Look’s like most of the state is facing some level of drought and, from what I have heard and seen, the drought goes from conditions being a little bit dry to where the crops are no longer harvestable. A few quick comments on dealing with drought from the farm management side:

• There are federal tax provisions for weather-related sales of livestock (see Peter Callan’s article in this issue titled Drought Tax Laws May Benefit Livestock Producers in 2010). Also, check with your tax consultant or CPS for advice
• If you have crop insurance or other risk management products, make sure you check with your crop insurance agent before plowing under a crop or selling livestock.
• Droughts add additional financial stress to a series of turbulent years. To help evaluate alternatives become familiar with enterprise budgets and how to use them. See the VCE enterprise budgets at http://pubs.ext.vt.edu/category/enterprise-budgets.html.
• Take a look at the Agricultural and Applied Economics web site for an explanation of using a partial budget to compare alternatives: www.extension.agecon.vt.edu/word%20docs/Partial%20Budgets%20definition%202007.doc.
• Three timely articles to help in making decisions on coping with the drought:
  • My article below titled A Simple Management Tool: Breakeven Analysis
    comparing selling beef cows or buying hay;
  • Tom Stanley’s article below titled Feed Hay to Grow Grass;
  • Peter Callan’s article titled When Do I Cull a Cow From My Cow-Calf Herd? in
    the June-July 2010 Farm Business Management Update at:
    http://pubs.ext.vt.edu/news/fbmu/2010/04/article_7.html.

Listed below are a few items that might be of interest to farm business managers:

• Want to know statistics about American farms or farmers? Take a look at the USDAERS publication Structure and Finances of U.S. Farms Family Farm Report (2010) by Robert Hoppe and David Banker. A few highlights: 98 percent of all farms are family operations, and even the largest farms are predominantly family run. Large-scale family farms and non-family farms account for 12 percent of U.S farms but 84 percent of the value of production. In contrast, small family farms make up most of the U.S. farm count but produce a modest share of farm output. Small farms are less profitable than largescale farms, on average, and their operator households tend to rely on off-farm income for their livelihood. The full report Economic Information Bulletin No. (EIB-66), 72 pp, July 2010 can be found at: http://www.ers.usda.gov/publications/eib66/
• In the July 2010 Updates at the Iowa State Ag Decision Maker (www.extension.iastate.edu/agdm/) there are four articles that Virginia farmers may find
  useful:
  • Financial Trouble Shooting, by Robert W. Jolly
    (http://www.extension.iastate.edu/agdm/wholefarm/html/c3-53.html).
  • Understanding Restaurant and Institutional Sales by Mary Holz-Clause
    (www.extension.iastate.edu/agdm/wholefarm/html/c5-38.html).
  • How to Approach Potential Buyers by Mary Holz-Clause
    (www.extension.iastate.edu/agdm/wholefarm/html/c5-39.html).
  • Hay Storage Cost Comparison by William Edwards
    (www.extension.iastate.edu/agdm/crops/xls/a1-15haystoragecost.xls).

Farm business managers should consider the following activities for their management calendars in August-September.

• As you start into harvest season, be sure to think about your crop records. Make sure you get information on yields, machine times, and equipment used (this information will help with next year’s budgeting); identify weed problems and differences in varieties. In addition to recording information on weeds, etc., think about labor constraints and
  bottlenecks slowing down tasks during the harvest season. Have employees and family members record problems and successes (maybe give them a cash payment for each problem identified). When the crunch is over, spend a couple hours reviewing notes on what can be done next year to solve the problems and duplicate the successes. During the
  post-harvest review make sure the discussion centers on how to resolve problems, not who to blame. Also take a close look at the yield potential of each field; with input costs at their current levels, some fields may no longer provide sufficient profit margin during periods of moderate drought – changing crops may provide that hedge against a major
  loss.
• Always pay close attention to cash flow needs as you generate cash reserves during fall harvest and get ready for real estate and personal property taxes this winter. Almost all computerized recordkeeping software, e.g. Quicken® or Microsoft Money® and accounting software, e.g. QuickBooks® or FarmWorks, create cash flow reports that
  assist in managing cash available for debt service, family living, and cash expenses. Compare this year’s cash flow to the budgeted amount and highlight deviations. If you did not develop a budget for this year, compare your inflows and outflow to last year’s August totals. Make sure you have a series of possible plans to address any projected
  cash short falls. Projected surplus should be added to your retirement program, e.g. 401-K’s, or used to pay down debt.
• The time to make tax management decisions is quickly approaching. Make sure that you have set aside a few days in October to summarize all farm and family financial records, and make an appointment now with your accountant to work on end-of-year tax management strategies. As the forms and publications for the 2010 tax year become
  available, they can be obtained from the Internal Revenue Service site www.irs.gov/formspubs/index.html. Consider attending one of the farm tax workshops conducted by the Virginia Tech Income Tax School (see the article below titled 51st Virginia Tech Income Tax School for details).
• Livestock producers should develop a feed budget for the next 12 months. Make use of the feed budget just like you would a projected cash flow statement. Chart out deficits and develop strategies to fill in the deficits using local sources at harvest or planned purchase during the next 12 months.

Parent resources:

• Farm Business Management Update August - September 2010

Other resources by:

• Gordon Groover

Other resources from:

• Agricultural and Applied Economics