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December 1, 2015
KFMA Newsletters
3
can’t prove it statistically, it would appear to me that the financial health of the average KFMA Association farm is
certainly in one of the strongest positions financially ‐ if not the strongest financial position ‐ in the 84 year history of the
Association program. I might also add that during this time period we have had some favorable income tax laws, in
particular rapid depreciation methods such as Sec 179, and bonus depreciation that has encouraged reinvestment in the
farm business and the deferment of the tax liability to some future years.
As we turn our attention to the 2014 KFMA SC data on 208 farms, and compare them to prior year’s data, there are
certainly concerns regarding some of the numbers. Accrual net farm income was $52,996, which is the lowest figure
since 2005. Nearly the entire drop in net farm income from 2013 to 2014 was attributed to a drop in gross farm income.
Total farm expense in 2013 was $458,045 compared to $455,611 in 2014. Debt per crop acre was $298 at the end of
2014 compared to $199 at the end of 2008. (Bill Collins, a retired KFMA SC Economist, used to say that farms acquire
debt in good years and pay them off in bad years. This appears to be the case once again.) Working capital dropped
from 2013 when it was $311,546 to $237,324 in 2014. As of this writing, the cash price for 2015 crops look something
like this: wheat $4.23, corn $3.56, beans $7.87 and milo $3.14. By my cost estimates (including a land charge and
machinery depreciation), and using average yields, all of these prices are below the cost of production. I recognize that
cattle prices remain high. However, the cattle influence on the average KFMA SC farm is minimal compared to grain
farming. Given the context of this price environment these 2014 numbers are of concern.
This brings me to a topic that is not focused on enough, but one I want you to become more familiar with. The term is
capital debt repayment capacity, or to use the term I have used for many years simply, debt servicing ability. How much
capacity does your farm have to service debt? Every business has a limit on how much debt can be serviced without
impairing the production efficiency of the business, or worse the financial capability of sustaining itself long term. This
repayment capacity might be defined as:
=Net Farm Income + Depreciation + Non‐Farm Income – Family Living Expense + Interest on Term Debt
You can easily calculate this for any year by looking back at past years income tax returns by specifically looking at
Schedule F. (I realize that your tax return is not accrual adjusted so looking at your profit link analysis would be a better
source.) Supplement that with Non Schedule F income, and your family living expense, and you basically have identified
the repayment capacity of your farm as it was during those past years. Looking ahead will require some adjustments;
however, as profitability going forward will not be as strong as prior years as we have already outlined. Preparing a cash
flow for the coming year will give you a better idea as to the current repayment capacity of the farm. In regards to a
family living expense number, of the 64 southcentral Kansas families that provided family living records in 2014 their
average family living expense was $71,380, before income tax.
Once you have identified your repayment capacity, make a schedule of all your principal and interest payments due in
2015. Better yet, make a schedule of your principal and interest payments for the next five years given your total
liabilities. Does your farm have enough repayment capacity to make those payments in the years ahead? Is there any
margin left to acquire new debt and add to the debt service you already have? In my opinion you need to know these
answers before you should even begin to shop for additional machinery. If you are already upside down in regards to
your debt service payments relative to your repayment capacity you need to first identify how many years this problem
persists. As an example, if your debt payments go down significantly in 2017 and come in line with capacity, how do you
survive 2015 and 2016? Do you have enough working capital to make up the difference? If not you may need to
restructure debt using land collateral to stretch out payments over 15 years instead of the 5 years the equipment
company or bank has given you.
An example of this would be a $500,000 machinery note amortized over 5 years at 3% has an annual payment of
$109,177. Compare this to a $500,000 land note with an interest rate of 5% over 15 years with an annual payment of
http://www.agmanager.info/kfma/ November 2015 E‐newsletter …
September 15, 2016
KFMA Newsletters
please go to the following link on the K-State Human Capital … Bureau, Manhattan. Use this link for more information.
… Center in Manhattan. Use this link for more information.
…
January 19, 2016
Risk Management Strategies
operational on Agmanager.info.
Links to ARC Payment Maps: Kansas … http://www.agmanager.info/policy/commodity/maps/Kansas_Wheat.asp
Links to ARC Payment Maps: National … states. Once you click on the link and bring up the map, users …
August 25, 2022
RELATIONSHIPAnnual, Retail Weight, Deflated All Fresh Retail Price
Data Source: Bureau of Economic Analysis & USDA‐ERS, Compiled by LMIC
Livestock Marketing Information Center
Beef Demand Resources
See AgManager.info https://www.agmanager.info/livestock‐meat/meat‐demand
See AgManager.info
Meat Demand Research Studies
(links to Articles & Exec. Summaries)
“Impact of New Plant‐Based Protein Alternatives on U.S. Beef Demand”
“USDA ERS Meat Price Spread Data Product Review”
“Assessing Beef Demand Determinants”
….
See AgManager.info
Monthly Domestic Meat Demand Indices
[USDA/BLS Data]
Broad barometer based on per‐capita disappearance & ERS/BLS retail $
5‐6 week lag: August 9th …
August 22, 2022
December 2020 Long‐Term Outlook; Text box points added by Tonsor
2013 Cargill Closed Plainview, TX Plant (~4,500 hd/day)
Plainview is 75 miles South of Amarillo…
ONGOING EVOLUTION….
More information available at:
This presentation will be available in PDF format at:
http://www.agmanager.info/about/contributors/individual/tonsor.asp
Host of additional industry resources are cross‐linked as well
12 …
2015
using the correct functions, linking between sheets, using absolute … using the correct functions, linking between sheets, using absolute …
July 5, 2017
Risk Management Strategies
2 Office of Management and Budget “Major Savings and Reforms”, BUDGET OF THE U. S. GOVERNMENT, Fiscal Year
2018, U.S. GOVERNMENT PUBLISHING OFFICE, WASHINGTON 2017. The link is:
https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/budget/fy2018/msar.pdf
3Source … purchases for all
states. The link is at: http://www.agmanager.info/crop-insurance/crop-insurance-papers/acres-
reach-40k-cap-state-and-year …
November 5, 2015
Risk Management Strategies
workshop, click on the following link to the
program’s agenda … please click the following link:
https://www.regonline.com/Register/Checkin.aspx?EventID=1742657 …
March 4, 2014
Risk Management Strategies
register, you will be sent the link for the recording and the … http://www.agmanager.info/events/Webinars/default.asp
The link for the registration page …