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November 1, 2009
KFMA Newsletters
at a later
date.
To meet the labor demands of farms … those
decisions through other employees; therefore
these … authority does not extend into other areas of the
operation …
April 26, 2017
Risk Management Strategies
simple formula and it is based other formulas that determined … forfeit
their wheat will have meet minimum wheat quality standards … or better, not mixed with other classes of wheat, no heat …
December 12, 2018
Grain Market Outlook
1
Monitoring the Convergence Performance of CME Soybean Futures
Joe Janzen1
(jjanzen@ksu.edu) – K‐State Department of Agricultural Economics
December 2018
In agricultural commodity markets, convergence occurs when the commodity’s futures price equals the
cash or spot price at a delivery location and delivery period specified by the commodity exchange.
Perfect convergence occurs when the basis (equal to the cash price minus futures price) equals zero.
Not long ago, wheat futures markets had convergence failures where the cash price was well below
the futures price during the delivery period. Farmers were understandably frustrated by this weakness
in basis.
Following the harvest of the 2018 soybean crop, soybean farmers face similarly poor basis. As of mid‐
November 2018, cash soybean prices in Kansas were around $1.00/bu below nearby futures and basis
was $0.10‐0.40/bu lower than previous years. While this weak basis, it is an improvement over basis
conditions seen earlier in fall 2018. Low cash prices are in large part the result of weak export demand
related to the current trade conflict with China and relatively large US soybean crop. These two factors
led the USDA to forecast US soybean ending stocks to more than double in the 2018/19 marketing year
relative to 2017/18.
Why would non‐convergence occur?
Basis non‐convergence has tended to occur when supplies are abundant and farmers, merchants, and
other commodity trading firms would rather store grain than sell. Since large supplies and abundant
stocks currently exist in the US soybean market, we should be concerned about the potential for non‐
convergence in the soybean futures market. Weak basis in non‐delivery locations like Kansas may be
driven in part by poor convergence performance at delivery locations.
As we have learned from the wheat market, non‐convergence occurs because of the incentive to hold
the commodity in the form of shipping certificates rather than physical grain. These shipping
certificates are issued as part of the futures delivery process and charge certificate holders a fixed
storage ‘premium’ as long as they are held. (In the soybean futures market, the premium is
approximately $0.05/bu/month.) These fixed storage premiums can bid up the futures price relative to
the cash price under certain conditions.
1 Joseph Janzen is an assistant professor in the Department of Agricultural Economics, Kansas State University. His research
interests include grain marketing, commodity futures markets, and agricultural finance.
Kansas State University Department Of Agricultural Economics Extension Publication …
June 17, 2015
Commodity Program Papers
decisions. In total, 231 meetings were conducted by Agricultural … base acres versus 85% in the other
programs, but also the sheer … communicated at educational meetings that the later 4 years of …
August 28, 2015
Financial Management
Executive Summary
Solvency ratios are normally used as an indicator of the long‐term viability of the farm business. Farms with
high leverage have a greater likelihood of going bankrupt. Bankruptcy occurs because a farm loses its equity.
However, for a farm to lose equity, it must generate negative profits, which might imply that highly leveraged farms
are earning less profit than those farms without debt. Thus it might be possible to predict future profitability based on
solvency ratios. This paper tests that hypothesis but finds a naïve model of looking at past profit to predict future
profits works the better than using solvency ratios.
Introduction
The Farm Financial Standards Council currently lists 21 ratios that can be used to evaluate a farm business.
Three of these ratios are solvency ratios. Solvency ratios assess the amount of debt capital used by a farm business
and help determine whether the business can meet long‐term obligations. Any business that uses debt capital incurs
an obligation to make principle and interest payments. If a business has too much debt, periods of low profitability
can lead to insufficient cash flow to cover the principle and interest. Thus, the use of debt increases the financial risk
of a farm business and the likelihood the farm business might become insolvent.
While solvency ratios are designed to measure a company’s financial health, can they also be used to predict
future profitability? Because debt capital introduces interest expense to a farm business, net farm income will be
lower compared to a farm with just equity capital (everything else being equal). Going forward though, future net
farm income might not always be lower for higher leveraged farms as these farms may have taken on more debt in
order to fund profitable segments of their business.
Another potential complication of using solvency ratios to predict future farm profitability is farmland
control. As land is the most valuable asset class on most crop farms, controlling that land is an important decision.
Few farms have enough of their own equity to supply all the land they need without either purchasing land with debt
capital or renting land. Farms that have taken on more debt to purchase land will need to rent less land than a similar
farm with lower debt levels and farming the same acreage base. The interest rate and the cash rental rate, determine
Kansas State University Department Of Agricultural Economics Extension Publication …
August 28, 2015
KFMA Research
Executive Summary
Solvency ratios are normally used as an indicator of the long‐term viability of the farm business. Farms with
high leverage have a greater likelihood of going bankrupt. Bankruptcy occurs because a farm loses its equity.
However, for a farm to lose equity, it must generate negative profits, which might imply that highly leveraged farms
are earning less profit than those farms without debt. Thus it might be possible to predict future profitability based on
solvency ratios. This paper tests that hypothesis but finds a naïve model of looking at past profit to predict future
profits works the better than using solvency ratios.
Introduction
The Farm Financial Standards Council currently lists 21 ratios that can be used to evaluate a farm business.
Three of these ratios are solvency ratios. Solvency ratios assess the amount of debt capital used by a farm business
and help determine whether the business can meet long‐term obligations. Any business that uses debt capital incurs
an obligation to make principle and interest payments. If a business has too much debt, periods of low profitability
can lead to insufficient cash flow to cover the principle and interest. Thus, the use of debt increases the financial risk
of a farm business and the likelihood the farm business might become insolvent.
While solvency ratios are designed to measure a company’s financial health, can they also be used to predict
future profitability? Because debt capital introduces interest expense to a farm business, net farm income will be
lower compared to a farm with just equity capital (everything else being equal). Going forward though, future net
farm income might not always be lower for higher leveraged farms as these farms may have taken on more debt in
order to fund profitable segments of their business.
Another potential complication of using solvency ratios to predict future farm profitability is farmland
control. As land is the most valuable asset class on most crop farms, controlling that land is an important decision.
Few farms have enough of their own equity to supply all the land they need without either purchasing land with debt
capital or renting land. Farms that have taken on more debt to purchase land will need to rent less land than a similar
farm with lower debt levels and farming the same acreage base. The interest rate and the cash rental rate, determine
Kansas State University Department Of Agricultural Economics Extension Publication …
October 20, 2016
Grain Market Outlook
e projected for “current” MY 2016/17. The “large crop‐over supply‐low price” situation that now
exists in World and U.S. wheat markets continues to have a strong prevailing negative influence on World
wheat prices.
However, the broader large crop‐over supply‐low price” situation in the World wheat market may be
“masking” or “obscuring” at least a couple of other important market issues. …
December 30, 2016
Grain Market Outlook
and 34.1%
ending stocks‐to‐use projected for “current” MY 2016/17. The “large crop‐over supply” situation that now
exists in World and U.S. wheat markets continues to have a strong prevailing negative influence on U.S. and
World wheat prices.
However, the broader large crop‐over supply‐low price” situation in the World wheat market may be “hiding”
at least a couple of other important market issues. …
May 8, 2020
Ag Law Issues
in price manipulation and other
practices deemed unfair … fruits, and groceries and many other commodities
not related … from using
or permitting others to use their distribution …
April 19, 2018
Agribusiness Papers
its income similar to any
other taxable corporation except … costs of goods sold and other expenses associated with … operating in any
structure other than a C-corporation receive …