Emerging Issues in Agricultural Lending

Today (June 8, 2017), I spoke at the University of Missouri Emerging Issues in Agricultural Lending Symposium in Columbia, Missouri.

One of the speakers today was Dale Nordquist from the University of Minnesota FINBIN program.  They maintain financial data for over a 1,000 farmers in Minnesota and other states.  Some key data is as follows:

  • In constant 2016 dollars, farm income peaked in 2012 at almost $200,000 per farm and have now dropped to about $35,000 in 2015 and 2016.
  • For median Top Producers, average income peaked at $272,000 and now have dropped under $50,000 in 2016 ($17,000 in 2014).  High yields helped in 2016.
  • Dairy farms have been even more erratic. Average farms made $116,000 in 2007, then $6,000 in 2009 then peaked at $140,000 in 2014 and back under $30,000 now.
  • Average return for a conventional dairy cow in 2016 was $200 and $1,400 for organic dairies.
  • Hog operations peaked at over $300,000 in 2010-2012 and back to under $5,000 in 2015.  2016 is now at $27,000.
  • Beef operations very similar to hog operations.  A median loss of $7,000 in 2015 and about breakeven in 2016.  Current rallies in prices may help.
  • On the balance sheet side, net worth rapidly increased from 2005 to 2012, but have essentially flattened out over the last several years.
  • Working capital as a percent of gross revenue are still above 35% for crop producers which is better than all years before 2008.
  • Debt to asset ratios peaked at 51% in 1999 and have dropped to about 40% in 2012 and have slightly ticked up to about 42% over the last couple of years.
  • In 2015, the median farm was not able to meet their term debt coverage.  This ratio exceeded 4 to 1 in 2012 and was only 1.04 to 1 in 2016.  A projection for 2017 likely shows this number well under 1 to 1.
  • The top 20% of farmers generated net income of almost $700,000 in 2012 and still at the $200,000 range in 2016.  The low 20% of farmers peaked at $21,000 in 2012 and are now $60,000 in the hole (for four consecutive years).
  • The average machinery cost per acre for farms over $1 million in revenues is around $600 per acre.
  • The large farms in 2012 made far more than smaller farms, however, in 2016 the larger farmers in the bottom 20% lost over $300,000 (not just 2016, but 2013-2016).
  • Price received for corn does not seem to have much correlation between high and low income farmers.  The range for 2015 between low and high income farmers was a penny, however, hedging gains were much higher for high profit farmers than low profit farmers.
  • The trend in cash versus accrual income continues to have a wide spread.  2013 was the highest “cash” income in several years, however from an accrual standpoint, it was one of the lowest on record.
  • An interesting point was that the education level of the farmer did not have a correlation to farm profitability, but the education level of the spouse did have a high correlation (high non-farm income helped the farm).

As you can see, net farm income has dropped over the last several years, but there continues to be very profitable farmers out there even in times of low prices.  What are you doing to be one of these farmers.

  • Principal
  • CliftonLarsonAllen
  • Yakima, Washington
  • 509-823-2920

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

Comments

Are these numbers a bit misleading? Profits tend to rise when ranchers dump breeding stock, and tend to lower when they hold onto their own repkacements…yes? Also, do the numbers reflect new investment in machinery and equipment …thus higher levels of depreciation? Or older farmers with no depreciation selling to younger farmers who can then depreciate same assets again? Just thonking…what’s behind the numbers…yes? Marie Gibson

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