A

  19. Flexible Cash Rent Leases http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

  20. Flexible Cash Rent Leases http://www.extension.iastate.edu/agdm/wholefarm/xls/c2-21flexiblerentanalysis.xls

  21. Sizing Up the Market

  22. U.S. Planted Acreage Trend & Outlook ◊ - Estimated * - Forecast Source: USDA National Ag Statistics Service & ISU Extension Economics, October 2007.

  23. Develop a Marketing Plan Avoid the Five Common Mistakes in Grain Marketing?!?! • Reluctance Toward Pre-Harvest Marketing • Failure to Understand and Track Your Local Basis • Lack of an Exit Strategy • Holding Grain in Storage Too Long • Misunderstanding Carrying Charges

  24. Decision Tree for Sizing Up the Market Source: U of MN, CFFM, 2007.

  25. Understand Seasonal Price Trends Source: U of MN, CFFM, 2007. Fact: Since 1990, the May cash corn price has exceeded October in 14 of 17 years (82%).

  26. Seasonal Corn Futures Trend CBOTdata Source: U of MN, CFFM, 2007.

  27. Understand Seasonal Price Trends Source: U of MN, CFFM, 2007. Fact: Since 1990, the May cash soybean price has exceeded October in 12 of 17 years (71%).

  28. Seasonal Soybean Futures Trend CBOTdata Source: U of MN, CFFM, 2007.

  29. Corn & Soybean Basis Variability

  30. http://www.card.iastate.edu/ag_risk_tools/basis_maps/INDEX.ASPXhttp://www.card.iastate.edu/ag_risk_tools/basis_maps/INDEX.ASPX

  31. Storage Costs for Corn

  32. Corn Carry Strategies Dec. $5.10 Jan 25, 2008 Source: CBOT & ISU Extension Economics, 2008.

  33. Storage Costs for Soybeans

  34. Soybean Carry Strategies Nov. $12.32 Jan 25, 2008 Source: CBOT & ISU Extension Economics, 2008.

  35. Strategies for Maintaining Profitability Plan Pre-Harvest Crop Sales Utilize Crop Revenue Insurance Develop Efficient Grain Management & Storage Focus on Gross Crop Revenue and Margins Plan 2008 Crop Rotation: Tillage, Seed & Fertility

  36. ISU Crop Marketing Web Sites Grain and Oilseed Market Analysiswww.econ.iastate.edu/faculty/wisner Corn and Soybean Basis (State and County) www.card.iastate.edu/ag_risk_tools/ Ag Econ Periodicals, Publications and Programs www.econ.iastate.edu/outreach/agriculture/ Ag Decision Maker (Crop Updates/ Publications Decision Tools) www.extension.iastate.edu/agdm Crop Marketing Newsletters/Webcasts www.extension.iastate.edu/polk/farmmanagement

  37. Questions….. Any questions or comments? Thank You for This Opportunity! Craig A. Chase Farm Management Field Specialist 720 7th Avenue SW Tripoli, IA 50676 (319) 882-4275 cchase@iastate.edu

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