publication archive: farm finance
May 17, 2013
Changes in Farm DebtThe 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.
May 14, 2013
Balance Sheets on Grain Farms from 2005 to 2011Listen to MP3 podcast
The 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.
April 19, 2013
More Corn...More Profit???
Crop rotations change from year to year for a number of reasons. Economics, dealing with weed and disease pressures, the installation of drainage tile, having a place to apply manure...all are reasons that a producer might vary the number of acres devoted to any single crop enterprise in any single year. Geographic's can also have an impact on crop rotations. Large areas of southern Illinois can easily fit double crop soybeans into a rotation while that feat would be very difficult in most of northern Illinois.
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.
March 15, 2013
Control What You CanEven 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.
February 15, 2013
Know Your Term Debt and Capital Lease Coverage RatioFrom 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.
January 18, 2013
Management Review of 2012...While Looking Forward to 2013Steven 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.
November 29, 2012
Farmland Turnover in IllinoisThere 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.
November 28, 2012
Risks Faced by Farms with High Cash Rents
Generally, farms with more of their acres cash rented at higher cash rent levels will face more downside income risk compared to farms with fewer acres cash rented at lower cash rent levels. As a result, farms with high cash rent levels could face large losses in some future year. This is illustrated by projecting 2013 incomes for farms with different rental situations