Financial

Considering financial factors is an important step in evaluating an alternative crop. For grain amaranth, farmers should understand the potential risk and return involved in planting and growing the crop. Is the selling price high enough to cover my production costs and provide an economic return? Is the market for selling grain amaranth available and stable? These and other key financial issues should be thoroughly researched when deciding whether to adopt grain amaranth as a crop for your farm.

Selling Prices

Grain amaranth growers earn a price per pound for the grain that they produce. As a baseline value, assume that grain amaranth prices average $0.40 per pound. For growers who invest in organic production practices, they may earn at least $0.65 per pound for organic grain amaranth that they raise.

Relatively high grain amaranth prices give producers an opportunity to record good revenue; however, those same high prices influence whether buyers can afford using grain amaranth as an ingredient. Markets that producers choose to pursue may influence the price that they could earn for grain amaranth. Buyers may grind grain amaranth into flour for products like cereal, crackers, bread and baked goods. Because grain amaranth contains high-value components like squalene, anthocyanins and microcrystalline starch, grain amaranth may have an opportunity to command high prices if buyers choose to source those ingredients from grain amaranth raw materials.

To ensure a secure market, grain amaranth producers may request developing a written contract with the desired buyer. A contract would also solidify prices for grain amaranth growers, considering that any added production acreage could pressure prices downward if supply exceeds demand. Establishing a contract would also eliminate middlemen from the supply chain.

Local markets and direct marketing represent other possibilities for grain amaranth growers. Specific local market possibilities include health food retailers and restaurants. Directly, consumers may purchase grain amaranth grain or flour from producers. If serving local or direct markets, then local market dynamics and costs to serve those markets would influence pricing.

Cost of Production

From a expense perspective, grain amaranth growers may anticipate costs to be similar to those incurred for soybean and sorghum production. The most significant production costs per acre, not including the land expense, involved in producing grain amaranth are those for fertilizer, machinery operations and transportation. Depending on the production geography, growers may raise grain amaranth as a double crop. Adopting a double-crop rotation may alter some production cost assumptions for grain amaranth growers.

Depending on the market served, transportation costs could be quite significant for grain amaranth producers. Relatively few large-scale buyers procure grain amaranth, and for Missouri producers, these buyers or delivery points aren’t nearby. Thus, transportation costs can accrue quickly if producers must move grain amaranth long distances. If producers use direct marketing, then transportation costs may be less significant. However, growers would incur costs related to developing and serving local and direct markets.

Seed cleaning is another cost category to consider for grain amaranth production. When marketing amaranth, the grain has typically been cleaned and packaged in bags or totes. Depending on the growing conditions, crop loss could be another cost-related factor to consider when raising grain amaranth. If shattering or lodging become an issue, then grain amaranth producers may risk crop failure.

Available at the link below, a cost-return budget for grain amaranth will allow you to conduct a customized grain amaranth analysis for your farm.

Grain Amaranth Cost-Return Budget

Crop Insurance

Missouri producers haven’t had grain amaranth crop insurance options available. However, growers may consider the Noninsured Crop Disaster Assistance Program. It can insure crops, including those grown for food or livestock feed, that otherwise don’t have an insurance program available. The program covers losses attributed to weather conditions including drought, freeze and excessive wind; natural occurrences including earthquakes and floods; and other weather- or natural occurrence-related issues such as excessive heat and insect pressure. To qualify for Noninsured Crop Disaster Assistance Program coverage, an applicant must not earn more than $900,000 in average adjusted gross income. Annual payments per individual or entity may total only $125,000 per crop. Producers who fit the beginning, limited resource and targeted underserved farmer or rancher definitions may have their service fees waived or premiums reduced.

For operations considering local or direct marketing, the Whole-Farm Revenue Protection program may be a crop insurance alternative. Through this program, producers can cover losses attributed to unavoidable natural causes, and carryover loss coverage is also available. A single policy from the Whole-Farm Revenue Protection program can cover all commodities that a farm grows. In terms of revenue parameters, eligible farms are those that earn no more than $8.5 million in insured revenue.

Sources

Agricultural Marketing Resource Center. 2014. Amaranth. Iowa State University. Ames, IA 50011.

Agricultural Utilization Research Institute. 2003. Amaranth. Agricultural Utilization Research Institute. St. Paul, MN 55108.

Crop Insurance Today. 2001. Amaranth. National Crop Insurance Services. Overland Park, KS 66213.

Farm Service Agency. 2016. Noninsured Crop Disaster Assistance Program for 2015 and Subsequent Years . USDA Farm Service Agency. Washington, DC 20250.

Iowa State University. Amaranth. Iowa State University. Ames, IA 50011.

Lee, Chad. 2011. Grain Amaranth. University of Kentucky. Lexington, KY 40506.

Risk Management Agency. 2020. Whole-Farm Revenue Protection. USDA Risk Management Agency. Washington, DC 20250.

Risk Management Agency. 2016. RMA Information Reporting System. USDA Risk Management Agency. Washington, DC 20250.

Farm Financial Assessment

Farm financial performance and records are important to consider when evaluating a new alternative crop. Past financial performance, current financial condition and the capacity to take on risk influence alternative crop adoption viability. If you need external financing to kick start your entry into alternative crop production, then your lender will likely want to see a good business plan and, if available, financial and production histories.

Financial recordkeeping systems are important for tracking financial performance and making decisions. You can keep records manually through a written system or electronically through a computerized system such as Quicken or Quickbooks. For you to make sound decisions, financial records need to be kept current and accurate.

Information from financial statements and income tax records can measure a farm’s financial position and performance. The balance sheet, statement of cash flows and income statement are three important financial statements. Balance sheets communicate the financial condition of a farming business on a specific day, such as the beginning or end of the year. They share detailed information about a farm’s assets, liabilities and equity. The statement of cash flows (cash in, cash out) shows cash receipts and cash expenditures during a certain time period. The income statement reports the revenue, expenses and profit during a given time period. Historical balance sheets, statements of cash flows and income statements demonstrate how the business has performed. Additionally, these statements can be used to project the business’ future performance. IRS Schedule F and 4797 tax forms are important to existing producers for accurately conducting accrual-adjusted financial analysis.

Key financial measures also help to evaluate a farm’s financial condition. Numerous financial measures can help with evaluating a farm. Usually, these measures tend to look at the profitability, financial efficiency, liquidity and solvency of the business. Examples include return on assets, the operating expense ratio and the debt-to-asset ratio. Lenders typically use a set of key measures when they evaluate loan applicants. Key financial measures can also help with benchmarking your farm relative to other operations. Benchmarking data can be obtained through developing good relationships with other local farmers who are willing to share some of their key financial measures. Alternatively, you may try contacting state recordkeeping business associations, universities or extension services.

Many tools and spreadsheets available online may assist producers in developing financial statements, keeping records and conducting financial analysis. Additionally, accountants, bankers and other business specialists are good resources who may assist with assessing farm financial performance.

For More Information

Measuring and Analyzing Farm Financial Performance (Purdue)

Worksheets for Measuring and Analyzing Farm Financial Performance (Purdue)

Farm Finance Scorecard (Minnesota)

Establishing and Using a Farm Financial Record-Keeping System (eXtension)

Farm Analysis Solutions Tools (FAST) (Illinois)