How Much Will Working Capital Per Acre Drop This Year?
FarmDoc Daily from the University of Illinois just released an article today on working capital for Illinois farms for 1996-2014 and the trend for 2015. For those of you who do not subscribe to this blog, I would recommend signing up for it.
In the post, there is a chart showing the average working capital per acre from 1996-2014. From 1996-2005, the average was less than $200 per acre. Beginning in 2006 and peaking in 2012, the average working capital per acre rapidly increased from $200 to slightly more than $700 per acre. Most of this is due to the increase in crop prices, but also the rapid increase in input costs would lead to part of this increase too.
Working capital decreased in both 2013 and 2014 with $588 per acre for last year. Since input costs have doubled, farms need close to $400 per acre to be comparative to pre 2006 farms.
Estimated working capital changes for a typical Illinois farmer show a decrease of $11 for owned land, $121 for cash rent farmers and $72 per acre for share rent farmers. If the farmer is a “typical” farmer, the overall working capital decrease would be about $80. This would put ending working capital per acre close to $500 per acre. Still higher than farmers 10 years ago (after accounting for input inflation) but much lower than the 2012 peak.
Again, as mentioned many times in this blog, working capital is the financial engine that drives your farm operation. It is similar to oil in a machine; once you run low or run out, the engine stops and the farm operation is no longer that viable.
The bottom line is make sure you have plenty of working capital for your farm.
Paul Neiffer, CPA
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 principal with CliftonLarsonAllen in Walla Walla, 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. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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