Iowa Farm Financial Conditions

Transcription

1 Iowa Farm Financial Conditions Alejandro Plastina, PhD Assistant Professor, Economics AAEA Extension Track Session Chicago, IL August 1, 2017 Data Source: Iowa Farm Business Association Actively Managed Mid-size Commercial Farms Focus on Farm Management Decisions Machinery and Land recorded at COST value 1

2 Net Farm Income in Iowa: (accrual, nominal) $250,000 $243,072 $200,000 $150,000 $100,000 $50,000 $0 $27,927 $45,597 Source: Iowa Farm Costs and Returns. Ag Decision Maker File C1 10. Various years. Farm Profitability in Iowa: ROA, ROE, Operating profit margin ratio 35% 3 25% 2 15% 1 5% Operating profit margin ratio Rate of return on farm assets Rate of return on farm equity 1.7% 1. Source: Iowa Farm Costs and Returns. Ag Decision Maker File C1 10. Various years. 2

3 Adjusted Farm Cash Income (AFCI = NFI + Depreciation) AFCI measures the capacity of the farm to generate free cash flows: AFCI>0: cash from the operation can be used to pay taxes, reduce principal owed, purchase capital assets, or pay family living expenses. AFCI<0: shortfall must be covered by off-farm income, or reductions in family living expenses. NFI and Adjusted Farm Cash Income (AFCI = NFI + Depreciation) $300,000 $250,000 NFI Accrual AFCI $200,000 $150,000 $100,000 $50,000 $0 $86,634 $45,597 Source: Iowa Farm Costs and Returns. Ag Decision Maker File C1 10. Various years. 3

4 2016 Adjusted Farm Cash Income per Acre ($) $274 $206 $157 $102 $ ROA (Percent) $ ,400 1,200 1, Farm Size (Acres) by 2016 AFCI Quintile 4

5 Sources of AFCI by Group Top 2 Upper 2 to to Cash Grain Grain Livestock Hog Beef Mixed Corn Yield and Price Received by Group $ $ $3.45 $3.36 $ $3.43 $3.60 $3.55 $3.50 $3.45 $3.40 Price (dollares per bushel) $3.35 $3.30 $3.25 $3.20 $3.15 5

6 2016 Total Expenses per Acre 1,600 1,400 1,200 1,000 Total Expenses $1,151 $864 $881 $910 $1,456 $1, Cost of Debt and Interest Expense Ratio by Group Cost of Debt (End) Interest Expense Ratio 7.4% 7.6% 3.7% 4.2% 4.6% % 4.9% 15.8% %

7 Farm Liquidity & Solvency Higher better Lower better Liquidity: Current Ratio = Current Assets/Current Liabilities Solvency: Debt to Asset Ratio = Total Liabilities / Total Assets Liquidity in Dec 2016 Working Capital per Acre $591 $597 $565 $508 $401 $238 Top 2 Upper 2 to to 7

8 Liquidity Ratings Dec 2016 (Current Ratio FFS) by Group 54% 59% 53% 17% 1 16% 44% 19% 29% 3 31% 37% Top 2 Upper 2 to Middle 2 a)vulnerable (CR<=1.3) c)strong (CR>2) Lower 2 to 25% 13% 62% 46% 15% 39% b)normal(1.3<cr<=2.0) Solvency in Dec 2016 Farm Net Worth per Acre Farmed $2,798 $2,851 $2,543 $2,477 $2,577 $1,837 8

9 Solvency Ratings Dec 2016 (Debt to Asset Ratio) 42% 36% 22% Top 2 56% 34% 39% 1 16% Upper 2 to 54% 45% 22% Middle 2 a)vulnerable(dta>6) c)strong (DTA<=3) 24% Lower 2 to 29% 25% 47% 43% 33% 25% b)normal(3<dta<=6) Percent of Vulnerable Farms Dec 2016 Liq & Solv Vulnerable Only Liq Vulnerable Only Solvency Vulnerable 8% 3% 2% 1 22% 23% 19% 8% 8% 6% 19% 19% 7% 22% 5% 19% 2 9

10 Concluding Remarks Mid-sized commercial farms in Iowa: Low profitability overall A sizable share incurring cash losses 44% of all farms are financially vulnerable 7 of the farms in the bottom group are financially vulnerable Liquidity problems are more widespread than solvency problems Thank you for your attention! Questions? Alejandro Plastina Assistant Professor/Extension Economist plastina@iastate.edu (515)