By Dick Hagen
The Land Staff Writer
March 14, 2008 03:19 am
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U.S. agricultural exports are forecast to reach a record $101 billion for fiscal 2008, up $10 billion from the U.S. Department of Agriculture’s November forecast and an unprecedented $19 billion above 2007, Agriculture Secretary Ed Schafer said at the department’s Feb. 21 Agricultural Outlook Forum.
No surprise to anyone anymore is the economic boom of U.S. agriculture. The above forecast on U.S. agricultural exports is a prime example. Right now no one seems to know how long the boom will last, when it will slow down or when it will reverse.
In this new era of unprecedented growth in the world of agricultural commodities, Jim Kurtz shared a preview of 2007 data as it pertains to the 125 members of the Southwestern Minnesota Farm Business Management Association at a recent meeting at the Southwest Research and Outreach Center near Lamberton. First he backgrounded with some data from 24 years earlier.
“For starters, corn yields for our SWMFBMA members from 1983 to 2007 have increased from an average of 100 bushels per acre to 170 bu./acre. Gross income has gone from $150/acre to $600/acre,” Kurtz said.
There’s also the expense side of farming too. Just about every input cost is going up, especially the past two years. Fertilizer costs are up big time. Fuel prices are up. Land costs are up. So corn costs per acre that averaged about $400 in 2006 for the SWMFBMA members, ran about $430 for 2007. They likely will be $450 or better for 2008. However, Kurtz noted chemical costs are trending down, mainly because of the widespread use of Roundup Ready herbicide.
Thanks to strong commodity markets, net profits on corn should be running $240 to $250/acre for 2007. With soybeans he said the early preview indicated about $170 to $180 net profit per acre for soybeans for 2007.
Worth noting is that average 2007 gross farm income for the SWMFBMA participants will be about $625,000 per farm leaving an average net farm income figure of about $235,000 per farm. As a percentage of gross income, profit looks to be about 36 to 37 percent, Kurtz said, and that’s the highest ever. “Especially when you figure a 25 percent profit on gross farm income is good.”
The return on investment average looks to be about 17 percent for 2007, and that also will likely be a new high for the SWMFBMA . In 2006, the figure was 14 percent ROI.
Rob Holcomb, SWMFBMA fieldman at the SWROC, said that as farming and business expenses keep going up, so do certain “tax deductible” items such as business vehicle mileage deductions, now up to 50 cents per mile. Even “charity mileage” is up slightly with 17 cents per mile deductible now allowed.
“The bigger question for farmers is when to start locking in some commodity markets. With more revenue and more costs both part of your farming business, Holcomb suggests selling some grain would be advisable.
“Do an advance sale on all your grain? No, even though the temptations of today’s markets make forward pricing extremely attractive, don’t get carried away. Maybe $4 corn won’t cover your production expenses for 2009,” Holcomb said.
His take-home advice was to remind farmers that tax planning is not a one-year, single-shot adventure. “Tax planning is a multi-year, on-going part of your total business. There are limits as to how much you can ‘pre buy’ to minimize your tax consequences. Beware of the combined tax brackets (federal, Minnesota and self-employment) and manage your taxable income by managing your yearly purchases and sales. Avoid the higher tax brackets if possible. If not possible, recognize that self-employment tax decreases considerably above $97,500, and use that to your advantage to lower your overall tax rate.”
Touching base on the government tax rebate issue, Holcomb merely said, “it’s still unsettled as to when, how, what rate, etc. When the government says ‘your check is in the mail,’ don’t hold your breath too long.”
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Photos
Jim Kurtz