Road Warrior

Perspectives on Farm Finance: Part 1

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The annual ABA National Agricultural Bankers Conference in Minneapolis in November was truly an outstanding educational venue for participants. Over 25 states, Canada, Mexico, and seven other countries outside the U.S. were represented, making this year’s conference truly international in scope.  I facilitated a number of sessions and was a general session speaker with Wells Fargo economist Mike Swanson. In between, I attended as many sessions as possible to gain insight and perspectives.  Two sessions that stand out in my mind were the pre-conference session sponsored by FINPACK and a session presented by Bob Craven, Director of the Center for Farm Financial Management at the University of Minnesota. This financial data and perspective may be valuable as you bring this year’s financial performance and economic data to a close.

Widening Gap of Profitability

Financial data was presented concerning median net farm income with a historical trend line going back to 1996. The rate of median income increase started accelerating in 2005 and median net farm income has now tripled since that time as the great commodity super cycle has been in full bloom. Data finds that the median net farm income was $56,850 in 2005 and is now approximately $170,000.

The low 20% of producers ranked by net farm income had stagnant median net farm income over the timeframe, and it was actually negative until 2010. In 2012, this group was scraping by with less than $20,000 annual median net farm income. How did these individuals stay in business? First, off-farm income may have been used in the recipe, followed by refinancing losses utilizing appreciated farmland values. What will happen when the farmland values start declining?

The most dramatic change in median net farm income involved the group in the top 20% of producers ranked by net farm income. Net median farm income did not vary much from 1996 to 2006, at less than $30,000 improvement; however, since 2007, farm incomes have tripled to nearly $600,000 annual median net income. Yes, the great commodity super cycle has kicked in with high prices; however, these individuals have developed a total system of management which includes operations, risk management, finance, and marketing. They are replicating the system to make large net incomes.

Next week I will have more perspectives on farm finances.

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on Dec 28, 2013

Setting your priorities straight could eventually make you feel that you could certainly get something from all the things that you do. - Charles Brennan

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What's Road Warrior?

Dave Kohl is an ag economist specializing in business management and ag finance. He can be reached at sullylab@vt.edu.

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