Business Basics for Loggers: Workshops Dec 7th and 8th

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UVM Extension, with financial support from VT Housing Conservation Board, is offering this one day “Business Basics for Loggers” workshop for Vermont loggers on two separate dates and locations:

December 7, 2015 – Chester, VT

December 8, 2015 – St. Johnsbury, VT

Workshop attendees will receive 8 Logger Education to Advance Professionalism (LEAP) credits. Click here for the full program flyer: Business Basics for Loggers

The Most Common Question: Rental Rates and Terms

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The most common question these days is what to charge, what to pay and how to set terms for renting agricultural assets. Follow these links to our resource library to learn more about farm rental relationships. These resources are to be used for educational purposes and we encourage you to seek consult from legal, tax and insurance professionals when establishing formal rental relationships.

Sample Lease: Multi-year

Sample Lease: Short Form

Farm Rental Rate Guide

You can also contact Land for Good. They provide limited introductory consult and additional support services to assist you with your decisions.

Spaces Limited for Winter Farm Business Planning

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UVM Extension Farm Viability provides individualized business planning support to commercial farm owners in Vermont. We have a small number of spaces left in our program for farms seeking to develop business plans or complete business analysis by Spring 2016. Sign up now or contact the program for more information. Once the winter roster is full we will begin to enroll participating farms on a short term waiting list for next years program cycle. Eligible farms are required to have been in  business for at least 3 years and show gross sales of at least $15,000 in the most recent year.

UVM Extension Farm Viability works with farms to develop business plans, complete enterprise analysis, prepare cash flow budgets/financial analysis and develop farm succession plans. Coming up this winter, our staff will also be providing additional business education programs. Watch our website for the schedule of winter 2016 programs.

 

USDA Farm Storage Facility Loans Expands to Dairy, Flowers and Meats

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FSA’s Farm Storage Facility Loan (FSFL) program, which provides low-interest financing to producers to build or upgrade storage facilities, will now include dairy, flowers and meats as eligible commodities.

For more information go to this link  to FSA Farm Facility Loans  or contact your local FSA office.

Producers do not need to demonstrate the lack of commercial credit availability to apply.

The new commodities eligible for facility loans include :
• floriculture
• hops
• rye
• milk
• cheese
• butter
• yogurt
• meat and poultry (unprocessed)
• eggs
• and aquaculture (excluding systems that maintain live animals through uptake and discharge of water).
**Commodities already eligible for the loans include corn, grain sorghum, rice, soybeans, oats, peanuts, wheat, barley, minor oilseeds harvested as whole grain, pulse crops (lentils, chickpeas and dry peas), hay, honey, renewable biomass, and fruits, nuts and vegetables for cold storage facilities.

 

Using market price reports to crunch numbers

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The VT Agency of Agricuture, Food and Markets posts weekly Farmers Market Pricing Reports at this site:  http://agriculture.vermont.gov/localfooddatatracking

These reports provide a nice way to observe the pricing trends for direct market sales. If you are already selling directly, take a look and see how your prices compare to low, high and average prices.

Covering the cost of marketing: Many small farms default to direct markets on the assumption that the higher prices received are enough to compensate for the expenses of serving these markets. The price reports provide data to crunch the numbers to compare current wholesale prices vs. direct market prices to consider your best options.

Here is a partial budget exercise using September white potato prices:

9/13/15 Report:  Organic White Potatoes: $2.50 average per pound

I can currently wholesale ORG white potatoes for $0.90 per pound or $1,800 per ton equivalent. If I were to bring them to farmers market, I could potentially gross $2.50 per pound or $5,000 per ton equivalent. Let’s crunch…

