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The Management Calendar
Farm Business Management Update, October/November 2006
By Gordon Groover, (email@example.com), Extension Economist, Farm Management, Department of Agricultural and Applied Economics, Virginia Tech
Farm business managers should consider putting the following activities on their management calendar for October-November.
- Time to order your farm record book: As we enter the last quarter of 2006, 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 tract 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 or contact me at 540-231-5850.
- 2007 DCP Sign-Up Began October 1, 2006. Signup for 2007 Direct and Counter-cyclical Payment Program (DCP) begin October 1, 2006 and continues until June 1, 2007. Farmers can sign up for the program through the online DCP sign-up service at http://www.fsa.usda.gov/FSA/webapp?area=online&subject=landing&topic=dcp or by visiting any USDA Service Center or their administratively assigned center to complete their 2007 DCP contract. Additionally, sign-up can be done online, allowing producers to choose payment options, assign crop shares, and sign and submit their contracts from any computer with Internet access. DCP participants can view and print out submitted contract options at any time.
USDA computes DCP payments using base acres and payment yields established for each farm. Producers receive direct payments at rates established by statute regardless of market prices. For 2007, eligible producers may request to receive direct advance payments based on 22 percent of the direct payment rate for each commodity associated with the farm. USDA will issue DCP direct advance payments beginning Dec. 1, 2006. Counter-cyclical payment rates vary depending on market prices. Counter-cyclical payments are issued only when the effective price (which takes into account the direct payment rate, market price, and loan rate) for a commodity is below its target price. In more than four years since the 2002 Farm Bill authorized DCP, USDA has issued approximately $30 billion in DCP payments to America's agricultural producers.
Additional information on DCP can be found by viewing the USDA fact sheet at http://www.fsa.usda.gov/FSA/printapp?fileName=pf_20060301_insup_en_dcp06.html&newsType=prfactsheet.
- Farmers faced with low prices, for example, milk prices, 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 costs management.
- Once the crops are harvested, get the farm financial records summarized, updating the third-quarter cash flow and comparing it to your projections. Watch 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.
- 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, farmers must make decisions before December 31, 2005. 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 survivable and profitability of the businesses, 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 http://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.
- Be sure to check on crop insurance policies. A list on agents in your area can be found at http://www3.rma.usda.gov/apps/agents/. Check the following web site for closing dates for all insurance policies: http://www.rma.usda.gov/data/sales-closing-dates/
Virginia Cooperative Extension