Cost Benchmarks, Collecting Field Data, Users In the News, Management Accounting for Cash Flow Hedges,Free Webinars, Export File Preferences
Not rendering correctly? View this email as a web page here.

 FarmSMART                                                      April 2013 

In this Issue:

Cost Benchmarks

Collecting Field Data

FBS Users In the News

(Phone) Menu Changes

Management Accounting 
for Cash Flow Hedges

May Free Webinars

Q&A:  Export File Preferences

 

Visit our Website

FBS_Logo2

Stay in Touch

Farm Management Software Blog Button  
 
View our profile on LinkedIn
 
Follow-up Links
 
 
 
 
 
 
New Call-to-action
 
New Call-to-action
 
PPC_Full.jpg
Click here to learn about the Pork Profit Center Dashboard
 
   
 
 

Field of Dreams

 Seed Bed in the Shed

 Greetings!  

"Field of Dreams" Meets "Seed Bed in a Shed"  
 
Sorry--no action photos (yet) this month.  Since the field shot above was taken the water's receded, and the seed's still in a "cool, dry place." 
 
As we're waiting for the starting gun for the Spring Sprint, we encourage you to note these important news items:
  • Pork and crop benchmarks at our August User Conference.
  • Tips to catch up with field data collection.
  • More FBS users in the news.
  • How to set up cash flow commodity hedges in our Best Practices section.   
  • Our free, weekly one o'clock webinar addresses timely and time-saving tips for getting more done in 2013.  
  • The Q&A of the Month explains how to predefine your export file locations and names.  
  • We link to an excellent Top Producer article on monitoring your farm's financial heath in the Farm Management Software Blog. 

                                                                                      SDG

 John McNutt
Cost Benchmarks to be Presented at User Conference

Both pork and crop cost of production benchmarks will be unveiled at the 2013 FBS User Conference, August 28-29 at the River's Bend Conference Center in Moline, Illinois.  The benchmarks are being compiled by the CPA firm of Latta, Harris, Hanon & Penningroth L.L.P.  Since 2006 the pork benchmarks have been released at thePORK$HOP seminar in conjunction with the World Pork Expo, but this year the content of that seminar will be incorporated into the User Conference.  

If you'd like to participate in either the crop or pork cost of production studies contact John McNutt at the LHHP Tipton, Iowa, office (563)886-2187).   And please reserve Wednesday and Thursday, August 28 and 29th, 2013, for the most comprehensive information management and networking event of the year.
Planning for Planting
Gear Up to Collect Field Data 
In the rush to punch those seeds into the ground don't neglect punching the records that you'll need for production records,inventory control and management accounting
  
Most growers will admit that field data entry is the weak link in their information chain.  FBS's MACH 2.0 Interface automates crop production data collection by importing files from these technologies:
  • Conservis mobile/cloud-based planting/application records
  • Trimble
  • Apex
  • Ag Leader SMS
  • LandDB
 For more information contact sales@fbssystems.com or call 800.437.7638 / Extension 2.
FBS Users In the News
Congratulations to these FBS users and industry leaders: 
  
Lexington, Nebraska corn and soybean grower Don Anthony explains how he conserves water and cuts energy costs by converting to drip irrigation in the February 2013 Corn & Soybean Digest article, "Switch to Drip." In the same issue, American Soybean Association president Danny Murphy published a commentary, "Consumer Connection the Key to Rural Relevance."
  
We also recognize these FBS users serving on the ASA board:
  • Ray Gaesser, Corning, IA

  • Jeff Sollars, Washington Court House, OH

  • Joe Steinkamp, Evansville, IN

The Compart family of Nicollet, Minnesota, was featured in the National Hog Farmer's GeneLink 2013 supplement chronicling their innovations in genetics and branded pork.

Our (Phone) Menu Has Changed 
We're still working the bugs out of our new VOIP phone system installed this month, but we want to alert you before you call that, as they say, "Our menu has changed."
  • To reach Sales, press "2."
  • To reach Support, press "3."
For some reason, the new phone system's software doesn't accept "1" as a valid menu option.  Otherwise we've tried to maintain the same user interface as before, including our extensions.  
 
Thanks for your patience!
Hog truck on scales  
Management Accounting Bar Chartfor Cash Flow Hedges
  
 In our last issue we described the best practices for accounting forFair Value hedges, which are in effect when a hedge instrument offsets an inventory on hand (or a "firm commitment" to buy or sell). The most common example for agriculture is when a hedge is initiated against a crop that has already been harvested and is available for immediate sale.  

What are the best accounting practices for hedges that are initiated before a crop or group of animals is harvested

This scenario requires using a Cash Flow hedge. As its name implies cash flow hedges are used to establish a fixed price when future cash flows could vary due to changes in prices. With cash flow hedges there are no market-ready inventories to "mark to market." Instead the product being hedged is either in a "work-in-process" stage (growing crops or livestock with no ready market) or "forecasted transaction"(a future crop, animal production or feed purchase).