  • Farmers market = 200 pounds per week
    • market days per ton (2,000 lbs /200) = 10 days
    • market labor = 10 days x 6 hours x $12 per hours = $720
    • packaging = $0.25 per pound (labels, carton/bag) = $500 per ton
    • market fee (day fee): $35 x 10 days = $350 per ton
    • Fuel: 30 mile round trip x 10 days (@$0.13 per mile fuel) = $39 per ton
    • packaging product (retail bags): (100 lbs per hour @ $12 per hour)= $0.12 per pound or $240 per ton
    • Gross Sales $5,000 less market expenses of $1,849 = partial net $3,151 per ton
    • $3,151 = 63% of gross sales retained for production and profit
    • Cost to Market: $0.92 per pound
  • Wholesale sales = 750 pound per delivery
    • delivery days per ton (2,000 / 750) = 2.7
    • delivery labor = 2.7 delivery x 3 hours round trip x $12 per hour = $97 per ton
    • packaging = $.70 per bag per 50 lbs = $28 per ton
    • fuel: 90 mile round trip x 2.7 trips (@ $0.13 per mile fuel) = $32 per ton
    • packaging product (from bins to bags): (500 pounds per hour @ $12 per hour) = $0.02 per pound or $40 per ton
    • Gross Sales $1,800 less marketing expense of $197 = partial net $1,603 per ton.
    • $1,603 = 89% of gross sales retained for production and profit
    • Cost to market: $0.10 per pound

There is no right or wrong decision here. The big trade off is time  vs. money… the direct market farm makes much more money but has also invested ~80 hours to prep and market 1 ton of spuds. The wholesale producer earns a smaller margin but has only spent ~12 hours to prep and market 1 ton.

Business Benchmarks for a Start-Up Small Vegetable Farm

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Last week I had the opportunity to sit with 9 farm managers and business advisers to analyze 3 years of farm financial data for 25 farms. This meeting was closure on a  three year research project coordinated by The Carrot Project and funded by Northeast SARE. The project set out to deliver financial education, measure financial performance and assist in planning for micro loans (under $25,000) with farm managers in New England.

How much money can a small vegetable farm owner expect to make? After looking at three specific sets of finances and combining that with the numerous farm financial statements I read every year for UVM Extension Farm Viability, I have observed a few key trends for small vegetable farms:

  1. Farm start up is driven by initial owner visions, resources at hand and easily accessible markets.
  2. Early market plans of direct sales (CSA, farmers market) mixed with direct wholesale (stores/restaurants) typically gets the business to about $35,000 – $50,000 in gross sales somewhat “easily”. At that point, the market mix is maxed out and it becomes difficult to expand. The business now needs a phase 2 market strategy.
  3. Owner operated produce farms can hit $30-40,000 in annual sales with one full time equivalent/FTE (the owner) working seasonally. During this phase, the owner may be able to pay themselves up to 20%-30% of gross sales from cash flow if costs are managed well… that equals a paycheck of maybe $10,000 not including equity generation as assets are acquired and paid for.
  4. To grow past $40,000 in sales, hired labor is required. This paid labor will require cash that typically leaves an owner unable to pay themselves from the business. I advise managers to find ways to leap-frog or grow through the $40,000-$80,000 scale as fast a possible. It’s a tough scale to operate at.
  5. As the produce business hits the $80,000 – $125,000 scale, many of the blips of start up have passed. The farm is in Phase 2 of marketing, usually including a reduced amount of direct sales and a specialization of few key crops for wholesale. A small but manageable labor force (and formula) is in place.
  6. Here are some benchmarks at this scale: try to keep hired labor at 30-45% of gross sales, capital expenses or debt service will range from 10-20% of gross sales (largely depending on how the real estate is being paid for) and owner draws might be about 25% of gross sales.

 

Changes to VT Current Use Tax Program

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Changes have been made to the Vermont Use Value Appraisal Program (Current Use) that guides the taxation of land and buildings used for agriculture, forestry and conservation.

Click this link for a resource sheet that explains the new changes: Changes in VT Current Use Tax Program _July 2015

Key changes include:

  • A new calculation for the Land Use Change Tax (LUCT) (beginning Oct. 2, 2015)
  • A temporary “easy-out” period in which landowners can remove a parcel, or portion of a parcel, without paying the full LUCT liability (between July 1 and Oct. 1, 2015).
  • A new annual requirement for owners of agricultural lands and buildings to certify in writing on or before September 1 of every year that all enrolled agricultural land and buildings meet the requirements for enrollment at the time of the certification (form will be available in August).
  • Authority given to Agency of Agriculture, Food and Markets to direct the Vermont Department of Taxes to remove agricultural land and farm buildings from the Current Use Program when the land or buildings are used by a person who has violated water quality requirements (beginning July 1, 2015).

