Research verification coordinators collaborate with Arkansas Division of Agriculture crop specialists to determine a typical production method for

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4 Research verification coordinators collaborate with Arkansas Division of Agriculture crop specialists to determine a typical production method for application in the crop enterprise budgets. 4

5 Whole farm budgets are an extended application of crop enterprise budgets. 5

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8 Information from the Crop Research Verification Programs determines the production technology that is applied for whole farm analysis. Other information for application in whole farm analysis is available from suppliers, dealers, other secondary data sources, and field observations. The Crop Research Verification Programs are conducted by research verification coordinators in the University of Arkansas Department of Crop, Soil, and Environmental Sciences and county agents of the Cooperative Extension Service. 8

9 The production technology for soybeans is the list of field activities to produce the crop. 9

10 The production technology for rice is the list of field activities to produce the crop. 10

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12 Soybean and rice yields are based on data from the National Agricultural Statistics Service and correspond to field observations of 25% share rent for land capable of realizing 55 bu. soybean yields and 170 bu. conventional rice yields. Yields equal to the lower Mississippi County trend line yields likely include other rental arrangements such as cash rent (equal to less than 25% of revenue) and 25% share rent with the landlord contributing to some specified production inputs. 12

13 Size of the whole farm budget model farm is based on field observations. 13

14 Land allocation of the whole farm budget model farm is based on field observations. 14

15 The whole farm budget program available at the University of Arkansas Cooperative Extension Service website ( budgets) calculates estimated values for capital recovery and ownership costs. Users have the option to replace this value with a cost that is determined by their financial records. 15

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17 The first step in calculating improved estimates for fixed costs is to determine the number of acres for each field activity. Acreage for each activity is determined by the number of times the activity is performed on the acreage. For example, disking 1,600 acres of soybeans two times is recorded as 3,200 acres. Three round trips to make levees on 800 acres of rice is recorded as 2,400 acres. The calculation for taking down levees is based on the number of round trips to make levees. 17

18 The second step in calculating improved estimates for fixed costs is to determine the number of annual hours for each field activity, based on the number of acres calculated in step one. 18

19 The imputed value for management includes all aspects of farm management. The value includes unpaid operator\family contributions and fees paid for accounting services, income tax preparation, subscriptions, and expenses for other management related items. 19

20 The whole farm budget program available at the University of Arkansas Cooperative Extension Service website ( budgets) includes a separate calculator for estimating PLC, ARC, and LDP. 20

21 This solution for the whole farm budget model is determined for estimated equilibrium commodity prices of $10.70/bu. for soybeans and $5.80/bu. for long grain rice. Equilibrium price estimates should be viewed as long term averages. Equilibrium price estimates are not predicted annual prices, and statistically, observed annual prices may never equal equilibrium price estimates. 21

22 This solution for the whole farm model is determined by the June 2015 USDA price forecasts for 2015 of $9.00/bu. for soybeans and $4.73/bu. for long grain rice. Without the $36,966 PLC payment for rice at the equilibrium price, losses would increase from $5,667 to $42,633 for the farm. Arkansas farmers will deal with situations represented by this model solution by paying some capital recovery and equipment ownership costs with their cash reserves and by realizing lower returns for management. This will impact local economies by less spending from farm families. PLC and ARC payments will not be received until after the 2015 marketing year which occurs late in Farmers will be seeking loans for the next crop year while they are waiting receipts from PLC and ARC. Outstanding debts from the current crop year may cause difficulty in obtaining operating loans for the 2016 crop year. 22

23 Return to assets (ROA) is a measure of the capacity of an industry to meet the costs of production and provide a return for the investment. Capital asset values are estimated for the model farm as averages over the ownership period. 23

24 Return to assets is estimated as 5.3% for the whole farm budget model farm at the estimated equilibrium prices for soybeans and long grain rice. Land is valued at $4,500 per acre. 24

25 Capital intensive agriculture is characterized by large dollar values for expenses and returns, but the returns for the investment as determined by the return on assets is only moderate. Without payments from PLC and ARC during periods of prices significantly less than equilibrium prices, farm failures would have ripple effects leading to failures of input suppliers and other businesses dependent on farm income. Farmers should evaluate their businesses with concepts of financial management. Their agribusiness input suppliers and buyers of farm commodities evaluate their returns with concepts of financial management analysis. ROA is an important consideration when evaluating prices to pay for crop land. Large cash flows are not complete indicators of business success. 25