publication archive: farm finance
May 17, 2013
Changes in Farm Debt
The economic and financial environment that has been in place in the recent past has led to strong farm earnings. While some expense categories have been high, the combination of yields and prices has been such that earnings have exceeded expectations. While earnings have been good, there has been a record level of investment back into the farm; some of that has been with cash and some has been with borrowed funds. Today's post will look at the changes in leverage that have taken place from 1996 to 2012 as measured by the Interest Expense Ratio.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
May 14, 2013
Balance Sheets on Grain Farms from 2005 to 2011
Listen to MP3 podcastThe period of high grain farm incomes since 2006 has led to an overall strengthening of balance sheets on grain farms. Some concerns exist that much of this strengthening could erode quickly during a period of lower returns and declining farmland prices. While these concerns are legitimate, farmers have generally prepared themselves well to withstand lower returns. How much financial stress farms face likely will depend on the ability to curtail capital expenditures and family living withdrawals once a lower returns environment occurs.
Posted by Ben Hugenberg and Gary Schnitkey Permalink Tweet
April 19, 2013
More Corn...More Profit???
Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
April 11, 2013
Have Not Filed Your Return Yet?
While April 15 is rapidly approaching, if you have not filed your federal or state income tax return, you should not panic. You can file for an automatic 6-month extension of time to file. This will make your return due on October 15. Individuals file for an extension for a number of reasons.Posted by Gary Hoff Permalink Tweet
March 15, 2013
Control What You Can
Even though the 2013 crop isn't planted many of the inputs were secured some time ago. Nitrogen for the 2013 crop was likely priced (and paid for) as early as March/April of 2012 before the 2012 crop was planted. Seed, fertilizer and pesticides are typically booked and paid for prior to the end of the preceding year. Securing inputs at the lowest cost is the driving force behind many of these decisions although end of year tax planning can drive inputs to be purchased prior to the end of the year.Posted by Brad Zwilling and Dwight Raab Permalink Tweet
February 15, 2013
Know Your Term Debt and Capital Lease Coverage Ratio
From your accounting records, you've likely prepared (or had prepared) your financial documents for 2012. Those financial statements tell the story of your successes and challenges for 2012. As one of a series of measures that help tell that financial story of your farm operation, lets' consider the Term Debt and Capital Lease Coverage Ratio in today's post.Posted by Brad Zwilling and Dwight Raab Permalink Tweet
January 18, 2013
Management Review of 2012...While Looking Forward to 2013
Steven Covey is the author of the 'Seven Habits of Highly Effective People'. One of those seven habits is to 'begin with the end in mind'. So lets' begin 2013 by thinking about the end of 2013 and how your 2013 accrual income statement and balance sheet might turn out ...and lets' do that with a review of 2012. An introspective look the management of your operation for 2012 could provide good insight for bettering your management skills and abilities looking forward into 2013. The Good Lord gives us all different gifts in terms of the skills we have. The trick is to know ourselves well enough that we have the ability to seek outside assistance or education for the areas where our skills lack.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
November 29, 2012
Farmland Turnover in Illinois
There have been several very notable land sales in Illinois and surrounding states setting new high per acre sales prices in many areas, and leading to increased interest by others in evaluating both potential sales and purchasing opportunities. This year, there again seems to be a flurry of end-of-year farmland auctions and new listings of farm properties. Recently, at two separate meetings I have heard reports by professional appraisers that new requests are "flooding in" for farmland appraisals supporting end of year decisions about trust creation or sale. Casual explanations of the turnover activity include elevated concern about tax and estate law changes, efforts to take advantage of market momentum, strong balance sheets and derived demand from recent high income years, and continuing strong investor demand. Others have suggested that the level of activity in the farmland market is not that unusual and that there are often peaks in the 4th and 1st quarters each year -- and that this year is thus not abnormal at all. And on the other side of the argument, farmers and investors seeking additional land to continue to cite thin market conditions; neighbor bidding wars are noted as explanations of high sales prices; numerous reports occur of auctions that fail to meet reserve requirements; and there remains low interest by absentee owners in selling in the majority of cases.Posted by Bruce J. Sherrick Permalink Tweet