The Winery: Keys to Financial Success

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In June I attended the National Farm and Ranch Business Management Educators annual conference in Rochester NY. Steve Richards, manager at Casa Larga Vineyards and Winery (Fairport, NY), shared his expertise on managing a winery. Steve also worked for many years at Farm Credit East and the Winery Benchmarks Program: https://www.farmcrediteast.com/winerybenchmarks

New York State Wine Overview

• Influence of international trade: when Australia grape/juice prices go down, wineries will increase usage of this supply up to the allowable thresholds under current regulations
• 60% of wine volume produced is non-varietal sweeter wines
• Riesling is the top NYS varietal, about 10-15% of overall wine volume produced
• A good way to forecast wholesale wine sales is to research the general restaurant sales forecast for the upcoming periods.

Keys to Financial Success:

• Inventory Turnover: a typical winery will to have 1.5- 3 years max of annual sales in inventory. Larger inventory is less favorable and wineries must work to increase the number of inventory turns per year to over 1. Successful wineries move inventory faster and bottle final product as close to sales date as possible (accounting for any bottling/conditioning factors influencing final quality). Aging inventories over 3 years old is less desirable.
• Labor Efficiency: Wineries track cases per worker and this is a key focus of scaling the business. The biggest cost factor as a winery grows is the overhead costs of marketing and regulatory compliance. There are labor efficiency sweet spots at different scales

  • 500-2,500 cases is a good place to be. Labor efficiency ranges from 6k-10k  cases per full time worker.
  • At ~5,000 cases the retail only establishment has maxxed out on sales. The winery begins to wholesale product. This creates an increased administrative burden to serve these new markets.
  • 5,000 – 10,000 cases tends to be poor scale for labor efficiency, possibly down to 4k cases per worker
  • At around 15,000 cases the labor efficiency curve begins to get better.
    Labor efficiency peaks at the scale of ~35,000 cases per year, with the labor benchmark approaching 10,000 cases per full time worker.

What Farm Business Advisors are Talking About

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This week the UVM Extension Farm Viability program and statewide VT Farm and Forest Viability Program partners got together to discuss current topics impacting farms.

Dennis Kauppila lead a discussion on farm business partnerships. We reviewed an older but still relevant resource guide that leads farm business owners that are setting up a partnership. Click here to download  Michigan State University: Farm Partnership Agreement Worksheet

Food safety is on our minds with the expectation of new federal  produce safety regulations this fall and the existing GAP’s/buyer-based verification programs. Ginger Nickerson explained the different post harvest packing and storage investments that produce growers are making  that can improve product quality in addition to meeting safety requirements. Click this link for a  fact sheet on building open packsheds. If you are thinking bigger, then click this link on renovating old barns .

A business planning meeting would not be complete without a discussion on risk management and crop insurance programs. Jake Jacobs, UVM Extension Crop Insurance Educator, provided an update on whole farm revenue insurance, Margin Protection for Dairy and the NAP program that could be used for maple producers. Click this link for a USDA Risk Management Agency (RMA) 2014 Farm Bill Crop Insurance Modifications

 

Free for Farmers! Workplace Services and Counseling

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Farm First is a free and confidential  program available for Vermont farm owners and family members seeking assistance on a  personal and workplace issues. The program can provide assistance when dealing with farm labor issues  that are difficult to resolve on your own.

The program can also provide confidential counseling services related to stress, anxiety, depression,addiction and other situations where the guidance of a professional is needed. The program is available to farm owners and related family members involved in the business. Farm owners can also consider if they want to enroll in expanded employee assistance programs (EAP) to make similar services available for their employees at a very low cost.

Call Farm First at  1- 877- 493- 6216

Click this link for the Farm First description at the Vermont Agency of Agriculture website: Farm First for Vermont Farmers

Follow this web link to Invest EAP