Agricultural Economy in Southern Minnesota PAUL LANOUE DEAN OF MANAGEMENT MINNESOTA WEST
Where are we at? Variability Yields Weather Financial health Commodities Land Ownership Debt load Tax planning
2015 Financial Year in Review ANALYSIS FINANCIAL TREND DATA COMPILED BY AL BRUDELIE ( RETIRED DEAN OF MANAGEMENT) MARCH 2016
2015 in Review Gross farm income was $840,341-2015, from $925,932 in 2014. Down 9.2%. Cash op. expenses was $724,501-2015, from $776,714 in 2014. Down 6.7%. Net cash income was $115,840 in 2015, from $ 149,218 in 2014. Down 22.4%. Net farm income was $35,915 Down from $ 96,337 in 2014, Down 62.7%.
2015 in Review Corn production was up 25.7% to a yield of 205.9 bu. in 2015 from a yield of 163.8 in 2014. The highest yield ever was in 2015 at 205.9 bu. The lowest was 54 bu. in 1965. Soybean production was up 27.8% to a yield of 60.1 bu. in 2015 from a yield of 47.0 bu. in 2014. The lowest yield was 18 bu. in 1996. The highest yield was 60.1 bu. in 2015.
Crop acres 1600 1400 1200 1000 800 600 400 200 667 686 678 697683 730 274 247 1363 977 930 1571 1156 957 Average Low 20 % High 20 % 1094 2011 2012 2013 2014 2015
Net Farm Income (Ave) 300,000 250,000 200,000 150,000 100,000 50,000 0 272,544 183,808 199,794 149,940 139,986 106,964 96,337 73,678 61,350 35,915 2006 2007 2008 2009 2010 2011 2012 2013 Southern Minnesota Book 2014 2015
Profitability Analysis Rate of Return on Assets 16 14 12 10 8 6 4 2 0 14.2 13.7 11.1 11.5 11.5 10.8 3.7 2.6 3.7 0.8 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Return on Assets Cost
Thousands Non-farm Income 40 35 30 25 20 15 2006 2007 2008 2009 2010 Off Farm Income 2011 2012 2013 2014 2015
Thousands Non-Farm Income & Family Living Both have trended upward over the years. In many cases, the employee benefits add significant value to the nonfarm employment. Non-farm income pays for approximately half of household and personal spending. 130 110 90 70 50 30 10 2006 2007 2008 2009 2010 2011 Family Living Costs 2012 2013 2014 2015 Non-Farm Income
Each farmer, on average, spent $960,262 in the Greater Community Farm & Family Spending 2015 $73,017 Fdr Lvstk & Cust Wk $96,497 $139,264 Where Did the Family $1,024,388 Living Capital Purchases Go 7.6% in 2014? 14.5% 10.0% $157,532 Seed, Fert, Chem 16.4% $20,513 RE Taxes & Utilities 2.1% $28,620 Other Crop Exp 3.0% $162,720 Interest & Leases 16.9% $101,444 Purchased Feed 10.6% $40,248 Other Lvstk Exp 4.2% $40,094 Hired Labor 4.2% $67,040 Fuel & Repairs 7.0% $33,273 Gen Farm Exp 3.5% Average Money Spent by Each Farmer in the Greater Community: $960,262 Average Money Spent by Each Farmer in a 40 Year Career: $38,410,480 Money Spent in Community by 1287 Farmers: $1,235,857,194
Farm Financial Standards The American Bankers Association has endorsed the use of sixteen standards to rate business performance (see page 20). These standards are measures of: Liquidity Solvency Profitability Repayment Capacity Financial Efficiency
Current Ratio (Liquidity) Current farm assets / current farm liabilities 3.5 3 2.5 2 1.5 1 0.5 2.90 2.66 2.41 2.32 2.50 2.2 2.18 2.04 2.26 1.98 2.04 1.87 1.74 1.61 1.45 1.48 1.37 1.25 1.27 1.17 0.98 2.4 2.24 2.21 2.03 1.79 1.64 1.6 1.23 1.23 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Low 20% Average High 20%
Working Capital to Gross Income All Farms 60 50 40 30 20 10 0-10 2006 32 23-1 2007 37 29 9 51.4 42.5 42.8 45.6 43.1 42.6 39.9 32.1 42.2 36 36.8 35.5 32.9 28.3 29.9 27.4 24.3 15.8 15.3 16.8 14.8 10.3 11.8 6.9 2008 2009 2010 2011 2012 2013 2014 2015 Average Low 20% High 20%
Debt to Asset Ratio (Solvency) Total farm liabilities / total farm assets Red >70 % in Debt Yellow 30 to 70 % Debt 70 65 60 55 50 45 40 Green <30 % Debt 35 30 25 20 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Low Average High
Rate of Return on Farm Equity (Profitability) [Net farm income from operations minus value of unpaid labor & mgmt] / average farm equity 40 Watch your trend information to be sure you are heading in the desired direction. 30 20 10 0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15-10 -20-30 Low 20 % Average High 20 %
Operating Profit Margin Ratio (Profitability) [Net farm income from operations + farm interest expense minus value of unpaid labor & mgmt] / gross revenue 40 >25 % Green 10 % to 25 % Yellow <10 % Red 30 20 10 0-10 -20-30 '06 '07 '08 '09 '10 ;11 '12 '13 '14 '15 Low Average High
Term Debt Coverage Ratio 6 5 4 3 2 1 0-1 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Avarage Low 20 % Heigh 20 %
Capital Replacement Margin 2015 150,000 128,129 100,000 50,000 68,990 0-50,000-100,000-47,775-150,000-200,000-250,000-230,462 Average Low 20 % High 20 % High 10% Replacement Margin Accural
Asset Turnover Rate (Financial Efficiency) Gross revenues / average total farm assets 60 55 50 45 40 35 30 25 20 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Low 20 % Average High 20 %
Operating Expense Ratio (Financial Efficiency) [Total operating expenses minus depreciation] / gross revenue >85 % is Red 75 % to 85 % Yellow <65 % is Green 120 100 80 60 40 20 0 '06 '08 '10 '12 '14 Low Ave ra ge High
Operating Expense Ratio 2015 100% 80% 60% 40% 20% 0% -20% 4.2 4.5 6.8 84.6 4.7 6 99.6-10.4 15.8 6.8 3.2 74.5 Average Low 20 % High 20 % Net Farm Income Ratio Interest Expense Ratio Depreciation Expense Ratio Operating Expense Ratio
Conclusions about ratios Business trend lines are priceless Compare information for the last 5 years Compare farm data to peer groups How does the business stack up? What are your new strategies?
Managing in volatile times? How do you improve your bottom line? Conduct Variance Analysis (planned vs. actual) Position your balance sheet Manage 100 things 1% better each year Manage the operation to be on the right side of the financial divide
How do you survive the volatile ride ahead? Conduct sensitivity analysis cash flows Aspire to be a top half marketer by having a written marketing plan Form peer advisory groups Form strategic alliances Capture economies of scale, reducing costs, improving asset utilization
Looking forward to 2017 What is in store? Let s look at impact of price and yield variability on farm profit. Access Farm Profit Tool
Have a Great Year in 2017! MAKE SURE YOU ARE ON YOUR A GAME IN MANAGING YOUR OPERATION THIS YEAR!