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Three Sources of Retirement Income

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					Introduction to US Agriculture:
       Facts & Figures
        Alex’s Definition of Agriculture

   Production Agriculture
     Crops
       – Row crops, vegetables, tobacco, etc.

     Livestock

       – Beef, dairy, hogs, sheep, horses, etc.

     Horticulture

       – Nursery, greenhouse, landscape, design, etc.

     Other

       – Timber, aquaculture, orchards, vet clinic, etc.
Alex’s Definition of Agriculture (Cont.)
   Agribusiness
     Supply, transportation, processing
     Marketing, sales, finance, consulting, etc.

     Value-added, micro-processing, customizing,
      etc.
     Agri-tainment, agri-tourism



   USDA definition of farm
       Greater than $1,000/yr in agricultural sales
Trends in US Agriculture
     US Agriculture is Insignificant?

   Production ag generates 0.95% of US GDP
       Broad definition roughly 13% GDP
       Adds $279 billion of value to US economy (2004)


   $1.5 trillion of agricultural assets (2004)
       Real estate = 82% of farm assets
         –   Land & asset values increasing
       $207 billion in farm debt


   Employs 1 in 5 Americans, directly or
    indirectly
       Production, processing, transportation, marketing, etc.
        Current State of US Agriculture
   20% of farms are profitable, 80% for lifestyle
       US Average ROA is 0.5% (2004)
         –   Non-family farms: 7.1%
         –   Family farms: 4.4%
         –   Retirement/Lifestyle farms: (1.8%)


   Increasingly smaller margins
       Cost control is key!!

   Foreign market expansion & competition
       Canada, Mexico, Australia – imports
       Canada, Japan, Mexico, EU – exports
        Current State of US Agriculture
   Approx. 60% of US farms have no debt (2004)
       Average debt/asset ratio = 8.8%
       Average D/A for farms with debts = 17.8%
         –   Higher D/A for the larger farms

   Cash (“equity”) expansion
       Paying cash rather than using debt

   More women becoming involved
       11% of principal operators
                   Food Purchases
   US consumers spent $789 billion for “farm
    food” (2004)
       Farm value:       $156 billion
       Marketing bill:   $633 billion

   Ave. US household spends $5,781 on food
    in 2004
       Roughly $2,440 per capita per year (13% of budget)
       $3,347 for food at home
       $2,434 for food away from home
              Farm Size & Numbers
   Number of U.S. farms decreasing?
       1974 - 2,314,000
       1992 - 1,925,000
       2004 – 2,107,000
   Average size of US farms increasing
       1985 - 426 acres
       2006 – 446 acres
   Number of farms - by revenue
       > $250,000              7.9%
       $100,000 to $250,000    7.9%
       < $100,000             84.7%
               Farm Size & Numbers
   < 2% of US farms generate nearly 50%
    of gross ag sales
       “Mega Farms”

   76% of gross sales generated by < 8% of farms
       80/20 rule

   Trend towards more, but smaller, farms in VA
       More on-farm processing, value-added operations
       Niche marketing
       “Gentleman Farming” or “Retiree Farmers”
                       3 Farm Types
   Mega farms (> $250,000 revenue)
       Multiple families or generations
       May be associated with corporations

   Traditional farms ($50 - $250,000 revenue)
       Single family units
       Traditionally high dependence on government
        payments
       Get bigger or get out

   Lifestyle farms (< $50,000 revenue)
       Off-farm income is critical
       In it for the rural lifestyle
US Leading Enterprises (by Receipts)

   Livestock              $123.5 billion
       Cattle/calves           $47.2 bil
       Dairy                   $27.4 bil
       Broilers                $20.4 bil
       Hogs                    $14.3 bil
   Crops                  $117.7 billion
       Corn                    $22.1 bil
       Vegetables              $17.2 bil
       “Greens”/nursery        $15.6 bil
       Soybeans                $18.4 bil

   Roughly 50% Livestock vs 50% Crops for
    US – over the years
VA Leading Enterprises (by Receipts)

   68% Livestock vs 32% Crops for VA
    1.   Poultry & eggs
    2.   Cattle & calves
    3.   Dairy products
    4.   Greenhouse/nurseries, floriculture, sod


   46,800 farms (2006)
       70,000 operators
   8.5 million acres (2006)
   182 acres/farm (2006)
               Virginia Agriculture
    $23.3 billion of land & buildings

