Financial

Considering financial factors is an important step in evaluating an alternative crop. For pearl millet, 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 pearl millet available and stable? These and other key financial issues should be thoroughly researched when deciding whether to adopt pearl millet as a crop for your farm.

Selling Prices

Although pearl millet has been regarded as a good temporary pasture forage, some varieties produce grain that the poultry and livestock sectors may incorporate into feed rations. This financial guide assumes that producers grow and sell pearl millet for its grain. Pearl millet growers earn a price per pound for the grain that they produce. As a baseline value, assume that pearl millet prices average nearly $0.13 per pound. If raising pearl millet organically, then grower may earn a premium. Livestock producers who choose to raise their animals organically could use organic pearl millet as a feed ingredient.

For animal diets, pearl millet and corn would have similar feed values. As a result, prices for the two would tend to have similar patterns, though pearl millet may have a slightly lower price. Eventually, raising pearl millet that can prove to deliver more value than corn should enable growers to earn premiums for the crop. Pearl millet’s desirable protein and amino acid composition may at one time enable the crop to scale in production and support a price premium relative to corn.

Prices earned for pearl millet may vary by market served and each market’s perception of pearl millet value. As mentioned earlier, livestock feed suppliers may use pearl millet as a feed component. Alternatively, pearl millet grain may also find application as a birdseed ingredient. The feed market may have a lower willingness to pay for pearl millet than the birdseed market. For a premium to develop within the birdseed market, birdseed suppliers would need to require reasonable pearl millet volumes, and the pearl millet would likely need to replace higher value birdseed ingredients such as proso millet rather than lower value ingredients such as sorghum. Ideally, producers will have determined a pearl millet buyer before beginning the production process. A contract may provide additional market and price stability.

Cost of Production

From a expense perspective, pearl millet growers can anticipate to incur production costs similar to those realized when growing corn and sorghum. Generally, pearl millet production requires few inputs. Because pearl millet roots grow deep, the crop may absorb soil nutrients trapped lower within the soil profile. Despite the minimal requirements, pearl millet performance tends to improve when the crop has access to suitable soil, fertility and management.

The most significant pearl millet production costs per acre, not including the land expense, are those for fertilizer and machinery operations. Depending on the growing geography, producers may use pearl millet in double-crop situations. This practice may alter cost assumptions. As indicated earlier, growers tend to lack established pearl millet markets. Thus, producers may need to allocate some expense to identifying and developing market opportunities. Additionally, because Missouri currently lacks pearl millet delivery points, producers may need to absorb some transportation costs to reach buyers unless local market opportunities unfold.

Note that producers may record some pearl millet crop loss if birds present a challenge and damage the crop. Losses may vary depending on pearl millet acreage being grown. They tend to be more significant in small acreage scenarios. Increasing pearl millet acreage to at least 40 acres may reduce the extent to which a producer realizes large-scale bird-related damages. Due to birds possibly presenting a challenge for pearl millet growers, producers may need to invest in control strategies, or they would need to accept any associated losses at harvest. Such losses would influence potential profitability.

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

Pearl Millet Cost-Return Budget

Crop Insurance

Missouri producers haven’t had pearl millet 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

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

Iowa State University. Pearl Millet. Iowa State University. Ames, IA 50011.

Lee, Chad and Jimmy Henning. 2014. Millet. University of Kentucky. Lexington, KY 40506.

Lee, Dewey, Wayne Hanna, G. David Buntin, William Dozier, Patricia Timper and Jeffrey P. Wilson. 2012. Pearl Millet for Grain. University of Georgia. Athens, GA 30602.

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)