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Farm business analysis and benchmarking

As we turn the page from winter to spring we welcome the longer days and the warmth the sunshine brings us. In farm country this is the time of year that hope is supposed to spring eternal.

As farmers head to the fields, they may not be as optimistic as previous years. Although we’ve seen a nice winter rally in the grain markets, USDA forecasts are still predicting net farm incomes to decrease to the lowest levels since 2006. Much of the talk on the winter meeting circuit focused on the importance of knowing your cost of production.

OSU Extension’s Barry Ward is forecasting higher energy prices with most other input costs staying flat to slightly higher. Rising interest rates, high health care costs, a strong dollar, and the potential for uncertainty with our trading partners are doing little to brighten the mood. The dim outlook coupled with already razor thin profit margins are starting to remind some of the more seasoned producers of the 1980s farm crisis.

The farm crisis of the 1980s saw land values plummet as many operations were unable to pay high interest rates and saw their farms foreclosed on. It is estimated that nationwide around 300,000 farms were put out of business during the decade. The fallout led to the creation of the Farm Financial Standards Task Force in 1989. Their job was to develop standardized guidelines for agricultural producers. Today, the name has changed to the Farm Financial Standards Council (FFSC), which currently uses 21 financial guidelines to evaluate farm data. These guidelines are used by banks and lenders to help make decisions on extending credit to farms. While the backstory might be a little bit of the unknown to producers, the terms liquidity, working capital, solvency, and several others are not.

While farmers have been relying on OSU Extension for help with developing nutrient management plans, herbicide plans, and analyzing data from on farm research, they have not yet realized the full potential of farm financial planning. A grant was awarded from the USDA National Institute of Food and Agriculture (NIFA) to expand access to farm business analysis and benchmarking resources with the goal of helping Ohio farmers gain a better understanding of their financial health. The program gives producers a farm finance scorecard that shows how they stack up in each of the FFSC’s 21 categories. These numbers are then shown on graphs showing the trend from previous years for that specific operation, as well as their standings compared to the national average of all farms that submit their records. Benchmark reports are used to identify successes and opportunities to improve. Each farm that participates in the analysis program will receive personalized benchmark reports that include their farm’s numbers. These individual values are then highlighted to show where their farm falls in the benchmark report for each item compared to participating Ohio farms.

Farm Business Analysis isn’t just for farms focusing on grain production. There is a large network of dairy farms, primarily in Eastern Ohio, already participating. When multiple enterprises are present, the analysis can help producers allocate expenses between different areas in their operation. Whether the farm wants to compare their crops on owned versus rented land, their crop operation compared to their livestock, or the profitability of an individual crop or custom farming operation there are tools available to analyze the data provided. It has been estimated that the value of the benchmarking data, financial scorecard, and enterprise analysis is well over $1000.

Thanks to the grant from USDA National Institute of Food and Agriculture, OSU Extension is able to provide this service at a cost of only $100. Several lenders have also stepped up and agreed to reimburse operations that successfully complete an analysis.

If you would like more information on the program, visit our website at https://farmprofitability.osu.edu There you will find the completed business summaries for previous years and other resources that can help farm businesses. The Farm Business Analysis team has also grown from the original location in Mahoning County with the addition of four new regional technicians. To learn more about Farm Business Analysis, contact the technician closest to you:

  • Defiance County: Clint Schroeder, 419.782.4771, schroeder.307@osu.edu
  • Licking County: David Grum, 740.670.5315, grum.1@osu.edu
  • Miami County: Sharon Harris, 937.440.3945, harris.2835@osu.edu
  • Pickaway County: Trish Levering, 740.474.7534, levering.43@osu.edu
  • Mahoning County (Headquarters): Christina Benton, 330.533.5538, benton.132@osu.edu
  • Program Coordinator: Haley Shoemaker, 330.533.5538, shoemaker.306@osu.edu
  • Field Specialist: Dianne Shoemaker, 330.533.5538, shoemaker.3@osu.edu

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