Farm and Ranch Mngmt. Final

High volume, low margin producer

high amount of product with a lower cost

low volume, high margin producer

small amount of product with a higher cost

specialty product/service providers

feed yards and agrotourism, niche markets

part time operators

producers who have a job outside of the farm

Items that affect decision making (5)

marketing, customer base, location, HR, investments

primary functions of management (4)

planning, implementation, control/analyzing, adjustments

Strategic management

long term decision making

tactical management

short term decisions, day to day

SMART goals

Specific

measurable

attainable

rewarding

timed

Characteristics of a decision (5)

importance, frequency, imminence, revocability, number of alternatives

Decision making in ag

perfect competition, weather, land availability, small size

purpose of record keeping (6)

inventory, tax purposes, reconciliation, profit/loss comparison, new investments, obtain loans

Cash Accounting

anytime cash exchanges hands

Accrual accounting

considers all revenue for products/services sold

assets

liabilities + net worth

net worth

assets-liabilites

solvency

ability to pay all liabilities with assets owned

how is solvency determined

positive net worth= solvent

negative net worth= insolvent

liquidity

ability to pay obligations as they become due

how is liquidity determined

working capital= current assets-current liabilities

owners equity

net worth

Cost value

how much you paid for the asset

market value

current market price for asset

deferred income tax

taxes you would have to pay if you sell something

Income statement

business only income/expenses that actually happened

revenue, cash vs. non-cash items

capital gains

selling an asset for more than purchase price

uses of a cash flow

obtain loans, so you don’t overspend, helps you make purchase decisions

what is included in a cash flow

why do managers do a cash flow

typical cash flow

‘accrual’, shows all income projected for one year, matching all expenses

annual cash flow

‘cash’, shows all income projected, including carry over, inventory, and only expenses that will be paid in that 12 month period of time

Tax goal

maximize after tax profits

progressive tax rates

rate increases as income increases, income tax

flat tax rates

everyone pays the same tax, sales tax

ordinary taxes

paid on income minus expenses and deductions

capital gains tax

selling assets for more than purchase price

self-employment tax

paid on income after expenses, but prior to deductions

income leveling

try to stay in the same tax bracket each year

income averaging

takes additional income and spreads it back to previous 3 years equally

defer/postpone taxes

pushing income to a future year, prepaids

net operating loss

if farm loss is greater than non farm income

tax free exchange

allows business to exchange real property for that of another with little to no capital gains

depreciation

an assets loss of value due to use, wear and tear, age, and technical adolescence

characteristics of items that can be depreciated

useful life greater than one year

can’t have unlimited life

business related asset

straight line depreciation

purchase price-salvage value/useful # of years

declining balance

100%/useful # of years=rate

rate x book value

MACRS

section 179

ownership costs

operating costs

field capacity

shows that the item you buy will fit with your operation, you have a gain rather than loss when you purchase

minimum field capacity

acres to be covered/hours per day X days available

field days needed

acres to be covered/Hours per day X field capacity

ownership

owners have complete control of use and disposal of M&E

renting

short-term agreement to use a piece of equipment with a daily/hourly rate

leasing

long term agreement of 3-5 years to use equipment

custom hire

hire someone to do a task for you using their own labor and machinery

who controls surface water rights

states department of natural resources

who gets priority in surface water rights

senior or superior junior, whoever gains water rights the earliest or needs them the most

appropriation

document that allows you to use a specific amount of water from a natural source for a specific purpose

senior

someone who has an earlier claim to water rights

junior

someone who claimed water rights at a later time

superior junior appropriator

Junior with stronger claim to water than a senior, higher preference

inferior senior appropriator

in certain situations, a superior junior may have more right to water than you

sale of appropriations

can be sold, appropriation date stays the same, use cannot be changed, must apply for appropriation

loss of appropriations

nonuse or abandonment for 5 consecutive years

who controls ground water rights

NRD

process of selling certified irrigated acres

find buyer/seller

approval from NRD

depreciation factor

county courthouse- taxes

seller must decommission old well

seller- capital gains

depreciation factor for selling certified irrigated acres

can be depreciated if useful life can be determined

land cash rent

amount paid on an acre to use land

land share crop

crop and some expenses are split between landlord and tenant, 60/40 split

land custom farm

landlord gets all the crop; tenant does all the work and gets paid a fee

what is a will

instructions on who/where assets go at death

individuals involved in a will

testator, 2 witnesses or notary

requirements of a will

must be of legal age, must be signed by testator, cannot be unduly influenced, must be of sound mind

how to change/revoke a will

make a new will with a revocation clause, make changes on a codicil

what is a probate

court hearing to settle an estate

why have a probate

to distribute bank account, real estate, and financial investments

what are the disadvantages of a probate

publicity, will contests/delay, legal fees

living will

instructs a physician of what to do if you can’t

what is a trust

instructions after death, functions like a will but is its own entity

who is involved in a trust

grantor- funds trust

trustee- manages trust

successor trustee- makes decisions if trustee can’t

beneficiaries- those who receive what is included in trust

revocable trust

trust can be changed

irrevocable trust

trust can’t be changed, grantor is not in control

estate taxes

only in Nebraska,

surviving spouse exemption

spouses are not taxed on money they receive when spouse dies

gifting

avoid tax, cap at $18,000

federal estate tax exemption

amount set by congress, will be taxed after $13.61 Million

capital gains carry over basis

if asset is given while they are alive, you get their basis

capital gains step up basis

if asset is given away at death, new owner gets fair market value as of day of death

asset risk investment strategy

mutual funds investment strategy

three C’s investment strategy