January 18, 2017

Understanding Coverage Ratio, a Measure of the Ability to Repay Loans

Completing financial statements and having a good understanding of where their business stands will be very important as farmers meet with their lender when initiating and renewing loans for 2017. The last three to four years of low farm incomes have resulted in tight cash flows, placing lenders in a much more cautious state of mind. From a lender's standpoint, just as important as having adequate collateral to back up a loan is the ability to project adequate cash flow to repay existing and new loan obligations.

January 17, 2017

Weekly Outlook: USDA Reports Provide Support to Soybean Prices

On January 12, the USDA released a set of reports with major implications for corn and soybean prices in 2017. The National Agricultural Statistics Service (NASS) released the final estimates of the 2016 U.S. corn and soybean crops and estimates of the stocks of corn and soybeans in storage as of December 1, 2016. Additionally, the World Agricultural Outlook Board released new forecasts for U.S. and world supply, ending stocks, and consumption levels during the 2016-17 marketing year on both crops. These estimates and forecasts will affect corn and soybean price dynamics through the spring of 2017. The following discussion recaps corn and soybean crop estimates and the price implications associated with them.

January 13, 2017

Should Sweat Equity be Used to Compensate a Returning Family Member?

The term "sweat equity" is used frequently in discussions of the contributions of an off-farm heir to the value of the family owned business. Sweat equity arises in part when an on-farm heir is paid less than their true opportunity cost to work for the business. The term also arises in situations where the business has grown substantially in value due to the managerial ability and efforts of the on-farm heir. This article describes why sweat equity is commonly used on farms that include multiple generations, and discusses how to measure sweat equity.

January 12, 2017

Assessing Brazilian Soybean Yield Risks: Historical Deviations from Trend

We recently began a series of articles to evaluate the history of corn and soybean yields and deviations from trend yield in Brazil and Argentina. The objective of the yield analysis is to provide a basis for forming expectations about the likely yields of the 2017 crops. The first five articles focused on the alternative sources of historical yield estimates, the selection of the appropriate series to use in the analysis for both corn and soybeans, the selection of the best-fitting trend model for each commodity and country, and trend yield deviations in each country for corn. Today's article examines soybean yield trend estimates and trend deviations for the Brazilian soybean crop.

  • Authors: Todd Hubbs, Scott Irwin, and Darrel Good
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January 11, 2017

IFES 2016: Long-Term Weather and Prospects for a Recovery in Corn Prices

Corn and other grain prices have declined sharply since 2013 and have recently been as low as $3 per bushel on a monthly average basis for the state of Illinois. The low level of prices has prompted some observers to declare that the "new era" in grain prices that began late in 2006 has come to an end. Whether the new era is indeed over depends on the mix of factors that have driven prices so low. If these factors are unlikely to be reversed, then there is little chance for a major price recovery. If at least some of these factors can be reversed then there is a possibility of price recovery within the new era price range shown below. The answer has obvious and important implications for farm incomes, land prices, crop input prices, land rental rates, and marketing strategies. The answer will also have important policy implications for U.S. agriculture.