OPINION: Agriculture number crunching 101
It is a busy time of the year for all of us instructors at the SD Center Farm/Ranch Management. We worked closely with our producers throughout the year on keeping the bookwork up-to-date. Once the income and expenses have been finalized for the year and the balance sheet completed as of Jan. 1, it's time for what we, as instructors, refer to as "close-out" season.
For those of you not familiar with our Farm and Ranch Management Program, one of the main goals is to identify where the money comes from and where it goes. We start with the beginning cash on hand as of Jan. 1, 2018, and track all inflows/outflows into the farm operation.
Farm income is the main source of inflow but it also includes borrowed money, asset sales, and non-farm revenue. The outflows include farm expenses, loan payments, asset purchases, and family living costs.
The last piece of information we need is the ending cash balance as of Dec. 31, 2018. When we "close-out" the farm records, both sides of the ledger should equal zero, which means we have accounted for all transactions flowing through the business. It is a simple concept but the process does involve a fair amount of number-crunching. Fortunately, most farm records are being kept on a computer program and we utilize an analysis program called FINPACK that performs most of the calculations.
Once the overall cash flow is reconciled, the next step involves the enterprise analysis whereby we break-down the actual expenses to the crop and field level. For instance, if a producer spent $80,000 on seed during the year, those dollars are split into the type (corn, soybean, wheat) and then allocated to each field.
Ideally, when the seed costs per field are added together, they will equal the total amount spent for the year. It usually takes good records and a good memory of what happened during planting season to account for all of the dollars. This process gets a little complicated as many producers pre-paid some seed during the previous year or have returns and unused inventory at the end of the current year. As an instructor, a little patience goes a long ways in figuring out the differences.
Most of the direct expenses such as seed, fertilizer, chemical, and crop insurance are relatively easy to allocate to each field once a good accounting system is in place. The remaining overhead costs are divided among all enterprises at a level which is specifically tailored to each farm operation. The same process is followed when tracking farm revenue. The end result of this number-crunching is a detailed farm analysis which should assist you in managing your operation.
If you are interested in learning more about "Number Crunching 101" or enrolling in our program, please contact me at either 1-605-299-6760 or Blaine.Carey@mitchelltech.edu.