November 28, 2012
Risks Faced by Farms with High Cash Rents
Posted by Gary Schnitkey Permalink Tweet
November 20, 2012
2013 Net Farm Income Projections
Current futures prices suggest harvest-time 2013 prices of $5.80 per bushel for corn and $12.40 per bushel for soybeans. Given these prices, 2013 farm incomes likely would be above average. Worst case incomes depend on levels of projected prices used to set crop insurance guarantees. Likely projected prices will provide significant downside revenue protection. To quantify income projections, farm incomes for a 1,200 Illinois grain farm are simulated and presented.Posted by Gary Schnitkey Permalink Tweet
October 19, 2012
The Increasing Waistline of the Deferred Tax Monster
Agricultural producers are allowed to use the cash method of accounting for calculating income for federal and state tax purposes. This causes inevitable and numerous differences between taxable farm income and accrual farm income. For the most part, farm financial statements are not prepared in a way that recognizes the impact these differences have on tax liability, earnings, and net worth. Recognizing the amount of the estimated deferred tax liability and its' possible impact on your operation are part of the analysis of every year's business.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
September 21, 2012
Farm Liquidity - Working Capital to Value of Farm Production
Last month we looked at Working Capital which is expressed in dollars (current assets less current liabilities) and the current ratio which is a relative term (current assets divided by current liabilities). Both of these liquidity measures indicate that current assets and current liabilities are important. Farming is known to be an industry where it is all too common to be 'cash poor and asset rich'. Knowing the level of one's cash cushion is always prudent. It is frequent that lenders use a measure of liquidity when evaluating the balance sheet of a potential borrower.Posted by Brad Zwilling and Dwight Raab Permalink Tweet
August 17, 2012
Farm Liquidity - Your Current Ratio
The measures of financial liquidity quantify the ability of your farm to meet the financial obligations as they come due as well as to generate cash to pay family living expenses, income taxes, and make debt payments on time. The typical measures of liquidity under review by your FBFM field staff or lender are: 1) the current ratio, 2) working capital, and 3) the working capital/gross revenue ratio. This post will review the current ratio. The current ratio measures the extent to which current assets, if liquidated, would pay off all current liabilities. The higher the ratio, the greater the liquidity and as we learned in last month's post, cash is king.Posted by Bradley L. Zwilling and Dwight D. Raab Permalink Tweet
April 27, 2012
Challenges Facing Small Banks Lending to Agriculture
Despite continued bank consolidation, small banks remain important lenders to agriculture. Approximately, 35% of the 5,566 commercial banks with farm production or loans secured by farm real estate have assets less than $100 million at year end 2011. These banks held 12% of all agricultural loans at commercial banks. In 2001, banks with assets less than $100 million held 29% of agricultural loans.Posted by Paul Ellinger Permalink Tweet
July 22, 2011
Farm Liquidity - A Buffer for Volatile Revenue and Costs
Commodity price volatility and yield uncertainties combined with large swings in input costs have resulted in high but volatile farm earnings. In general, the profitability of farms in the U.S. and Cornbelt has been strong the past decade. The top five years in U.S. farm earnings for the past 30 years have occurred since 2004 (Figure 1). USDA forecasts farm earnings to be $94.7 billion in 2011, up almost 20% from the 2010 forecast and the second-highest inflation adjusted level in the past 35 years.Posted by Paul Ellinger Permalink Tweet
April 7, 2011
Capital Purchases Over the Years
Capital purchases have been at high levels for a number of years. The last three years (2008, 2009, and 2010) have seen capital purchases at levels not experienced previously - an average of around $90,000 per farm here in Illinois. The two years previous to those three, (2006 and 2007) had average levels of capital purchases that were records as well. (See the table, Line 1).Posted by Dwight Raab Permalink Tweet