    $2.4 billion in farm debt
    1.   Farm Credit System
    2.   Commercial Banks
    3.   Owner Financing


    Debt/Asset ratio = 9.9%
        Skewed by “hobby farms”?
        Cash expansion
             Virginia Agriculture

   Average age of farmer = 57 yrs (2006)
     1% of principal operators are < 25 yrs old
     23% are < 45 yrs old

     50% are > 55 yrs old



 2,213 Megafarms (2006 data) - 4.4%
 3,557 Traditional farms        - 7.6%
 41,836 Lifestyle farms         - 88%
 14% of principal operators -- female
              Virginia Agriculture

   Ave. value of farm RE = $2,850/acre

   $2.4 billion/yr in production (2006)
     $2.05 billion/year in expenses
     Costs roughly $0.87 to produce $1 of ag
      sales


   $503 million in Net Farm Income
       About $10,600/farm
                        Misc. Info

   GMOs – use „em or not?
       Corn – 40% of planted acreage
       Soybeans – 75%
       Cotton – 73%


   Certified Organic (US)
       6,949 growers
       Crops                      Livestock
        1. Hay/Silage               1. Turkeys
        2. Wheat                    2. Milk cows
        3. Soybeans                 3. Beef cows
          Legal Organization of Farms
   Sole proprietorships
       Individuals or families
       90% of farms
       52% of gross sales

   Partnerships
       6% of farms (and dropping)
       18% of gross sales

   Corporations (C & S-corps)
       4% of farms
       28% of gross sales
             Government Payments
   Percent of net farm income from
    government supports
       Over 50% = red zone
                                         50% of net
       20-50% = yellow zone          income of 60%
                                       of farms from
       Less than 20% = green zone     farm program
                                         payments



                 Government
                   Payment
                 Twilight Zone




   EPA replacing USDA in importance
                        Age Wave

   70% land transfer in next 15 years
       Own and rent / lease
       Strategic alliances
       “Granny landlords” - 1st wave
       Non-farm children - 2nd wave
   Retirement planning
       Social Security ain’t gonna cut it
         – Maximum of approx. $25,000/yr from SSA

       Consider investing 5 - 10% of net farm income
        outside of agriculture
       Lowers taxes, free loans, lower risk exposure, etc.
                      Age Wave

   60-80% of lifetime health care cost during last
    6 months of life

   Life expectancy after age 65

                   1995      2001
          Male     15.6      16.4
          Female   18.9      19.4

   Transition planning is critical to longevity of
    farm
       Ownership of assets
       Management responsibilities
             Median Farm Household
   Net worth = $339,000
       For non-ag self-employed = $329,000
       For non-farm = $73,400

   Living expense of $43,000 annually including
    income tax
       Increasing by 7% annually

   15 to 20% hidden in farm expenses
       Insurances, fuel, food, etc.

   125 to 150% greater for the older generation
       Medical expenses, elder care, travel, leisure
                        Going Home?
   So you want to return to the family farm, eh?
   To generate $40,000 disposable income:
       Assuming 85% expense/receipt ratio

       You need to generate $267,000 of GROSS income
         –   How many cows is that? Acres? Orchids?


       If you have a $20,000/yr off-farm job
         –   Need to generate $133,500 of gross income per year!
                   Farm Household

   31% lack health insurance
       Never, NEVER go without health ins.

   Disability insurance
       Yeah, right!!

   Emergency savings?
       Yeah, right!

   Retirement investments?
       What is the typical retirement plan?
                 Today’s Agriculture
   Requires creative thinking
       Color outside the lines
       Cash flow is king!!

   Treat it like a business!!
       Business side vs. production side?

   Marketing will be crucial
       Use the tools, strategic alliances

   Technology - use it or not?
       Nothing wrong with low-tech!
                Today’s Agriculture
   “Salary farming” increases
       Farm owner = hired manager

   Off-farm employment
       55% of principal operators work off the farm
       For living income and benefits!!

   Labor issues
       Where will the labor come from?
               Today’s Agriculture

   Environmental concerns!!
     Nutrient management plans
     Waste management (hazardous, non-)



   Urban pressure
    Land and resources
    Votes (check out the electoral map)


   Water
    Availability   and quality
         Sources of Information


Statistical Abstract of the United States: 2005.
 www.census.gov/statab/www


Virginia Agricultural Statistics
 www.nass.usda.gov/va/bulletin99.htm

National Agricultural Statistics Service
  www.usda.gov/nass/

				
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