Farm and Agribusiness Management

• These notes cover various aspects of farm and agribusiness management, including financial statements, ratios, budgeting, tax management, and risk assessment.

Balance Sheets

• The beginning balance sheet shows a company's assets, liabilities, and owner equity.
• Cash on hand on a business balance sheet corresponds to the balance in the farm checking and savings account.

Solvency

• The debt to asset ratio measures the solvency of a farm business.
• A debt to asset ratio of 106% indicates the business is not solvent.

Interest Calculation

• The interest paid for a $142,229 loan at 4.75% for 9 months is $5066.91.

Assets

• Market livestock is considered a current asset.
• A land mortgage is considered a non-current liability.

Net Farm Income

• Green Acres Farm had product revenues of $271,560 and cash expenses of $215,955.
• Inventory values were $13,482 lower, and the total depreciation charge was $14,659.
• Net Cash Farm Income: $55,605
• Net Operating Profit Calculation: $42,123
• Net Farm Income Calculation: $27,464

Farm Revenue

• The sale of cabbage produced during the accounting period is a source of farm revenue.

Accounting Methods

• When using cash accounting records, a business recognizes income and expense transactions at the time of actual cash transactions.

Budgeting

• A change in the farm business affecting only a few items can be evaluated using a partial budget.
• A whole farm schedule of expected income and expenses is a budget.
• There are three stages of production.
• An enterprise budget is a statement of projected costs and returns associated with one production process, usually for one production cycle.
• Budgeting is not used to determine the useful life of assets.
• The cost of using a resource based on what it could have earned in the next best alternative is an opportunity cost.
• Depreciation on machinery is a fixed cost.
• Cash Flow Projections include both known and unknown amounts of income and expense and used for planning purposes.

Currency Exchange

• When Country A's currency weakens relative to Country B's currency, agricultural goods produced in Country A are less expensive in retail markets in Country B.

Land Measurement

• A plot measuring 1320 feet by 2640 feet contains 80 acres.

Futures Market

• A rising cash price relative to the futures price is known as a strengthening basis.
• A producer hedging a commodity in May would sell futures contracts expecting to buy them back when the commodity is sold.

Income Tax

• The main goal of income tax management is to maximize your after-tax income.
• Effective tax planning is most effective with up-to-date records.
• Estate taxes may be due when a person dies.

Depreciation

• The annual depreciation of a harvester with a $162,000 purchase price, $13,500 salvage cost, and 15-year useful life is $9,900 using the straight-line method.
• Agricultural land is not depreciated.

Loan Information

• Interest payment for year three: $632
• Principal payment for year four: $3,706
• The payment amount changes if the price of the skid steer increases.
• If the loan length increases, the annual payment decreases.

Financial Statements

• A farmer's debt of $1947.00 due next month is a current liability.
• Machinery is not a variable cost.
• The Income Statement is a summary of revenue and expenses for a given accounting period.

Crop Budgets

• When double cropping, budgets should be developed for each crop, and annual land costs divided between the two crops.

Revenue

• The amount of money received from selling a product or service is called income.
• Trading in a piece of equipment is treated as a sale.

Amortized Loans

• For an amortized loan, the principal payment increases each year.

Breakeven Point

• A cotton picker has $21,213 fixed costs and $53.42 variable costs per acre.
• A custom picker charges $71.50 per acre, resulting in a break-even point of 1173 acres per year.

Assets

• An asset owned for more than a year is a noncurrent asset.
• A fiscal year begins on any day other than January first, following the production cycle.

Incorporating

• When incorporating, farm assets are transferred to the corporation in exchange for stock certificates.
• Depreciable farm property must have a useful life of more than one year.

Insurance

• Property Insurance protects against financial loss if property is damaged, destroyed, or stolen.
• Total product decreases as the input increases at stage three of production.

Risk and Pricing

• Market Risk is changes in the price of corn or any other commodity that a farmer produces.
• The price at which consumers buy all that producers supply is the equilibrium price.
• A balance sheet is a systematic organization of everything owned (asset) and owed (liability).
• Assets in farming, other than land and some livestock, with a useful life of more than one year are depreciable.