Management accounting for cash flow hedges can be much more challenging and complex than for fair value hedges due to these factors:

  • Cash flow hedges are initiated to lock in prices in a future period so hedging gain and loss must be "pushed" into that future period to match costs with sales.
     
  • Futures and option positions may be rolled several timesbetween delivery months and/or contract types. 
     
  • Livestock producers who hedge feed as well as animals must be able to match past and future trades to the appropriate inputs and delivery periods.
     
  • Trading months for feed and livestock commodities rarely correspond.  (For example cattle and hogs trade October contracts, but corn doesn't.)   

Fortunately, cash flow hedges be tracked easily through carefully-defined ledger accounts and cost centers. 

Other Comprehensive Income Ledger Accounts  

These are income and equity accounts used to book profit and loss to be recognized in a future period. The accounting termcomprehensive income refers to all changes in equity except for transactions from owners and distributions to owners. Most changes to equity are "driven" through the income statement and are assigned as Net Income (current period) or Retained Earnings (prior periods) accounts. However there are special cases such as management accounting for cash flow hedges where changes in equity do not go directly or immediately through the income statement, which is defined as Other Comprehensive Income (OCI).

You'll need one Other Comprehensive Income revenue account and one Accumulated Other Comprehensive Income equity account foreach commodity you trade. For example:  

Hedging OCI Accounts

Delivery Period Centers  

In addition to equity accounts you'll also need to set up special cost/profit centers for assigning current trades to future time periods. For crop production the best practice for inventory control and cost analysis has usually been to define a unique crop Marketing Center for each crop production/marketing year. Therefore a corn grower planning to initiate cash flow hedges for the 2013 and 2014 crops will need these marketing centers:

  • 2013 Corn Marketing
  • 2014 Corn Marketing

FBS E.CLIPSE Management Accounting users will also define a Marketing Project corresponding to each of these Marketing Centers. 

Livestock feeders are faced with even more time period options for assigning cash flow hedges:

  • By year
  • By quarter
  • By month
  • By group
Because of the mismatch between commodity trading months described earlier, the quarter method offers the optimum blend of simplicity and analysis for most livestock producers.
 
The last option (group), while technically possible, may not be practical for all but the most detail-obsessed users because deliveries rarely match up exactly with the original group that was hedged. At the very least we recommend starting with either the quarter or month time increments before progressing to the complexity created by tying hedge positions to groups.

These livestock delivery period centers should be defined as F (Feeding) centers with codes for each delivery period and "flow" of animals.   Note that only one center is needed track all commodities-feed, feeders, livestock sale contracts-tied to animal sales in a specific delivery period. Here are some center coding examples for a "single flow" system for tracking by year, quarter or month. 

 Cash Flow Hedges Delivery Periods  

For a larger system with multiple flows codes can be adapted to identity the species or production system to be tracked.  See the examples below.
  
Cash Flow Hedges Deliveries by Flow

 As simplified alternative to specific delivery period centers, the commodity's Profit Center (C center for crops, F center for livestock) may be used; however resorting to this practice will sacrifice the ability to evaluate complex cash flow hedging strategies initiated over long periods of time.

Next month we will describe how all these components fit together in the accounting process for cash flow hedges. 

May Free Webinars
  
Setting Up Ledger Accounts--Which Options To Use, May 6.Webinar Computer
How to Handle Credit Cards, May 13.
The New Docking Forms Feature, May 20.
When to Use Journal and Adjustment Entries, May 27.
 
All webinars run between 1:00 pm and 2:00 pm CDT.  To register, e-mail support@fbssystems.com by 12:00 pm CDT on the day of the webinar.
Q&A of the Month--Export File Preferences
Sarah Dixon
Sarah Dixon, FBS Technical Services Manager.

 Q.  Every time I go to export a file I have to reset the file type and destination location.   Is there any way FBS can remember these things for me so I don't have to constantly reset them?

A. Yes, you can use Preferences so that FBS will remember these settings for you! 

1. Go to Utilities | Set Preferences. 

2. Scroll down to the Export file destination line.   Type the export file destination in the Value column. For example, if you want it to save to a file folder called FBS Export Reports that is under your FBS program file on the C drive you would type C:\FBSWIN\FBS Export Reports. Note that your drive letter and program directory could be different and that for this example to work you must first create an FBS Export Reports folder under the FBSWIN folder through Windows Explorer. 

3. Next scroll down to the Export file name line. The "default" name for export files is normally "Export" but this Preference allows you to define your own naming convention that will be easier for you to retrieve and avoid overwriting an existing file. In the example below I use my farm initials and a "default" description resulting in DFF 2013 report x-xx. When I do the actual export I will change "report x-xx" to something like "balance sheet 4-19." 

4. Finally scroll down to the Export type line. To predefine to a specific file type one of these choices in in the Value column:  

 1=Text file, 2= Excel 4.0 or 3= Excel 5.0 

5. Make sure to click on Save after you have made your changes. 

Export File Preferences

 
           Sincerely,

           FBS Systems
Follow us on http://www.fbssystems.com/CMS/UI/Modules/BizBlogger/rss.aspx?moduleid=880938