Farm Financial Update

Transcription

1 Farm Financial Update Tina Barrett Nebraska Farm Business, Inc. Nebraska Farm Business, Inc. The Nebraska Farm Business Association was started in 1976 as part of Cooperative Extension & The University of Nebraska Today we work closely with the University, with teaching, research & extension projects In 2002, NFBA became NFBI and we officially became a private company. 1

2 Nebraska Farm Business, Inc. Financial Analysis Business Planning Tax Planning Cash Flow Planning Goal: To Help Educate Farmers & Ranchers with Record Keeping and Management Through Financial Analysis. Accounting Payroll Tax Mangmnt $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $ Net Farm Income Trend 2

3 Digging Deeper 80% decline from 2013 & 2014 Crop Farms dropped from $100,000 to $58,000 44% of farms saw negative income Lowest since Net Farm Income $29,432 $25,252 Corn Price (Cash Sales) $3.77 $2.08 Soybean Price (Cash Sales) $9.46 $4.64 Per Acre Cost Irr. Soybeans Cash Rented Land $ $ Family Living Expense $91,991 $36,764 Total Debt $1,030,673 $413,537 Debt-to-Asset Ratio 28% 39% Working Capital to Gross Revenue 28.1% 17.2% Accrual Gross Income $954,821 $395,303 Crop Acres Old Normal Or New? 3

4 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Working Capital As A Percentage of Gross Income 1/1/2016 Working Capital to Gross Revenues < 0 0% - 10% 10% - 25% > 25% 24% of farms have negative working capital. 32% overall are in the red 51% of farms are sitting in a good position. 18% of farms are sitting with more than 80% of working capital to gross revenues. 4

5 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% >80% 26-80% 11-25% 0%-10% < 0% 40% 35% 37% 30% 25% 20% 33% 32% 30% 29% 22% 25% 26% 26% 28% 15% 10% 5% 0% Debt-to-Asset Ratio 5

6 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Less than 5% 5% - 30% 31% - 60% 60%- 80% Above 80% Debt-to-Asset Ratio $1,100,000 $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200, Average Total Debt Trend 6

7 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ Current Intermediate Long Term Non-Farm Debt by Term Repayment Capacity 5 Ratios that show your ability to repay debt Repayment Capacity How much money you have to pay debt and replace capital. Repayment Margin How much you have left after you pay your schedule debt Term-Debt Coverage Ratio How many times you can pay your scheduled debt (should be more than 1). 7

8 Net Farm Income $26,117 + Depreciation + $75,440 + Net Non-Farm Income + $36,087 - Family Living & Income Taxes - $114,246 + Interest Expense on Term Loans + $18,957 Capital Debt Repayment Capacity $42,355 Scheduled Term Debt Payments $79,786 Repayment Capacity Replacement Margin = $-37,431 $42,355 - $79,786 = $-37,431 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 ($50,000) ($100,000) Capital Debt Replacement Margin 8

9 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 ($50,000) ($100,000) Capital Debt Replacement Margin vs Working Capital 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% A Look at Per Acre Costs COST OF PRODUCTION 9

10 $800 $700 $600 $500 $400 $300 $200 $100 $0 Irrigated Soybeans Gross Income & Expenses-All Farms Record Yields Ave 68 bu/ac Gross Income Total Expenses Irrigated Soybeans All Tenure Types Average Yield 60 Direct Costs $ Cash Rent $ Overhead Costs $91.40 Total Costs $ Cost of Production $11.29 per Bushel Irr. Soybean Cost of Production 10

11 Average Yield 60 Direct Costs $ Cash Rent $ Overhead Costs $91.40 Total Farm Costs $ Family Living & Taxes $86.63 Total Costs $ Family Living: $91,991 Income Taxes: $30,727 Non-Farm Income: -$36,087 Total: $86,631 Average Acres: 1,000 Cost Per Acre: $86.63 Cost of Production $12.73 per Bushel Irr. Soybean Cost of Production Cost Per Bu: $ Difference Seed $35.52 $78.05 $42.53 Fertilizer $2.71 $62.00 $59.29 Chemicals $22.20 $42.04 $19.84 Crop Insurance $8.99 $27.52 $18.53 Irrigation Fuel/Repairs $31.44 $33.93 $2.49 Machinery Costs $78.33 $ $49.13 Cash Rent $ $ $ Other Direct Expenses $31.31 $25.61 $-5.70 Other Overhead Expenses $12.01 $37.62 $25.61 Total Expense $ $ $ Comparison Irr. Soybean, Cash Rented Land 11

