Whole Farm > Cost & Return > Budgeting and Analysis

Suggested Closing Inventory Prices for 2018 Records

File C1-40
Updated December, 2018

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A uniform set of closing inventory prices for farm products can be used for several purposes. A net worth statement or balance sheet should be developed on or around January 1 to measure the financial progress of the farm from year to year. An up-to-date balance sheet is also requested by most lenders when a loan application is made. The inventory prices can be used to value the crops, livestock, and supplies that the farm has on hand at the time the statement is taken.

Inventory prices are also used for developing an accrual net income statement. Year-to-year changes in inventories need to be considered to accurately estimate the net income that a farm earns each year. Farmers who use the accrual accounting method to complete schedule F for their income tax return also need to accurately value their inventory of crops, livestock, and products.

The inventory list also includes suggested values to use for home-used products. The value of crops, livestock, or livestock products that are consumed rather than sold should be added to the gross income of the farm when an income statement is completed. The value of farm products consumed at home does not need to be included in taxable income. However, the cost of producing these products should be deducted from the business expenses included on the schedule F. Publication FM-1421 (Ag Decision Maker file B1-15) lists some suggested cost adjustments for farm products consumed at home.

Some farm operators like to deduct opportunitycosts for farm labor that was not paid an actualwage and for equity capital that was invested in thefarm business to calculate a return to management.This is the amount of income left over after all resources, including unpaid labor and equity capital, have been paid a return. It is useful for comparing the profitability of the business over time and with that of other farms. The suggested values represent typical rates of return earned on farm assets and by farm employees. The suggested pasture costs can be used to estimate the returns to livestock enterprises such as beef cows, dairy, or a ewe flock.

Grain, silage, hay and straw, and feeder livestock can be valued at their potential selling price on the date of the inventory rather than the suggested prices. Prices should be adjusted to reflect local market conditions and differences in quality. Selling and transportation costs should be deducted to arrive at “on-farm” values. Feed supplements and other supplies can be valued at their purchase price rather than the suggested price.

Breeding livestock prices should also be modified to reflect differences in quality. However, unit values for breeding livestock on the same farm should be held constant from year to year to avoid unrealistic swings in net income and net worth. Sires and recently acquired female animals can be valued at their purchase prices.


Alejandro Plastina, extension economist, 515-294-6160, plastina@iastate.edu
Chad E. Hart, extension economist, Iowa State University, 515-294-9911, chart@iastate.edu
Lee Schulz, extension livestock specialist, 515-294-3356, lschulz@iastate.edu