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August 9, 2012
ERS 2011 ($/cow): Value of Production LESS Operating Costs
Data …
December 1, 2016
KFMA Research
3
cropping mixture, fertility program, farming practices, and operation structure), rather than luck, are leading to the
difference between the financial states.
Data and Methods
Persistence was tested on nearly 1,300 KFMA farmer‐members using panel data from 1993 through 2014.
Five different categories were created to categorize farms into different levels of financial stability. Farms were then
categorized by different threshold values for the variables: Debt to Asset (D/A) ratio and Net Farm Income by Acre.
Debt to asset ratios have often been used when determining the viability of a loan applicant, therefore, it became one
of the key determining factors used to categorize farms into different financial categories. A D/A of 0.4 or lower was
deemed to be a necessary level where a farm was financially favorable. The second break point was if the farm had a
positive net farm income per acre (NFI/AC) or a negative NFI/AC. Due to the nature of farming a positive income is not
always possible, but a farm that is able to maintain breakeven production costs shows management skills and an
ability to properly control for price risk.
Break points, loosely based upon the USDA Economic Research Service financial vulnerability definition, were
used and each farm was assigned to a category for each year that their data were available in the KFMA data set.
Once farm observations not meeting the inclusion criteria were omitted, 28,294 observations remained for further
analysis. Outliers were farms that had D/A above 1 or were negative, an impossible scenario that may indicate a
corrupt entry. Category 1 farms were farms considered to be financially favorable with a positive NFI/AC and a D/A
ratio greater than the lending industry standard of 0.4. These farms were designated as favorable because of their
profitability and their solvent nature. Category 2 farms were farms with a negative NFI/AC, but were not highly
leveraged with a D/A below 0.4 and were called Marginal Income. Category 3 was similar to Category 1 except these
farms had a positive NFI/AC and were considered highly leveraged and lacking the preferred solvency, hence the term
Marginal Solvency. It should be noted that Category 3 and Category 4 were not ordinal but could be considered
equivalent when attempting to rank across categories. However, Category 4 was the poorest rating, including farms
that were highly leveraged with a D/A above 0.4 and negative NFI/AC giving them the designation of Vulnerable. The
Kansas State University Department Of Agricultural Economics Extension Publication …
August 1, 2017
Breakout Sessions
capacity, efficiency, and productivity. Beth
teaches grain and …
August 30, 2017
Crop Insurance Papers
2
The indemnity is calculated as the margin loss times the Protection Factor. The Protection Factor
ranges in value from 0.80 to 1.20, meaning that the margin loss can be scaled up or down by as much
as 20% to calculate the final indemnity amount. The Protection Factor may be familiar to some as a
feature also available with other county‐based insurance products such as Area Risk Protection
Insurance (ARPI).
The county yields used for MP coverage are the same ones used in the ARPI insurance plans. An
Expected County Yield will be announced prior to sign‐up for purposes of calculating the expected
revenues and related parameters. The Final County Yield, used to calculate harvest revenue, is usually
not announced by USDA until early the following year, so loss determination for MP will be somewhat
delayed, compared to individual crop insurance plans.
The Expected County Yield is also used to determine input quantities. Formulas have been developed
to estimate input use as a function of yield for several inputs: diesel, urea, diammonium phosphate
(DAP), potash, and interest. Urea, DAP, and potash represent the familiar macro nutrients of N, P, and
K found in many fertilizer formulations. Table 1 shows the formulas and parameter values used to
calculate input amounts. For example, consider a non‐irrigated corn yield of 140 bu/a. Plugging this
value into the formulas results in the following input quantities: 8.1 gallons of diesel, 252.6 lbs of urea,
106.5 lbs of DAP, and 58.3 lbs of potash on a per‐acre basis. These quantities are combined with the
average futures prices of these inputs during the price discovery period to calculate this part of
expected costs.
The second component of expected costs is a fixed amount that covers all other inputs not subject to
changing prices. This component includes costs like seed, herbicides and other chemicals, machinery,
lubrication, etc. For corn in 2018, this amount is set at $206.90/acre, and for soybeans it is
$111.50/acre. These amounts are the same for all counties and practices, and they are not subject to
change during the later Harvest Price discovery period.
Interest is the third component of expected costs. Interest is calculated as 6% + the 30‐day Fed Funds
rate, applied to all the other operating costs mentioned earlier, and assumed to be outstanding for 6
months. Tables 2 and 3 show examples of expected cost calculations for corn and soybeans,
respectively.
Table 4 shows the sources of the input prices used to calculate costs, as well as the price discovery
periods. The diesel price is based on the May diesel contract at the New York Mercantile Exchange,
urea and DAP prices are based on May futures swaps contracts at the Chicago Mercantile Exchange,
and the potash price is based on cash prices reported by USDA’s Agricultural Marketing Service for
central Illinois. The interest rate is based on the CME 30‐day Fed Funds November contract.
Table 4 also shows similar information for the corn and soybean prices. The crop prices are based on
the same futures contracts used in the traditional Revenue Protection (RP) and Yield Protection (YP)
Kansas State University Department Of Agricultural Economics Extension Publication …
February 12, 2018
Farm Machinery Papers
November 1, 2009
Beef Cattle
www.agmanager.info/livestock/budgets/production/. Overall, this research …
November 10, 2016
2016 Crop Insurance Workshop Presentations
Factors
Cattle Inventory and Beef Production
Beef Demand
International …
October 1, 2018
2018 Ag Lenders Conference Presentations
period with cost of crop production
Economic comparison of …
August 1, 2019
Breakout Sessions
Kansas
Non-Irrigated Cost of Production per Acre
Year Corn Soybean …
September 14, 2020
Ag Law Issues
action to limit or stop odor
production. The SCOTUS declined further …