12 Difference Yield Price $6.19 $8.73 $2.54 Crop Value Per Acre $ $ $ Other Returns $1.26 $33.48 $32.22 Total Income $ $ $ Total Expense $ $ $ Cost Per Bushel $5.54 $9.96 $4.42 Comparison Irr. Soybean, Cash Rented Land Farm Management & Baseball?? 12

13 Keep the Line Moving 139 Home Runs (2 World Series) Ranked 24 th /30 th 973 Strike Outs (37 World Series) Lowest in MLB 1,497 Hits (47 World Series) 2 nd Most in MLB 724 Runs Scored (27 World Series) 7 th Most Won 95 Lost 67 (4 World Series) Farm Management & Baseball Home Run Derby 177 Home Runs (6 World Series) Ranked 9 th / 30 th 1,290 Strike Outs (46 World Series) 11 th Most 1,351 Hits (35 World Series) 6 th Lowest 683 Runs Scored (19 World Series) 17 th Most Won 92 Lost 72 (1 World Series) How to We Hit Home Runs in Farm Management? Maximize Yields Cut Single Costs Hit the Marketing High Expand Farm Size Home Runs 13

14 Yield (Raise Yield) (Double Acres) (Cut Costs) Direct Costs $ $ $ $ Cash Rent $ $ $ $ Overhead Costs $91.40 $91.40 $45.70 $91.40 Total Farm Costs $ $ $ $ Family Living & Taxes $86.63 $86.63 $43.32 $50.00 Total Costs $ $ $ $ Need to reduce family living by Cost of Production $12.73 per Bu. $10.18 per Bu. $11.25 per Bu. $36,000 or 1/3! $10.15 per Bu. Hitting a Home Run Yield % + Direct Costs $ $ % Cash Rent $ $ % Overhead Costs $91.40 $ % Total Farm Costs $ $ % Family Living & Taxes $86.63 $ % Total Costs $ $ % Cost of Production $12.73 per Bu. $10.38 per Bu % Managing Royals Style 14

15 Can you save just 10 cents for every $ you spend? $2.35 per bushel x 66 bushels x 1,000 acres = $155,100 Reducing Costs IT S BEING DONE 15

16 Low 1/3 Average High 1/3 Direct Costs $ $ $ Cash Rent $ $ $ Overhead Costs $88.50 $91.40 $91.98 Total Farm Costs $ $ $ Family Living & Taxes $86.63 $86.63 $86.63 Total Costs $ $ $ Cost of Production $13.61 per Bu. $12.73 per Bu. $10.85 per Bu. * Assuming same 60 bushel yield & same Family Living Cost Irr. Soybean Cost of Production WHAT CAN WE DO? 16

17 1. Know YOUR costs and financial position - You can t manage what you don t know. - Your costs are not the same as anyone else's. - Don t wait for your lender to get nervous. - Make changes while you still have the choice. How to Reduce Costs 2. Hold YOURSELF accountable - Make financial management as important as crop management and marketing - Don t wait until year-end to do your book work - Evaluate your business more than once per year - The end of the year is too late to make changes - If you can t do it, hire someone who can - You still have to do your part How to Reduce Costs 17

18 3. Communicate - The whole team (family) needs to understand why you are making changes - Work with your agronomist to come up with solutions that could cut costs without hurting yield too much - Share your cost projections with your marketing advisor - Keep open communication with your lender - Think about non-financial impacts How to Reduce Costs 4. Think Bottom Line - Don t manage for the highest gross income - Is $62 per acre in fertilizer returning enough to cover the cost? - Better be returning over 6 bushels per acre. - $62 cost divided by $10.00 per bushel price = 6.2 bushels per acre to breakeven How to Reduce Costs 18

19 Cash Rents When is the right time to give them up. Loss of Working Capital How to Improve and Caution Family Living NFBI Trends and Cost Cutting Strategies 2015 Farm Financial Average Summary 2015 Top Efficient Farm Summary Webinars Available & We post all new webinars and articles to our Facebook page & Twitter Feed, so you can Like us at or follow us to be the first to know when new content is added to the page. 19

20 Questions? Tina Barrett Executive Director Nebraska Farm Business, Inc Touzalin Ave, Ste 105 Lincoln, NE (402)